<PAGE>
UNITED STATES
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 1934
For the quarterly period ended June 30, 1996.
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-14012
EMERITUS CORPORATION
(Exact name of registrant as specified in its charter)
FOR THE QUARTER ENDED JUNE 30, 1996
WASHINGTON 91-1605464
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3131 Elliott Avenue, Suite 500
Seattle, WA 98121
(Address of principal executive offices)
(206) 298-2909
(Registrant's telephone number, including area code)
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 ( ) No
As of August 14, 1996, there were 11,000,000 shares of the
Registrant's Common Stock, par value $.0001, outstanding.
<PAGE>
EMERITUS CORPORATION
Index
Part I. Financial Information
Item 1. Financial Statements: Page No.
Condensed Consolidated Balance Sheets as of
December 31, 1995 and June 30, 1996............. 1
Condensed Consolidated Statements of Operations
for the Three and Six Months Ended June 30,
1995 and 1996................................... 2
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended June 30,
1995 and 1996................................... 3
Notes to Condensed Consolidated Financial
Statements...................................... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations... 8
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security
Holders......................................... 19
Item 5. Other Information............................... 20
Item 6. Exhibits and Reports on Form 8-K................ 21
Signatures...................................... 24
Note: Items 1-3 of Part II are omitted because they
are not applicable
<PAGE>
EMERITUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1995 and June 30, 1996
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
(unaudited)
------------ -----------
<S> <C> <C>
Current Assets:
Cash..................................................... $ 9,507 $ 16,086
Restricted cash.......................................... 1,025 1,158
Trade accounts receivable................................ 212 1,279
Prepaid expenses and other current assets................ 1,835 4,787
------------ -----------
Total current assets............................. 12,579 23,310
------------ -----------
Property and equipment, net................................ 81,041 84,806
Property held for development.............................. 14,111 6,005
Investment securities available for sale................... 2,825 3,062
Notes receivable from and investments in affiliates........ 644 2,258
Other assets, net.......................................... 4,435 16,175
------------ -----------
Total assets..................................... $115,635 $135,616
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings.................................... $ 520 $ 1,251
Current portion of long-term debt........................ 352 1,718
Accounts payable......................................... 4,249 2,630
Other current liabilities................................ 3,367 4,120
------------ -----------
Total current liabilities........................ 8,488 9,719
------------ -----------
Security deposits.......................................... 740 1,382
Other long-term liabilities................................ 242 2,896
Deferred gain on sale of communities....................... 2,227 9,847
Deferred income............................................ -- 1,118
Convertible debentures..................................... -- 32,000
Long-term debt, less current portion....................... 66,814 43,700
------------ -----------
Total liabilities................................ 78,511 100,662
------------ -----------
Minority interest.......................................... 2,229 2,208
Shareholders' Equity:
Preferred stock, $.0001 par value. Authorized 5,000,000
shares; no shares issued and outstanding................ -- --
Common stock, $.0001 par value. Authorized 40,000,000
shares; issued and outstanding 11,000,000 shares........ 1 1
Additional paid-in capital................................ 44,910 44,818
Unrealized gain on investment securities.................. 400 637
Accumulated deficit....................................... (10,416) (12,710)
------------ -----------
Total shareholders' equity....................... 34,895 32,746
------------ -----------
Total liabilities and shareholders' equity....... $115,635 $135,616
============ ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
and Management's Discussion and Analysis of Financial Condition
and Results of Operations.
1
<PAGE>
EMERITUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months and Six Months Ended June 30, 1995 and 1996
(unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
-------------------------- --------------------------
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Rent............................... $ 3,079 $14,678 $ 5,502 $25,892
Service fees....................... 341 1,378 631 2,681
------------ ------------ ------------ ------------
Total operating revenues... 3,420 16,056 6,133 28,573
------------ ------------ ------------ ------------
Expenses:
Community operations............... 2,538 10,790 4,455 19,601
General and administrative......... 848 1,402 1,169 2,382
Depreciation and amortization...... 480 509 749 1,418
Rent............................... 168 3,633 388 5,617
------------ ------------ ------------ ------------
Total operating expenses... 4,034 16,334 6,761 29,018
------------ ------------ ------------ ------------
Loss from operations....... (614) (278) (628) (445)
------------ ------------ ------------ ------------
Other income (expense):
Interest expense, net.............. (1,179) (433) (1,846) (1,537)
Other, net......................... (7) (108) 2 (121)
------------ ------------ ------------ ------------
Net other expense.......... (1,186) (541) (1,844) (1,658)
------------ ------------ ------------ ------------
Net loss................... $(1,800) $ (819) $(2,472) $(2,103)
============ ============ ============ ============
Net loss per share................... $ (0.16) $ (0.07) $ (0.22) $ (0.19)
============ ============ ============ ============
Pro Forma
Net loss (Note 2).................. $(1,678) $ (353) $(2,747) $(1,289)
============ ============ ============ ============
Net loss per share................. $ (0.15) $ (0.03) $ (0.25) $ (0.12)
============ ============ ============ ============
Weighted average number of common
and common equivalent shares
outstanding...................... 11,000 11,000 11,000 11,000
============ ============ ============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
and Management's Discussion and Analysis of Financial Condition
and Results of Operations.
2
<PAGE>
EMERITUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1995 and 1996
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net cash used in operating activities (including changes
in all operating assets and liabilities)................. $ (2,039) $ (2,148)
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment.................... (26,623) (29,887)
Acquisition of property held for development............. (4,232) (821)
Proceeds from sale of property and equipment............. -- 47,636
Advances to affiliates................................... (970) (1,614)
Acquisition of partnership interest...................... (250) --
Purchase of investment securities........................ (2,425) --
----------- -----------
Net cash provided by (used in) investing
activities..................................... (34,500) 15,314
----------- -----------
Cash flows from financing activities:
Increase in restricted cash.............................. (1,000) (4,755)
Deferred lease costs..................................... (256) (5,241)
Proceeds from short-term borrowings...................... 9,833 1,000
Proceeds from long-term borrowings....................... 33,211 12,856
Proceeds from convertible subordinated debentures........ -- 30,720
Repayment of borrowings.................................. (4,768) (41,075)
Other.................................................... 1,080 (92)
----------- -----------
Net cash provided by (used in) financing
activities..................................... 38,100 (6,587)
----------- -----------
Net increase in cash............................. 1,561 6,579
Cash at the beginning of the period........................ 220 9,507
----------- -----------
Cash at the end of the period.............................. $ 1,781 $ 16,086
=========== ===========
Supplemental disclosure of cash flow information -- cash
paid during the period for interest...................... $ 715 $ 1,702
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
and Management's Discussion and Analysis of Financial Condition
and Results of Operations.
3
<PAGE>
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited interim financial information furnished herein, in the
opinion of management, reflects all adjustments which are necessary to state
fairly the consolidated financial position, results of operations, and cash
flows of Emeritus Corporation, ("the Company") as of June 30, 1996 and for the
three and six month periods ended June 30, 1996 and 1995. The Company presumes
that users of the interim financial information herein have read or have access
to the Company's 1995 audited consolidated financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in Form 10-K filed March 29, 1996 by the Company under the Securities
Act of 1934 and that the adequacy of additional disclosure needed for a fair
presentation, except in regard to material contingencies, may be determined in
that context. Accordingly, footnote and other disclosures which would
substantially duplicate the disclosures contained in Form 10-K have been
omitted. The financial information herein is not necessarily representative of
a full year's operations.
2. Acquisitions
During the year ended December 31, 1995 and the six months ended June 30,
1996, the Company completed several acquisitions of assisted-living, independent
- -living and skilled nursing communities. These acquisitions have been accounted
for as purchases and, accordingly, the assets and liabilities of the acquired
communities were recorded at their estimated fair values at the dates of
acquisition. No goodwill was recorded with respect to any of the acquisitions.
The results of operations of the communities acquired have been included in the
Company's consolidated financial statements from the dates of the acquisitions.
4
<PAGE>
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
Total
Communities acquired Acquisition date purchase price
-------------------- ---------------- --------------
(in thousands)
<S> <C> <C>
Belmont Towers................... March 31, 1995 $10,000
Beneva Park Club................. June 30, 1995 4,594
Central Park Village............. June 30, 1995 8,477
College Park Club................ June 30, 1995 3,415
Park Club of Brandon............. June 30, 1995 4,219
Park Club of Ft Myers............ June 30, 1995 3,671
Park Club of Oakbridge........... June 30, 1995 4,799
Laurel Lake Estates.............. July 19, 1995 6,950
Other 1995 acquisitions.......... Various 8,860
Heritage Hills Retirement........ February 1, 1996 4,338
Lakewood Inn..................... March 1, 1996 2,800
Golden Park...................... April 25, 1996 2,100
Sunshine Manor................... May 15, 1996 3,842
--------------
$68,065
==============
</TABLE>
The foregoing purchases have generally been financed through borrowings.
In January 1996, the Company entered into a sale/leaseback transaction with
a health care Real Estate Investment Trust ("REIT"), pursuant to which the REIT
acquired Laurel Lake Estates and leased the community back to the Company with
an initial term of 12 years and three five-year renewal options.
In February 1996, the Company completed the acquisition of 11 long-term-
care facilities in North and South Carolina and entered into a sale/leaseback
transaction with a REIT, pursuant to which the REIT acquired 10 of the 11
Carolina Communities and leased such communities back to the Company with an
initial lease terms of 15 year and three five-year renewal options.
5
<PAGE>
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In March 1996, the Company entered into a sale/leaseback transaction with a
REIT, pursuant to which the REIT acquired seven communities (Beneva Park Club,
Central Park Village, College Park Club, Park Club of Brandon, Park Club of Ft
Myers, Park Club of Oakbridge and The Pines of Tewksbury) and leased such
communities back to the Company with an initial term of 11 years and four five-
year renewal options.
On April 1, 1996, the Company completed a lease financing transaction with
a REIT on an assisted-living community located in Federal Way, Washington. The
lease includes an initial lease term of 13 years, with four five-year renewal
options.
On April 2, 1996, the Company entered into a sale/leaseback transaction
with a REIT, pursuant to which the REIT acquired Rosewood Court and leased the
community back to the Company with an initial term of 15 years and three five-
year renewal options.
On April 16, 1996, the Company entered into a sale/leaseback transaction
with a REIT, pursuant to which the REIT acquired Lakewood Inn located in Coeur
d'Alene, Idaho and leased the community back to the Company. The lease financing
includes construction funding for a 62 unit assisted-living expansion project.
The community will be constructed and operated by the Company pursuant to an
operating lease and leasehold improvement agreement with the REIT.
On May 1, 1996, the Company completed a lease financing transaction with a
REIT on two assisted-living communities, Springtree and Barrington Place located
in Sunrise, Florida and LeCanto, Florida, respectively. The leases consist of
initial terms of 12 years, with four five-year renewal options.
The following summary, prepared on a pro forma basis, combines the results
of operations as if the acquisitions, lease financings and sale/leaseback
financings had been consummated as of January 1, 1995, after including the
impact of certain adjustments such as depreciation on assets acquired, interest
expense on acquisition financing and rent expense under leases entered into in
lease transactions. Pro forma net loss per share also gives effect to the
issuance of preferred stock on April 17, 1995, and subsequent conversion to
common stock and the completion of an initial public offering of the Company's
common stock on November 21, 1995 as if they had occurred on January 1, 1995.
6
<PAGE>
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------- ----------------------------
1995 1996 1995 1996
------------- ------------- ------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue.............. $14,903 $16,672 $29,942 $33,151
Net loss............. (1,678) (353) (2,747) (1,289)
Net loss per share... $ (0.15) $ (0.03) $ (0.25) $ (0.12)
</TABLE>
The unaudited pro forma results are not necessarily indicative of what
actually might have occurred if the acquisitions had been completed as of the
beginning of the periods presented. In addition, they are not intended to be a
projection of future results of operations and do not reflect any of the
synergies that might be achieved from combined operations.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Since it's organization in July 1993, the Company has achieved significant
growth in revenues, primarily due to the acquisition and operation of
residential communities. The Company believes that it is one of the largest
providers of assisted-living services in the United States. The Company's
revenues are derived primarily from rents and service fees charged to its
residents. For the six months ended June 30, 1995 and 1996, the Company
generated total operating revenues of $6.1 million and $28.6 million,
respectively. For the three months ended June 30, 1995 and 1996, the Company
generated total operating revenues of $3.4 million and $16.1 million,
respectively. As of June 30, 1996, the Company's cumulative net losses since
inception were $12.7 million and its total shareholders' equity was $32.7
million. For the six months ended June 30, 1995 and 1996, the Company generated
losses from operations of $628,000 and $445,000, respectively. For the three
months ended June 30, 1995 and 1996, the Company generated losses from
operations of $614,000 and $278,000, respectively.
The Company's operating strategy is to increase operating margins at each
acquired or newly developed community primarily by increasing occupancy levels,
encouraging residents to remain at the Company's communities longer by offering
them a range of service options, increasing revenues through modifications in
rate structures, where appropriate, and identifying opportunities to create
operating efficiencies and reduce costs. For each of its residential
communities, the Company seeks to achieve 100% occupancy with a waiting list of
potential residents.
As of August 14, 1996, the Company holds ownership, leasehold or
management interests in 49 residential communities (the "Operating Communities")
consisting of 4,139 units, located in 18 states. Three of the 49 communities
were newly developed by the Company in the first quarter of 1996 and one was
newly developed by the Company in the second quarter of 1996. Also, the Company
has agreements to purchase, letters of intent to purchase or letters of intent
to lease ("Pending Acquisitions") an additional 27 existing communities
representing approximately 2,386 units in 8 states which are expected to close
in the third and fourth quarter of 1996. In addition, the Company owns, has a
leasehold interest in or has acquired an option to purchase development sites
for 27 new assisted-living communities (the "Development Communities"). Twenty-
three of the Development Communities are currently under construction of which
9 are scheduled to open throughout the remainder of 1996. The Company leases 34
of its residential communities, typically from a financial institution such as a
REIT, owns 13 communities, manages one community and has a joint venture
interest in one community. Assuming completion of the Pending Acquisitions and
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Development Communities scheduled to open throughout the remainder of 1996, the
Company will own, lease or manage 85 properties in 20 states, containing an
aggregate of approximately 7,185 units. There can be no assurance, however,
that the Pending Acquisitions and Development Communities will be completed on
schedule and will not be affected by construction delays, the effects of
government regulation or other unforeseen factors.
When used in this discussion, the words "believes," "anticipates,"
"intends" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. See
"Factors Affecting Future Results and Regarding Forward-Looking Statements" in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect recent events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. The Company presumes that users of the interim financial
information herein have read or have access to the Company's 1995 audited
consolidated financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in Form 10-K filed March
29, 1996 by the Company under the Securities Act of 1934.
RECENT EVENTS
Subsequent to the end of the second quarter of 1996, the Company
refinanced two communities through sale/leaseback financing, completed lease
financing on five communities under development and completed a lease financing
transaction on an assisted-living community located in Idaho. See "Liquidity
and Capital Resources".
On July 1, 1996, the Company moved its executive offices to a new location
in Seattle, Washington where the Company leases approximately 22,000 square feet
of new space. The agreement includes a lease term of 10 years with two five-
year renewal options.
On July 26, 1996, the Company reached an agreement in principle to acquire
20% of the fully-diluted outstanding stock of Alert Care Corporation ("Alert"),
an Ontario, Canada based owner/operator of assisted-living communities. See
"Item 5: Other Information".
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items of
the Company's Condensed Consolidated Statements of Operations as a percentage of
total revenues and the percentage change of the dollar amounts from period to
period.
<TABLE>
<CAPTION>
Period to Period
Percentage Increase (Decrease)
Percentage of Revenues Three Months Six Months
Three Months Ended Six Months Ended Ended Ended
June 30, June 30, June 30, June 30,
--------------------- --------------------- ---------------- ----------------
1995 1996 1995 1996 1995-1996 1995-1996
--------- --------- --------- --------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.......................... 100.0 % 100.0 % 100.0 % 100.0 % 369.5 % 365.9 %
Expenses:
Community operations........... 74.2 67.2 72.6 68.6 325.1 340.0
General and administrative..... 24.8 8.7 19.1 8.3 65.3 103.8
Depreciation and amortization.. 14.0 3.2 12.2 5.0 6.0 89.3
Rent........................... 4.9 22.6 6.3 19.7 2062.5 1347.7
--------- --------- --------- --------- ---------------- ----------------
Total operating expenses... 117.9 101.7 110.2 101.6 304.9 329.2
--------- --------- --------- --------- ---------------- ----------------
Loss from operations....... (17.9) (1.7) (10.2) (1.6) (54.7) (29.1)
--------- --------- --------- --------- ---------------- ----------------
Other expense:
Interest expense, net.......... 34.5 2.7 30.1 5.4 (63.3) (16.7)
Other, net..................... 0.2 .7 -- .4 1442.9 (6150.0)
--------- --------- --------- --------- ---------------- ----------------
Net loss................... (52.6)% (5.1)% (40.3)% (7.4)% (54.5)% (14.9)%
========= ========= ========= ========= ================ ================
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
REVENUES. Total operating revenues for the six months ended June 30, 1996
were $28.6 million, representing a $22.4 million, or 365.9%, increase over
operating revenues of $6.1 million for the comparable period in 1995.
Substantially all of this increase resulted from the acquisition of 29
communities after June 30, 1995 compared to 11 at June 30, 1995.
COMMUNITY OPERATIONS. Expenses for community operations for the six months
ended June 30, 1996 were $19.6 million, representing a $15.1 million, or 340.0%,
increase over expenses for community operations of $4.5 million for the
comparable period in 1995, primarily due to the Company's acquisition of 29
communities after June 30, 1995 compared to 11 at June 30, 1995. As a
percentage of total operating revenues, expenses for community operations
decreased to 68.6% for the six months ended June 30, 1996, from 72.6% for the
comparable period in 1995.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
six months ended June 30, 1996 were $2.4 million, representing an increase of
$1.2 million, or 103.8%, from general and administrative expenses of $1.2
million for the comparable period in 1995. As a percentage of total operating
revenues, general and administrative expenses decreased to 8.3% for the six
months ended June 30, 1996, from 19.1% for the comparable period in 1995. The
decrease in general and administrative expenses as a percentage of total
operating revenues was due to increased efficiencies and increased levels of
total operating revenues for the six months ended June 30, 1996. The dollar
increase in general and administrative expenses was attributable to salaries,
related payroll taxes, and employee benefits relating to additional employment
associated with new business, increased accounting costs, higher travel and
other costs relating to the Company's acquisition and development program.
These increases are expected to continue through 1996 as the Company acquires
additional existing, and develops new communities.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the six
months ended June 30, 1996 was $1.4 million, or 5.0% of total operating
revenues, compared to $749,000 or 12.2% of total operating revenues, for the
comparable period in 1995. The dollar increase was primarily due to the
Company's acquisition of 10 communities after June 30, 1995. The percentage
decrease was due to refinancing through sale/leaseback transactions completed on
existing owned communities.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
RENT. Rent expense for the six months ended June 30, 1996 was $5.6
million, representing an increase of $5.2 million, or 1347.7%, from rent expense
of $388,000 for the comparable period in 1995. As a percentage of total
operating revenues, rent expense increased to 19.7% for the six months ended
June 30, 1996, from 6.3% for the comparable period in 1995. The dollar and
percentage increases were due to the Company entering into lease financing or
sale/leaseback transactions with respect to 30 out of 48 of its residential
communities as of June 30, 1996 compared to one out of 11 as of June 30, 1995.
INTEREST EXPENSE, NET. Interest expense, net, for the six months ended
June 30, 1996 was $1.5 million, compared to $1.8 million for the comparable
period in 1995, decreasing as a percentage of total operating revenues to 5.4%
for the six months ended June 30, 1996 from 30.1% for the comparable period in
1995. The dollar decrease was due to the repayment of existing mortgage debt
with convertible debenture proceeds and refinancing of mortgage indebtedness
through sale/leaseback transactions.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED June 30, 1995
REVENUES. Total operating revenues for the three months ended June 30,
1996 were $16.1 million, representing a $12.6 million, or 369.5%, increase over
operating revenues of $3.4 million for the comparable period in 1995.
Substantially all of this increase resulted from the acquisition of 29
communities after June 30, 1995 compared to 11 at June 30, 1995.
COMMUNITY OPERATIONS. Expenses for community operations for the three
months ended June 30, 1996 were $10.8 million, representing an $8.3 million, or
325.1%, increase over expenses for community operations of $2.5 million for the
comparable period in 1995, primarily due to the Company's acquisition of 29
communities after June 30, 1995 compared to 11 at June 30, 1995. As a percentage
of total operating revenues, expenses for community operations decreased to
67.2% for the three months ended June 30, 1996, from 74.2% for the comparable
period in 1995.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
three months ended June 30, 1996 were $1.4 million, representing an increase of
$ 554,000, or 65.3%, from general and administrative expenses of $848,000 for
the comparable period in 1995. As a percentage of total operating revenues,
general and administrative expenses decreased to 8.7% for the three months ended
June 30, 1996, from 24.8% for the comparable period in 1995. The decrease in
general and administrative expenses as a percentage of total operating revenues
was due to increased efficiencies and increased levels of total operating
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
revenues for the three months ended June 30, 1996. The dollar increase in
general and administrative expenses was attributable to salaries, related
payroll taxes, and employee benefits relating to additional employment
associated with new business, increased accounting costs, higher travel and
other costs relating to the Company's acquisition and development program.
These increases are expected to continue through 1996 as the Company acquires
additional existing, and develops new communities.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the three
months ended June 30, 1996 was $509,000, or 3.2% of total operating revenues,
compared to $480,000 or 14.0% of total operating revenues, for the comparable
period in 1995. The dollar increase was primarily due to the Company's
acquisition of 4 communities after June 30, 1995. The percentage decrease was
due to refinancing through sale/leaseback transactions completed on existing
owned communities.
RENT. Rent expense for the three months ended June 30, 1996 was $3.6
million, representing an increase of $3.5 million, or 2062.5%, from rent expense
of $168,000 for the comparable period in 1995. As a percentage of total
operating revenues, rent expense increased to 22.6% for the three months ended
June 30, 1996, from 4.9% for the comparable period in 1995. The dollar and
percentage increases were due to the Company entering into lease financing or
sale/leaseback transactions with respect to 30 out of 48 of its residential
communities as of June 30, 1996 compared to one out of 11 as of June 30, 1995.
As the Company enters into lease financing and sale/leaseback transactions, its
rent expense will continue to increase.
INTEREST EXPENSE, NET. Interest expense, net, for the three months ended
June 30, 1996 was $433,000, compared to $1.2 million for the comparable period
in 1995, decreasing as a percentage of total operating revenues to 2.7% for the
three months ended June 30, 1996 from 34.5% for the comparable period in 1995.
The dollar decrease was due to the repayment of existing mortgage debt with
convertible debenture proceeds and refinancing of mortgage indebtedness through
sale/leaseback transactions.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
STABILIZED, FULLY OPERATIONAL AND START-UP/REPOSITION COMMUNITIES COMPARISON
As of the June 30, 1996, the Company had 17 communities that it had
operated
as assisted-living communities for at least 12 months. These 17 communities
maintained average occupancy in excess of 90% during the 12 month period.
As compared to the three months ended December 31, 1995 (fourth quarter), second
quarter community operating margins (excluding management fees) increased from
27% to 35%, respectively. The increase in operating margins primarily resulted
from a 5% increase in revenue per resident day and a 6% decrease in operating
expenses between the respective periods. During the same periods, net income
for these 17 communities increased $625,000 from net loss of $342,000 to net
income of $283,000.
As of June 30, 1996, the Company had an ownership, leasehold or management
interest in 37 communities as fully operational assisted-living communities
and 11 communities as newly opened developments and/or communities with
significant ongoing repositioning and/or refurbishment. The following tables
set forth a comparison of fully operational and start-up/reposition communities
results of operations for the three months ended June 30, 1996.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1996
(In thousands, except per share information)
Fully Start-up/ Three
Operational Reposition Months Ended
Communities (1) Communities (2) Overhead June 30, 1996
---------------- ---------------- -------- -------------
<S> <C> <C> <C> <C>
Revenue................................ $14,979 $ 952 $ 125 $16,056
Community operating expense............ 9,841 949 -- 10,790
---------------- ---------------- -------- -------------
Community operating income.......... 5,138 3 -- 5,266
---------------- ---------------- -------- -------------
General and administrative............. -- -- 1,402 1,402
Depreciation and amortization.......... 306 124 79 509
Rent................................... 3,398 189 46 3,633
---------------- ---------------- -------- -------------
Operating income (loss)............. 1,434 (310) (1,402) (278)
---------------- ---------------- -------- -------------
Interest income (expense), net......... (414) (259) 240 (433)
Other income (expense)................. 26 (68) (66) (108)
---------------- ---------------- -------- -------------
Net income (loss)................... $ 1,046 $(637) $(1,228) $ (819)
================ ================ ======== =============
Net income (loss) per share............ $ 0.10 $(0.06) $ (0.11) $ (0.07)
================ ================ ======== =============
Weighted average common shares......... 11,000 11,000 11,000 11,000
================ ================ ======== =============
(1) Fully Operational communities are those that have been operated as
assisted-living (or the intended use) (37 out of 48 communities are included in
this category). Overhead has not been allocated to the communities included in
this column.
(2) Start-up/Reposition communities are those that have been newly developed
and operated by the Company and those communities that are currently being
repositioned to operate as assisted-living communities (11 out of 48
communities are included in this category). Overhead has not been allocated to
the communities in this column.
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1995 and 1996, net cash flow used in
operating activities was $ 2.0 million and $2.1 million, respectively. During
the six months ended June 30, 1996, the Company obtained $47.6 million in
proceeds from the sale of communities in sale/leaseback financing transactions
and repaid related mortgage indebtedness of $31.6 million as well as $9.5
million of unrelated mortgage indebtedness. The Company also incurred
additional long-term debt of $43.6 million and purchased additional property and
equipment and property held for development of $30.7 million. As a result of
these acquisition and financing transactions, the Company increased its cash
position by approximately $6.6 million. During the six months ended June 30,
1995, the Company used $30.9 million to acquire property and equipment and
property held for development and obtained $38.1 million in net cash provided by
financing activities including net proceeds from long and short-term borrowings.
As of June 30, 1996, the Company had working capital of $13.6 million compared
to a working capital of $4.1 million as of December 31, 1995.
The Company has been, and expects to continue to be, dependent on third-
party financing for its acquisition and development programs. There can be no
assurance that financing for the Company's acquisition and development programs
will be available to the Company on acceptable terms. Moreover, to the extent
the Company acquires communities that do not generate positive cash flow, the
Company may be required to seek additional capital or borrowings for working
capital and liquidity purposes.
On April 1, 1996, the Company completed a $5.5 million lease financing
transaction with a REIT on a 98 unit assisted-living community located in
Federal Way, Washington. The lease includes an initial lease term of 13 years,
with four five-year renewal options . Lease payments include base rent and
additional rent, including an annual percentage rent based on the community's
revenues.
On April 2, 1996, the Company refinanced approximately $3.1 million of its
mortgage indebtedness secured by a 69 unit assisted-living community located in
Fullerton, California through a sale/leaseback transaction with a REIT. The
lease includes an initial lease term of 15 years, with three five-year renewal
options . The lease payments include base rent and additional rent, including
an annual percentage rent payment based on the community's revenues and annual
increase in base rent based on the consumer price index.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
On April 5, 1996, the Company secured a $2.0 million revolving line of
credit with a regional financial institution. The line of credit is payable on
demand, but no later than April 30, 1997 and bears interest at one percent over
the lender's prime rate.
In April 1996, the Company completed a $2.9 million sale/leaseback
transaction on a 47 unit residential community located in Coeur d'Alene, Idaho.
The lease financing includes construction funding for a 62 unit assisted-living
expansion project. Additionally, the Company closed $17.3 million in lease
financing for a total of 240 assisted-living units in three to-be-constructed
communities located in Midland, Beaumont and Lubbock, Texas. All three
developments will contain 80 assisted-living units. Construction on all three
developments and the expansion project commenced in the second quarter of 1996.
The communities will be constructed and operated by the Company pursuant to an
operating lease and leasehold improvement agreement with a REIT.
On April 25, 1996, the Company purchased a 72 unit senior housing community
located in San Bernardino, California for $2.1 million. Prior to the purchase,
the community was operated as a congregate care facility. The Company plans to
reposition the community to operate as an assisted-living community. As part of
the repositioning process, the Company will begin a physical plant refurbishment
of the community which is scheduled to commence during the fourth quarter of
1996.
On May 1, 1996, the Company completed an $18.4 million lease financing
transaction on two long-term-care communities located in Florida. Both
communities contain an aggregate of approximately 326 units, have been operated
as assisted-living communities and were acquired by the Company pursuant to
operating leases with a REIT. The leases consist of an initial terms of 12
years, with four five-year renewal options .
On May 3, 1996, the Company and The Standish Care Company terminated
discussions related to their previously announced agreement in principle to
merge. The parties were unable to agree on a final exchange ratio for the
proposed transaction.
On May 17, 1996, the Company acquired through foreclosure proceedings a 140
unit assisted-living community located in Clearwater, Florida for $3.5 million.
Refurbishment of the community is scheduled to commence in the third quarter of
1996.
On May 30, 1996, the Company completed $4.7 million in mortgage financing
for a 74 unit assisted-living to-be-constructed community located in Bozeman,
Montana. Construction commenced in the second quarter of 1996.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
On June 1, 1996, the Company opened one newly developed 80 unit assisted-
living community and one newly refurbished and repositioned 144 unit assisted-
living and retirement community. The newly developed community is located in
Walla Walla, Washington and the newly refurbished community is located in
Spokane, Washington. Subsequent to the opening of the Walla Walla community,
the Company refinanced approximately $5.3 million of its mortgage indebtedness
on July 23, 1996, through a sale/leaseback transaction with a REIT, which was
the original lender during the construction period. The lease consists of an
initial term of 10 years, with six five-year renewal options.
On June 21, 1996, the Company completed $5.9 million in financing for an 81
unit assisted-living to-be-constructed community located in Greenville, South
Carolina. Construction commenced in the second quarter of 1996. The community
will be constructed and operated by the Company pursuant to an operating lease
and leasehold improvement agreement with a REIT.
Subsequent to the end of the second quarter, on July 10, 1996, the Company
completed $7.4 million in lease financing for a total of 100 assisted-living
units in two to-be-constructed communities located in Amarillo, Texas and
Clarksville, Tennessee. Both developments will contain 50 assisted-living
units. Construction on the Amarillo development commenced in the second quarter
of 1996 and construction on the Clarksville development commenced in the third
quarter of 1996. The communities will be constructed and operated by the
Company pursuant to an operating lease and leasehold improvement agreement with
a REIT.
On August 1, 1996, the Company completed $9.3 million in lease financing
for a total of 208 assisted-living units in three to-be-constructed communities
located in Ocean Shores, Washington, Wichita Falls, Texas and San Angelo, Texas.
The two developments located in Texas and the one development located in
Washington will contain 79 and 50 assisted-living units, respectively.
Construction on all three developments commenced in the third quarter of 1996.
The communities will be constructed and operated by the Company pursuant to an
operating lease and leasehold improvement agreement with a REIT.
On August 1, 1996, the Company completed an $4.6 million lease financing
transaction on an assisted-living community located in Chubbuck, Idaho. The
community contains approximately 80 units and was acquired by the Company
pursuant to an operating lease with a REIT. The lease includes an initial term
of 11 years and 8 months, with four five-year renewal options.
On August 2, 1996, the Company refinanced approximately $2.1 million of its
mortgage indebtedness secured by an 88 unit assisted-living community located in
Grand Terrace, California through a sale/leaseback transaction with a REIT. The
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
lease includes an initial lease term of 11 years and 8 months, with four five-
year renewal options.
The Company currently estimates that existing financing commitments and
lease, sale/leaseback and mortgage financings and refinancings will be
sufficient to fund its acquisition and development program and its anticipated
operating losses for at least the next 12 months. In part, the Company's future
capital needs depend on arranging sale/leaseback financing for existing assisted
- -living communities that have achieved stabilized occupancy rates, resident mix
and operating margins after initial development or repositioning. There can be
no assurance that the Company will generate sufficient cash flow during such
time to fund its working capital, rent, debt service requirements or growth. In
such event, the Company would have to seek additional financing through debt or
equity offerings, bank borrowings, sale/leaseback transactions or other sources.
IMPACT OF INFLATION
To date, inflation has not had a significant impact on the Company.
Inflation could, however, affect the Company's future revenues and operating
income due to the Company's dependence on its senior resident population, most
of whom rely on relatively fixed incomes to pay for the Company's services. As
a result, the Company's ability to increase revenues in proportion to increased
operating expenses may be limited. The Company typically does not rely to a
significant extent on governmental reimbursement programs. In pricing its
services, the Company attempts to anticipate inflation levels, but there can be
no assurance that the Company will be able to respond to inflationary pressures
in the future.
18
<PAGE>
PART II OTHER INFORMATION
ITEMS 1-3 ARE NOT APPLICABLE.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on May 23, 1996. The
following summarizes all matters voted on at the meeting.
(a) To elect two directors into each of Class I, Class II and Class III of
the Company's Board of Directors:
<TABLE>
<CAPTION>
Votes Cast
Nominee For Against Withheld
---------------------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
(1) Class I
Patrick Carter 10,124,230 -- 3,960
Motoharu Iue 10,124,230 -- 3,960
(2) Class II
Tom A. Alberg 10,124,230 -- 3,960
Raymond R. Brandstrom 10,124,230 -- 3,960
(3) Class III
Daniel R. Baty 10,124,230 -- 3,960
William E. Colson 10,124,030 -- 4,160
(1) Term is for one year
(2) Term is for two years
(3) Term is for three years
</TABLE>
(b) To ratify the appointment of KPMG Peat Marwick LLP as the
Company's independent public accountants for the fiscal year 1996.
<TABLE>
<CAPTION>
For Against Abstain Non-votes
--- ------- ------- ---------
<S> <C> <C> <C>
10,121,400 2,835 3,955 --
</TABLE>
19
<PAGE>
ITEM 5: OTHER INFORMATION
On July 26, 1996 the Company reached an agreement in principle to acquire
20% of the fully-diluted outstanding stock of Alert Care Corporation ("Alert"),
an Ontario, Canada based owner/operator of assisted-living communities. The
transaction would involve the Company purchasing approximately 6.9 million newly
issued Preferred Shares of Alert at prices ranging from $0.67 (Cdn) to $0.74
(Cdn) per share for total proceeds of $5.0 million (Cdn). The Preferred Shares
will be convertible into Class A non-voting shares of Alert on a one-for-one
basis. The Company will also receive an option to acquire an additional 4
million Preferred Shares at an exercise price of $1 (Cdn) per share. On a fully
- -diluted basis, the exercise of this option would increase the Company's
ownership to approximately 31%. In addition, the Company will receive an option
to purchase an aggregate of 10 million common and Class A shares of Alert held
by Eclipse Capital Corporation ("Eclipse") (constituting approximately 50% of
the currently issued Alert common and class A shares and approximately 29% of
such shares on a fully-diluted basis). This option is at $3.25 (Cdn) per
share.
The transaction is subject to the negotiation and execution of definitive
binding agreements and the approval of the directors of Alert, the directors of
Eclipse and the directors of Emeritus. It is also subject to regulatory
approvals including those of the Alberta Stock Exchange. Certain matters in
connection with the transaction also require Alert shareholder approval and it
is expected that these matters will be considered at the Alert annual meeting
which is scheduled for October 17, 1996.
Alert is an owner/operator of assisted-living communities based in Ontario,
Canada. As a party to the transaction, Alert would enter into an exclusive
management agreement to manage the Company's assisted-living communities in
Ontario. Eclipse, through its wholly-owned subsidiary, Eclipse Construction
Inc., develops and constructs retirement homes for Alert on a contract basis.
Under the agreement, Eclipse would enter into an exclusive development agreement
with the Company and Alert to develop their construction projects in Ontario.
20
<PAGE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.1 Rosewood Court in Fullerton, California
10.1.1 Lease Agreement dated March 29, 1996 between
the registrant ("Lessee") and Health Care
Property Investors, Inc. ("Lessor").
10.1.2 First Amendment Lease Agreement dated as of
April 25, 1996 by and between the registrant
and Health Care Property Investors, Inc.
10.2 Development Properties in Beaumont, Texas, Midland,
Texas, Lubbock, Texas, Amarillo, Texas, Clarksville,
Tennessee, Wichita Falls in Wichita Falls, Texas and
San Angelo in San Angelo, Texas. The following
agreements are representative of those executed in
connection with these properties:
10.2.1 Lease Agreement dated April, July and August
1996 between ESC I, L.P.("Lessee") and
Meditrust Acquisition Corporation I ("Lessor").
10.2.2 Leasehold Improvement Agreement dated April,
July and August 1996 between Meditrust
Acquisition Corporation I ("Lessor") and ESC I,
L.P. ("Lessee").
10.3 Barrington Place in LeCanto, Florida and Springtree in
Sunrise, Florida. The following agreement is
representative of those executed in connection with
these properties:
10.3.1 Lease Agreement dated May 1, 1996 between
Emeritus Properties I, Inc. ("Lessee")and
Meditrust Acquisition Corporation I ("Lessor").
10.4 Golden Park in San Bernardino, California
10.4.1 Purchase and Sale Agreement dated January 24,
1996 between Western Biologics Inc.,("Seller"),
Nancy F. Feinstein and Jay L. Feinstein
("Seller") and the registrant("Purchaser").
21
<PAGE>
10.5 Lakewood Inn in Coeur d'Alene, Idaho, Evergreen Lodge
(formerly The Woodway Inn) in Federal Way, Washington,
Greenville in Greenville, South Carolina, Grand Terrace
in Grand Terrace, California, Ridge Wind in Chubbock,
Idaho and Ocean Shores in Ocean Shores, Washington.
The following agreement is representative of those
executed in connection with these properties:
10.5.1 Lease Agreement dated April, June and August
1996 between Emeritus Properties I Inc.
("Lessee") and Meditrust Acquisition
Corporation I ("Lessor").
10.6 Lakewood Inn in Coeur d'Alene, Idaho, Greenville in
Greenville, South Carolina and Ocean Shores in Ocean
Shores, Washington. The following agreement is
representative of those executed in connection with
these properties:
10.6.1 Leasehold Improvement Agreement dated April,
June and August 1996 between Meditrust
Acquisition Corporation I ("Lessor") and
Emeritus Properties I ("Lessee").
10.7 Development Property in Bozeman, Montana
10.7.1 Agreement to Purchase Construction Loan dated
May 30, 1996 between RMI Capital Management
Co.("Construction Lender") and the registrant.
10.7.2 Construction Loan Agreement between RMI
Capital Management Co. ("Lender")and Emeritus
Properties II, Inc. ("Borrower").
10.7.3 Promissory Note dated May 30, 1996 in the
amount of $4,695,000 between RMI Capital
Management Co. ("Holder") and Emeritus
Properties II, Inc. ("Maker").
10.7.4 Security Agreement dated May 30, 1996 between
Emeritus Properties II, Inc. ("Debtor")
and RMI Capital Management Co. ("Secured
Party").
10.7.5 Deed of Trust, Assignment of Rents, Security
Agreement and Financing Statement dated May
30, 1996 between Emeritus Properties II, Inc.
("Borrower" or "Grantor"), American Land Title
Company ("Trustee") and RMI Capital Management
Co.("Beneficiary" or "Lender").
22
<PAGE>
10.7.6 Guaranty Agreement dated May 30, 1996 between
the registrant ("Guarantor") and RMI Capital
Management Co. ("Lender").
10.8 Office Lease Agreement dated April 29, 1996 between
Martin Selig ("Lessor") and the registrant("Lessee").
11.1 Statement re computation of per share earnings.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
The Company filed Reports on Form 8-K/A Amendment No. 1 and Amendment No. 2
with the Securities and Exchange Commission on April 15, 1996 and April 16,
1996, respectively, which is incorporated herein by reference, reported under
Item 7, the Company's Financial Statements of Business Acquired and Pro Forma
Financial Information with respect to the acquisition of the Carolina
Communities.
The Company filed a Report on Form 8-K/A Amendment No. 1 with the
Securities and Exchange Commission on May 30, 1996, which is incorporated herein
by reference, reported under Item 2, the Company's sale/leaseback financing of
seven communities and two developments with Meditrust Acquisition Corporation I
and Item 7, the Company's Pro Forma Financial Information.
23
<PAGE>
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.
Dated: August 14, 1996
EMERITUS CORPORATION
(Registrant)
/s/ Kelly J. Price
-------------------------------------
Kelly J. Price, Chief Financial Officer
/s/ James S. Keller
-------------------------------------
James S. Keller, Controller and Director of Accounting
(Principal Accounting Officer)
24
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- --------- ------------------------------------------------------------------------------- --------------
<S> <C> <C>
10.1 Rosewood Court in Fullerton, California
10.1.1 Lease Agreement dated March 29, 1996 between the registrant ("Lessee")
and Health Care Property Investors, Inc. ("Lessor").
10.2.1 First Amendment Lease Agreement dated as of April 25, 1996 by
and between the registrant and Health Care Property Investor Inc.
10.2 Development Properties in Beaumont, Texas, Midland, Texas, Lubbock, Texas,
Amarillo, Texas, Clarksville, Tennessee, Wichita Falls in Wichita Falls, Texas
and San Angelo in San Angelo, Texas. The following agreements are
representative of those executed in connection with these properties:
10.2.1 Lease Agreement dated April, July and August 1996 between ESC I, L.P.
("Lessee") and Meditrust Acquisition Corporation I ("Lessor").
10.2.2 Leasehold Improvement Agreement dated April, July and August 1996
between Meditrust Acquisition Corporation I ("Lessor") and ESC I, L.P.
("Lessee").
10.3 Barrington Place in LeCanto, Florida and Springtree in Sunrise, Florida. The
following agreement is representative of those executed in connection with
these properties:
10.3.1 Lease Agreement dated May 1, 1996 between Emeritus Properties I, Inc.
("Lessee") and Meditrust Acquisition Corporation I ("Lessor").
10.4 Golden Park in San Bernardino, California
10.4.1 Purchase and Sale Agreement dated January 24, 1996 between Western
Biologics Inc., ("Seller"), Nancy F. Feinstein and Jay L. Feinstein
("Seller") and the registrant ("Purchaser").
10.5 Lakewood Inn in Coeur d'Alene, Idaho, Evergreen Lodge (formerly The Woodway
Inn) in Federal Way, Washington, Greenville in Greenville, South Carolina,
Grand Terrace in Grand Terrace, California, Ridge Wind in Chubbock, Idaho and
Ocean Shores in Ocean Shore, Washington. The following agreement is
representative of those executed in connection with these properties:
10.5.1 Lease Agreement dated April, June and August 1996 between Emeritus
Properties I, Inc. ("Lessee") and Meditrust Acquisition Corporation I
("Lessor").
25
<PAGE>
10.6 Lakewood Inn in Coeur d'Alene, Idaho, Greenville in Greenville, South Carolina
and Ocean Shores in Ocean Shores, Washington. The following agreement is
representative of those executed in connection with these properties:
10.6.1 Leasehold Improvement Agreement dated April, June and August 1996
between Meditrust Acquisition Corporation I ("Lessor") and Emeritus
Properties I ("Lessee").
10.7 Development Property in Bozeman, Montana
10.7.1 Agreement to Purchase Construction Loan dated May 30, 1996 between RMI
Capital Management Co. ("Construction Lender") and the registrant.
10.7.2 Construction Loan Agreement between RMI Capital Management Co.
("Lender") and Emeritus Properties II, Inc. ("Borrower").
10.7.3 Promissory Note dated May 30, 1996 in the amount of $4,695,000
between RMI Capital Management Co. ("Holder") and Emeritus Properties
II, Inc. ("Maker").
10.7.4 Security Agreement dated May 30, 1996 between Emeritus Properties II,
Inc. ("Debtor") and RMI Capital Management Co.("Secured Party").
10.7.5 Deed of Trust, Assignment of Rents, Security Agreement and Financing
Statement dated May 30, 1996 between Emeritus Properties II, Inc.
("Borrower" or "Grantor"), American Land Title Company ("Trustee") and
RMI Capital Management Co.("Beneficiary" or "Lender").
10.7.6 Guaranty Agreement dated May 30, 1996 between the registrant
("Guarantor") and RMI Capital Management Co. ("Lender").
10.8 Office Lease Agreement dated April 29, 1996 between Martin Selig ("Lessor") and
the registrant ("Lessee").
11.1 Statement re computation of per share earnings.
27.1 Financial Data Schedule.
</TABLE>
26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
L E A S E
(Rosewood Court Facility)
HEALTH CARE PROPERTY INVESTORS, INC.
Lessor
AND
EMERITUS CORPORATION
Lessee
Dated as of March 29, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
LEASE
THIS LEASE ("Lease") is dated as of the 29th day of March, 1996, and is
between HEALTH CARE PROPERTY INVESTORS, INC., a Maryland corporation ("Lessor")
and EMERITUS CORPORATION, a Washington corporation ("Lessee").
ARTICLE I.
1. LEASED PROPERTY; TERM
Upon and subject to the terms and conditions hereinafter set forth,
Lessor leases to Lessee and Lessee leases from Lessor all of Lessor's rights and
interest in and to the following (collectively the "Leased Property"):
(a) the real property described in Exhibit A attached hereto
(collectively, the "Land");
(b) all buildings, structures, Fixtures and other improvements of
every kind now or hereafter located on the Land including, alleyways and
connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site
and off-site to the extent Lessor has obtained any interest in the same),
parking areas and roadways appurtenant to such buildings and structures and
Capital Additions funded by Lessor (collectively, the "Leased
Improvements");
(c) all easements, rights and appurtenances relating to the Land and
the Leased Improvements (collectively, the "Related Rights");
(d) all equipment, machinery, fixtures, and other items of real
and/or personal property, including all components thereof, now and
hereafter located in, on or used in connection with and permanently affixed
to or incorporated into the Leased Improvements, including all furnaces,
boilers, heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution control,
waste disposal, air-cooling and air-conditioning systems, apparatus,
sprinkler systems, fire and theft protection equipment, and built-in oxygen
and vacuum systems, all of which, to the greatest extent permitted by law,
are hereby deemed to constitute real estate, together with all
replacements, modifications, alterations and additions thereto
(collectively, the "Fixtures"); and
(e) the machinery, equipment, furniture and other personal property
described on Exhibit B attached hereto, together with all replacements and
substitutes therefor, (collectively, "Lessor's Personal Property").
1
<PAGE>
SUBJECT, HOWEVER, to the easements, encumbrances, covenants,
conditions and restrictions and other matters which affect the Leased Property
as of the date hereof or the Commencement Date or created thereafter as
permitted hereunder to have and to hold for a fixed term (the "Fixed Term")
commencing on the Commencement Date, as defined below, and ending at 11:59 p.m.
Los Angeles time on January 31, 2011, and the three (3) Extended Terms provided
for in Article XIX unless this Lease is earlier terminated as hereinafter
provided. Promptly after the Commencement Date, the parties shall execute an
amendment to this Lease in substantially the form attached hereto as Exhibit C
to confirm certain matters; notwithstanding the foregoing, the failure of Lessee
to so execute and deliver such amendment shall not affect Lessor's determination
of any such matters.
ARTICLE II.
2. DEFINITIONS. For all purposes of this Lease, except as otherwise
expressly provided or unless the context otherwise requires, (i) the terms used
in this Lease and defined in this Article have the meanings assigned to them in
this Article and include the plural as well as the singular; (ii) all accounting
terms not otherwise defined herein have the meanings assigned to them in
accordance with GAAP as at the time applicable; (iii) all references in this
Lease to designated "Articles," "Sections" and other subdivisions are to the
designated Articles, Sections and other subdivisions of this Lease; (iv) the
word "including" shall have the same meaning as the phrase "including, without
limitation," and other similar phrases; and (v) the words "herein," "hereof" and
"hereunder" and other similar words refer to this Lease as a whole and not to
any particular Article, Section or other subdivision:
ADDED VALUE PERCENTAGE: As defined in Section 10.4.
ADDITIONAL CHARGES: As defined in Article III.
ADDITIONAL RENT: As defined in Article III.
AFFILIATE: Any Person which, directly or indirectly, controls or
is controlled by or is under common control with any other Person. For purposes
of this definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
through the ownership of voting securities, partnership interests or other
equity interests. When used with respect to any corporation, the term
"Affiliate" shall also include any Person which owns, directly or indirectly,
fifty percent (50%) or more of any class of security of such corporation, but
shall exclude any affiliates of Daniel R. Baty which but for their relationship
with Daniel R. Baty would not be considered affiliates of Lessee.
APPRAISER: As defined in Article XXXIV.
2
<PAGE>
APPRECIATION AMOUNT: The amount, if any, by which the Fair Market
Value exceeds the Minimum Repurchase Price of the Seven Properties in the
aggregate as of the Outside Closing Date.
ASSIGNMENT AGREEMENT: The Assignment Agreement, dated as of January
26, 1996, by and between Lessor, HCPI Trust, Lessee and Heritage Hills relating
to the acquisition by Lessor of the Countryside Property, Heritage Health Center
Property, Heritage Lodge Property, Pine Park Property, Skylyn Property and the
Summit Place Property, each as defined therein.
AWARD: All compensation, sums or anything of value awarded, paid or
received on a total or partial Condemnation.
BASE GROSS REVENUES: The Gross Revenues for the second Lease Year.
BASE PERIOD: The period commencing on that date which is eighteen
(18) months prior to the date any appraisal of the Facility is made pursuant
to the provisions of Article XXXIV and ending on the date which is six (6)
months prior to the date any such appraisal of the Facility is made.
BLS: Bureau of Labor Statistics, U.S. Department of Labor.
BUSINESS DAY: Each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which national banks in the City of New York, New York are
authorized, or obligated, by law or executive order, to close.
CAPITAL ADDITIONS: One or more new buildings, or one or more
additional structures annexed to any portion of any of the Leased
Improvements, or the material expansion of existing improvements, which are
constructed on any parcel or portion of the Land, during the Term, including
construction of a new wing or new story, or the renovation of existing
improvements on the Leased Property in order to provide a functionally new
facility needed to provide services not previously offered.
CAPITAL ADDITION COSTS: The costs of any Capital Addition made to the
leased Property whether paid for by Lessee or Lessor, including (i) all permit
fees and other costs imposed by any governmental authority, the cost of site
preparation, the cost of construction including materials and labor, the cost of
supervision and related design, engineering and architectural services, the cost
of any fixtures, and if and to the extent approved by Lessor, the cost of
construction financing; (ii) fees paid to obtain necessary licenses and
certificates; (iii) the cost of any land contiguous to the Leased Property which
is to become a part of the Leased Property purchased for the purpose of placing
thereon the Capital Addition or any portion thereof or for providing means of
access thereto, or parking facilities therefor, including the cost of surveying
the same, but only to the extent approved by Lessor in
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writing and in advance if Lessor is funding such Capital Addition; (iv) the cost
of insurance, real estate taxes, water and sewage charges and other carrying
charges for such Capital Addition during construction; (v) the cost of title
insurance; (vi) reasonable fees and expenses of outside legal counsel; (vii)
filing, registration and recording taxes and fees; (viii) documentary stamp and
similar taxes; and (ix) all reasonable costs and expenses of Lessor and any
Person which has committed to finance the Capital Addition, including (a) the
reasonable fees and expenses of their respective outside legal counsel; (b)
printing expenses; (c) filing, registration and recording taxes and fees; (d)
documentary stamp and similar taxes; (e) title insurance charges and appraisal
fees; (f) rating agency fees; and (g) commitment fees charged by any Person
advancing or offering to advance any portion of the financing for such Capital
Addition.
CASH FLOW: The net income from the Facility, determined on the basis
of GAAP applied on a consistent basis, plus the sum of (i) depreciation and
amortization expense; (ii) Rent and other expenses payable hereunder, excluding,
however, Impositions; plus (iii) management fees; less the sum of (y) a
management fee allowance of five percent (5%) of Gross Revenues for the
corresponding period plus (z) an annual Two Hundred Dollar ($200) per unit
reserve, pro-rated for the corresponding period.
CASH FLOW COVERAGE: For any period, calculated as of the last day of
the period, the ratio of Cash Flow attributable to such period to total Rent
payable for such period under the Lease.
CLOSE OF ESCROW: As defined in Article XXXV.
CLOSING DATE: As defined in the Contract of Acquisition.
CODE: The Internal Revenue Code of 1986, as amended.
COMMENCEMENT DATE: The Closing Date.
CONDEMNATION: The exercise of any governmental power, whether by
legal proceedings or otherwise, by a Condemnor or a voluntary sale or transfer
by Lessor to any Condemnor, either under threat of reasonably imminent
condemnation or while legal proceedings for condemnation are pending.
CONDEMNOR: Any public or quasi-public authority, or private
corporation or individual, having the power of Condemnation.
CONSOLIDATED FINANCIALS: For any fiscal year or other accounting
period for Lessee and its consolidated Subsidiaries, statements of earnings and
retained earnings and of changes in financial position for such period and for
the period from the beginning of the respective fiscal year to the end of such
period and the related balance sheet as at the end of
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such period, together with the notes thereto, all in reasonable detail and
setting forth in comparative form the corresponding figures for the
corresponding period in the preceding fiscal year, and prepared in accordance
with GAAP.
CONSOLIDATED NET WORTH: At any time, the sum of the following for
Lessee and its consolidated Subsidiaries, on a consolidated basis determined in
accordance with GAAP:
(i) the amount of capital or stated capital (after
deducting the cost of any shares held in its treasury), plus
(ii) the amount of capital surplus and retained earnings
(or, in the case of a capital surplus or retained earnings deficit, minus
the amount of such deficit), minus
(iii) the sum of the following (without duplication of
deductions in respect of items already deducted in arriving at surplus and
retained earnings): (a) unamortized debt discount and expense; and (b) any
write-up in book value of assets resulting from a revaluation thereof
subsequent to the most recent Consolidated Financials prior to the date
hereof, excluding, however, any (i) net write-up in value of foreign
currency in accordance with GAAP, (ii) write-up resulting from a reversal
of a reserve for bad debts or depreciation, and (iii) write-up resulting
from a change in methods of accounting for inventory.
CONTRACT OF ACQUISITION: The Contract of Acquisition of even date
herewith by and between Lessor and Lessee relative to the acquisition by Lessor
of the Leased Property.
COST OF LIVING INDEX: The Consumer Price Index for All Urban
Consumers, U.S. City Average (1982-1984 = 100), published by the BLS, or such
other renamed index. If the BLS changes the publication frequency of the Cost
of Living Index so that a Cost of Living Index is not available to make a cost-
of-living adjustment as specified herein, the cost-of-living adjustment shall be
based on the percentage difference between the Cost of Living Index for the
closest preceding month for which a Cost of Living Index is available and the
Cost of Living Index for the comparison month as required by this Lease. If the
BLS changes the base reference period for the Cost of Living Index from 1982-84
= 100, the cost-of-living adjustment shall be determined with the use of such
conversion formula or table as may be published by the BLS. If the BLS
otherwise substantially revises, or ceases publication of the Cost of Living
Index, then a substitute index for determining cost-of-living adjustments,
issued by the BLS or by a reliable governmental or other nonpartisan
publication, shall be reasonably selected by Lessor and Lessee.
CPI RENT: An amount equal to the sum of (i) the product of (y) a
fraction, the numerator of which is the Cost of Living Index for the first month
of the Lease Year for
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which CPI Rent is being calculated minus the Cost of Living Index for the first
month of the preceding Lease Year, and the denominator of which is the Cost of
Living Index for the first month of the preceding Lease Year multiplied by (z)
the sum of the prior Lease Year's Minimum Rent and Additional Rent and (ii) the
prior Lease Year's CPI Rent; provided, however, that in no event will the
increase in CPI Rent from one Lease Year to the next be greater than one and
seventy-five one hundredths percent (1.75%) of the sum of the prior Lease
Year's (a) Minimum Rent and (b) Additional Rent or less than zero.
DATE OF TAKING: The date the Condemnor has the right to possession of
the property being condemned.
ENVIRONMENTAL COSTS: As defined in Article XXXVII.
ENVIRONMENTAL LAWS: Environmental Laws shall mean any and all federal,
state, municipal and local laws, statutes, ordinances, rules, regulations,
guidances, policies, orders, decrees, judgments, whether statutory or common
law, as amended from time to time, now or hereafter in effect, or promulgated,
pertaining to the environment, public health and safety and industrial hygiene,
including the use, generation, manufacture, production, storage, release,
discharge, disposal, handling, treatment, removal, decontamination, cleanup,
transportation or regulation of any Hazardous Substance, including the Clean Air
Act, the Clean Water Act, the Toxic Substances Control Act, the Comprehensive
Environmental Response Compensation and Liability Act, the Resource Conservation
and Recovery Act, the Federal Insecticide, Fungicide, Rodenticide Act, the Safe
Drinking Water Act and the Occupational Safety and Health Act.
ESCROW: As defined in Article XXXV.
ESCROW HOLDER: As defined in Articles XXXV.
EVENT OF DEFAULT: As defined in Article XVI.
EXTENDED TERM(s): As defined in Article XIX.
FACILITY: The 69 unit facility operated on the Leased Property
providing assisted living services and licensed as a residential care facility
for the elderly.
FACILITY MORTGAGE: As defined in Article XIII.
FACILITY MORTGAGEE: As defined in Article XIII.
FAIR MARKET ADDED VALUE: The Fair Market Value (as hereinafter
defined) of the Leased Property (including all Capital Additions) less the Fair
Market Value of the
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Leased Property determined as if no Capital Additions financed by Lessee had
been constructed.
FAIR MARKET RENTAL: The fair market rental value of the Leased
Property, or applicable portion thereof, based upon the Fair Market Value,
including any periodic increases therein, determined in accordance with the
appraisal procedures set forth in Article XXXIV.
FAIR MARKET VALUE: The fair market value of the Leased Property, and
all Capital Additions, determined in accordance with the appraisal procedures
set forth in Article XXXIV. Fair Market Value shall be the value obtained by
assuming that the Leased Property is encumbered by this Lease. Further, in
determining Fair Market Value the positive or negative effect on the value of
the Leased Property attributable to the interest rate, amortization schedule,
maturity date, prepayment penalty and other terms and conditions of any
encumbrance which will not be removed at or prior to the date as of which such
Fair Market Value determination is being made shall be taken into account. The
Leased Property shall be valued at its highest and best use which shall be
presumed to be as a fully-permitted Facility operated in accordance with the
provisions of this Lease. Without limiting the foregoing, the Leased Property
shall be valued as if the zoning laws and ordinances applicable thereto permit
use of the Leased Property in the manner in which it is presently used, not as a
nonconforming use or other use that imposes limitations on the ability to
restore the property, but as a use that satisfies all requirements of the
current zoning laws and ordinances. Fair market value of the Leased Property
shall not include "going concern" or "business enterprise" value attributable to
factors other than the highest and best use of the Leased Property. In
addition, except as provided in Section 16.9, the following specific matters
shall be factored in or out, as appropriate, in determining Fair Market Value:
(i) The negative value of (a) any deferred maintenance or
other items of repair or replacement of the Leased Property, (b) any then
current or prior licensure or certification violations and/or admissions
holds and (c) any other breach or failure of Lessee to perform or observe
its obligations hereunder shall NOT be taken into account; rather, the
Leased Property, and every part thereof, shall be deemed to be in the
condition required by this Lease (i.e., good order and repair) and Lessee
shall at all times be deemed to have operated the Facility in compliance
with and to have performed all obligations of the Lessee under this Lease.
(ii) The occupancy level of the Facility shall be deemed to be
the average occupancy during the Base Period.
(iii) If the Facility's Primary Intended Use includes a mixed
use, then the average of such mix during the Base Period shall be taken
into account.
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FIXED TERM: As defined in Article I.
FIXTURES: As defined in Article I.
GAAP: Generally accepted accounting principles.
GROSS REVENUES: All revenues received or receivable from or by reason
of the operation of the Facility or any other use of the Leased Property,
Lessee's Personal Property and all Capital Additions including all revenues
received or receivable for the use of or otherwise attributable to units, rooms,
beds and other facilities provided, meals served, services performed (including
ancillary services), space or facilities subleased or goods sold on or from the
Leased Property and all Capital Additions, including, and except as provided
below, any consideration received under any commercial (as opposed to resident
or patient) subletting, licensing or other arrangements with third parties (a
"Commercial Sublessee") relating to the possession or use of any portion of the
Leased Property and all Capital Additions; provided, however, that Gross
Revenues shall not include:
(i) non-operating revenues such as interest income or income
from the sale of assets not sold in the ordinary course of business;
(ii) federal, state or local excise taxes and any tax based
upon or measured by such revenues which is added to or made a part of the
amount billed to the patient or other recipient of such services or goods,
whether included in the billing or stated separately;
(iii) contractual allowances (relating to any period during the
Term of the Lease) for billings not paid by or received from the
appropriate governmental agencies or third party providers; and
(iv) all proper patient billing credits and adjustments
according to generally accepted accounting principles relating to health
care accounting.
Gross Revenues for each Lease Year shall reflect all cost report settlement
adjustments, whether positive or negative, received in or payable during such
Lease Year in accordance with GAAP relating to health care accounting,
regardless of the year that such settlement amounts are applicable to; provided,
however, that to the extent settlement amounts are applicable to years, or
portions thereof, prior to the Commencement Date, such settlement amounts shall
not be reflected in Gross Revenues for the Lease Year in which such settlement
amounts are received or paid. Gross Revenues shall include the Gross Revenues
of any Commercial Sublessee with respect to any applicable portion of the Leased
Property and/or any Capital Additions, I.E., the Gross Revenues generated from
the operations conducted on or from such portion shall be included directly in
the Gross
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Revenues and the rent received or receivable by Lessee from such Commercial
Sublessee shall be excluded from Gross Revenues for such purpose.
GUARANTOR: Any guarantor of Lessee's or an Affiliate of Lessee's
obligations to Lessor or an Affiliate of Lessor, in every case, whether such
guaranty is now or hereafter existing.
HANDLING: As defined in Article XXXVII.
HAZARDOUS SUBSTANCES: Collectively, any petroleum, petroleum product
or byproduct or any substance, material or waste regulated or listed pursuant to
any Environmental Law.
HCPI: Health Care Property Investors, Inc., a Maryland corporation.
HCPI TRUST: HCPI Trust, a Maryland real estate investment trust.
HERITAGE HILLS: Heritage Hills Retirement, Inc., a North Carolina
corporation
IMPOSITIONS: Collectively, all taxes, including capital stock,
franchise and other state taxes of Lessor (or, if Lessor is not HCPI, of HCPI as
a result of its investment in Lessor), ad valorem, sales, use, single business,
gross receipts, transaction privilege, rent or similar taxes; assessments
including assessments for public improvements or benefits, whether or not
commenced or completed prior to the date hereof and whether or not to be
completed within the Term; ground rents; water, sewer and other utility levies
and charges; excise tax levies; fees including license, permit, inspection,
authorization and similar fees; and all other governmental charges, in each case
whether general or special, ordinary or extraordinary, or foreseen or
unforeseen, of every character in respect of the Leased Property and/or the Rent
and all interest and penalties thereon attributable to any failure in payment by
Lessee which at any time prior to, during or in respect of the Term hereof may
be assessed or imposed on or in respect of or be a lien upon (i) Lessor or
Lessee's interest in the Leased Property, (ii) the Leased Property or any part
thereof or any rent therefrom or any estate, right, title or interest therein,
or (iii) any occupancy, operation, use or possession of, or sales from or
activity conducted on or in connection with the Leased Property or the leasing
or use of the Leased Property or any part thereof; provided, however, that
nothing contained in this Lease shall be construed to require Lessee to pay (a)
any tax based on net income (whether denominated as a franchise or capital stock
or other tax) imposed on Lessor or any other Person, (b) any transfer, or net
revenue tax of Lessor or any other Person except Lessee and its successors, (c)
any tax imposed with respect to the sale, exchange or other disposition by
Lessor of any Leased Property or the proceeds thereof, or (d) any principal or
interest on any indebtedness on the Leased Property owed to a Facility Mortgagee
for which Lessor is the obligor, except to the extent that any tax, assessment,
tax levy or charge, which is otherwise included in this definition, and a tax,
assessment, tax levy
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or charge set forth in clause (a) or (b) is levied, assessed or imposed in lieu
thereof or as a substitute therefor.
INCREMENTAL GROSS REVENUES: The amount by which the Gross Revenues for
the current Lease Year exceeds the Base Gross Revenues. The Incremental Gross
Revenues for any partial Lease Year shall be the amount by which the Gross
Revenues for such partial Lease Year exceeds the Base Gross Revenues for the
corresponding period of the second Lease Year.
INSURANCE REQUIREMENTS: The terms of any insurance policy required by
this Lease and all requirements of the issuer of any such policy and of any
insurance board, association, organization or company necessary for the
maintenance of any such policy.
INTANGIBLE PROPERTY: All accounts, proceeds of accounts, rents,
profits, income or revenues derived from the use of rooms or other space within
the Leased Property or the providing of services in or from the Leased Property;
documents, chattel paper, instruments, contract rights, deposit accounts,
general intangibles, causes of action, now owned or hereafter acquired by Lessee
(including any right to any refund of any Impositions) arising from or in
connection with Lessee's operation or use of the Leased Property; all licenses
and permits now owned or hereinafter acquired by Lessee, which are necessary or
desirable for Lessee's use of the Leased Property for its Primary Intended Use,
including, if applicable, any certificate of need or similar certificate; the
right to use any trade name or other name associated with the Facility; and any
and all third-party provider agreements (including Medicare and Medicaid).
LAND: As defined in Article I.
LEASE: As defined in the preamble.
LEASE YEAR: Each period of twelve (12) full calendar months from and
after the Commencement Date, unless the Commencement Date is a day other than
the first (1st) day of a calendar month, in which case the first (1st) Lease
Year shall be the period of twelve (12) full calendar months from and after the
first (1st) day of the first (1st) calendar month following the month in which
the Commencement Date occurs, and each subsequent Lease Year shall be the period
of twelve (12) full calendar months from and after the first (1st) day of the
first (1st) calendar month following the expiration of the prior Lease Year;
provided, however, that the last Lease Year during the Term may be a period of
less than twelve (12) full calendar months and shall end on the last day of the
Term.
LEASED IMPROVEMENTS; LEASED PROPERTY: Each as defined in Article I.
LEGAL REQUIREMENTS: All federal, state, county, municipal and other
governmental statutes, laws (including common law and Environmental Laws),
rules,
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policies, guidance, codes, orders, regulations, ordinances, permits, licenses,
covenants, conditions, restrictions, judgments, decrees and injunctions
affecting either the Leased Property, Lessee's Personal Property and all Capital
Additions or the construction, use or alteration thereof, whether now or
hereafter enacted and in force, including any which may (i) require repairs,
modifications or alterations in or to the Leased Property, Lessee's Personal
Property and all Capital Additions, (ii) in any way adversely affect the use and
enjoyment thereof, or (iii) regulate the transport, handling, use, storage or
disposal or require the cleanup or other treatment of any Hazardous Substance.
LESSEE: As defined in the preamble.
LESSEE'S PERSONAL PROPERTY: The Personal Property other than Lessor's
Personal Property.
LESSOR: As defined in the preamble.
LESSOR'S PERSONAL PROPERTY: As defined in Article I.
LESSOR'S SHARED APPRECIATION AMOUNT: Lessor's and its Affiliates'
share of the Appreciation Amount which shall be calculated as follows: (i)
first, Lessor and its Affiliates shall be allocated the first dollars of the
Appreciation Amount until such dollars together with all Minimum Rent and
Additional Rent paid or payable to Lessor and its Affiliates in the aggregate
under the Leases for the Seven Properties to the Outside Closing Date yield
Lessor and its Affiliates an annual internal rate of return on the Minimum
Repurchase Price of the Seven Properties in the aggregate equal to 12.70% and
(ii) second, Lessor and its Affiliates shall be allocated one-half of any
dollars remaining in the Appreciation Amount after subtracting the portion of
the Appreciation Amount allocated to Lessor and its Affiliates in clause (i)
above.
LETTER OF CREDIT DATE: As defined in Section 21.2.
MINIMUM RENT: As defined in Article III.
MINIMUM REPURCHASE PRICE: The purchase price of the Leased Property at
the time of acquisition of the Leased Property by Lessor plus any Capital
Addition Costs funded by Lessor.
OFFICER'S CERTIFICATE: A certificate of Lessee signed by an officer
authorized to so sign by its board of directors or by-laws.
OPENING DEPOSIT: As defined in Article XXXV.
OUTSIDE CLOSING DATE: As defined in Article XXXV.
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OVERDUE RATE: On any date, a rate equal to 2% above the Prime Rate,
but in no event greater than the maximum rate then permitted under applicable
law.
PAYMENT DATE: Any due date for the payment of the installments of
Minimum Rent, Additional Rent or any other sums payable under this Lease.
PERCENTAGE RENT: An amount equal to five percent (5%) of Incremental
Gross Revenues in the third Lease Year, eight percent (8%) of Incremental Gross
Revenues in the fourth Lease Year, and ten percent (10%) of Incremental Gross
Revenues in every Lease Year thereafter.
PERSON: Any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other form of entity.
PERSONAL PROPERTY: All machinery, furniture and equipment, including
phone systems and computers, trade fixtures, inventory, supplies and other
personal property used or useful in the use of the Leased Property for its
Primary Intended Use, other than Fixtures.
PRIMARY INTENDED USE: Assisted living facility and such other uses
necessary or incidental to such uses.
PRIME RATE: On any date, a rate equal to the annual rate on such date
announced by the Bank of New York to be its prime, base or reference rate for
90-day unsecured loans to its corporate borrowers of the highest credit standing
but in no event greater than the maximum rate then permitted under applicable
law. If the Bank of New York discontinues its use of such prime, base or
reference rate or ceases to exist, Lessor shall designate the prime, base or
reference rate of another state or federally chartered bank based in New York to
be used for the purpose of calculating the Prime Rate hereunder.
PRIORITY ENCUMBRANCES: As defined in Article XXXVI.
QUARTER: During each Lease Year, the first three (3) calendar month
period commencing on the first (1st) day of such Lease Year and each subsequent
three (3) calendar month period within such Lease Year; provided, however, that
the last Quarter during the Term may be a period of less than three (3) calendar
months and shall end on the last day of the Term.
RENT: Collectively, the Minimum Rent, Additional Rent and Additional
Charges.
SEC: Securities and Exchange Commission.
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SEVEN PROPERTIES: the Countryside Property, Heritage Health Center
Property, Heritage Lodge Property, Pine Park Property, Skylyn Property and the
Summit Place Property, each as defined in the Assignment Agreement, and the
Rosewood Court Property as defined in the Contract of Acquisition.
SHARED APPRECIATION PURCHASE PRICE: The Minimum Repurchase Price of
the Seven Properties in the aggregate PLUS Lessor's Shared Appreciation Amount.
STATE: The State or Commonwealth in which the Leased Property is
located.
SUBSIDIARIES: Corporations, limited liability companies or
partnerships, in which Lessee owns, directly or indirectly, more than 50% of the
voting stock or partnership interest.
TERM: Collectively, the Fixed Term and any Extended Term(s), as the
context may require, unless earlier terminated.
TEST RATE: The minimum interest rate necessary to avoid imputation of
original issue discount income under Sections 483 or 1272 of the Code or any
similar provisions.
TRANSFER CONSIDERATION: As defined in Article XXIV.
UNAVOIDABLE DELAYS: Delays due to strike, lockout, inability to
procure materials, power failure, act of God, governmental restriction, enemy
action, civil commotion, fire, unavoidable casualty or other cause beyond the
control of the party responsible for performing an obligation hereunder;
provided, however, that a lack of funds shall not be deemed a cause beyond the
control of either party hereto.
UNSUITABLE FOR ITS PRIMARY INTENDED USE: A state or condition of the
Facility such that by reason of damage or destruction or Condemnation, in the
good faith judgment of Lessor and Lessee, the Facility cannot be operated on a
commercially practicable basis for its Primary Intended Use taking into account,
among other relevant factors, the number of units and usable beds affected by
such damage or destruction or Condemnation.
ARTICLE III.
3.1 RENT. Lessee will pay to Lessor in lawful money of the United
States of America which shall be legal tender for the payment of public and
private debts, without offset or deduction, the amounts set forth hereinafter as
Minimum Rent and Additional Rent during the Term. Payments of Minimum Rent
shall be made by a prearranged payment deposit through the Electronic Automated
Clearing House Network ("ACH") initiated by Lessee to Lessor's account at an ACH
member bank on the first day of each calendar month.
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Payments of Additional Rent shall be made at Lessor's address set forth in
Article XXXIII or at such other place or to such other Person as Lessor from
time to time may designate in writing.
3.1.1 MINIMUM RENT. For the period from the Commencement Date
through the expiration of the Fixed Term, Lessee shall pay to Lessor "Minimum
Rent" monthly, in advance on or before the first day of each calendar month, in
an amount equal to $32,766.67.
3.1.2 ADDITIONAL RENT. In addition to the Minimum Rent, Lessee
shall, commencing with the first Quarter of the third Lease Year and continuing
through the expiration of the Fixed Term, pay to Lessor annual "Additional Rent"
equal to the sum of (i) Percentage Rent and (ii) CPI Rent.
3.2 QUARTERLY CALCULATION AND PAYMENT OF ADDITIONAL RENT;
ANNUAL RECONCILIATION.
3.2.1 Lessee shall calculate and pay Additional Rent quarterly,
in arrears, for the portion of the entire Lease Year, on a cumulative basis, up
to the end of the Quarter then most recently ended, less the Additional Rent
already paid and attributable to such Lease Year. If at the time any
calculation on account of Additional Rent is to be made the applicable Gross
Revenues are not yet available, Lessee shall use its best estimate of the
applicable Gross Revenues. Each quarterly payment of Additional Rent shall be
delivered to Lessor, together with an Officer's Certificate setting forth the
calculation thereof, within thirty (30) days after the end of the corresponding
Quarter.
3.2.2 Within ninety (90) days after the end of each Lease Year,
Lessee shall deliver to Lessor an Officer's Certificate setting forth the Gross
Revenues for such Lease Year. As soon as practicable following receipt by Lessor
of such Certificate, Lessor shall determine the Additional Rent for such Lease
Year and give Lessee notice of the same together with the calculations upon
which the Additional Rent was based. If such Additional Rent exceeds the sum of
the quarterly payments of Additional Rent previously paid by Lessee with respect
to such Lease Year, Lessee shall forthwith pay such deficiency to Lessor. If
such Additional Rent for such Lease Year is less than the amount previously paid
by Lessee with respect thereto, Lessor shall, at Lessee's option, either (i)
remit to Lessee its check in an amount equal to such difference, or (ii) credit
such difference against the quarterly payment of Additional Rent next coming
due.
3.2.3 Any difference between the annual Additional Rent for any
Lease Year as shown in said Officer's Certificate and the total amount of
quarterly payments for such Lease Year previously paid by Lessee, whether in
favor of Lessor or Lessee, shall bear interest at a rate equal to the rate
payable on 90-day U.S. Treasury Bills as of the last
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Business Day of such Lease Year until the amount of such difference shall be
paid or otherwise discharged.
3.2.4 If the expiration or earlier termination of the Term is a
day other than the last day of a Lease Year, then the amount of the last
quarterly installment of Additional Rent shall be paid pro rata on the basis of
the actual number of days in such Lease Year.
3.2.5 As soon as practicable after the expiration or earlier
termination of the Term, a final reconciliation of Additional Rent shall be made
taking into account, among other relevant adjustments, any unresolved
contractual allowances which relate to Gross Revenues accrued prior to such
expiration or termination; provided that if the final reconciliation has not
been made within six (6) months of such expiration or termination, then a final
reconciliation shall be made at that time based on all available relevant
information, including Lessee's good faith best estimate of the amount of any
unresolved contractual allowances.
3.3 CONFIRMATION OF ADDITIONAL RENT. Lessee shall utilize, or cause
to be utilized, an accounting system for the Leased Property in accordance with
its usual and customary practices and in accordance with GAAP which will
accurately record all Gross Revenues and Lessee shall retain for at least five
(5) years after the expiration of each Lease Year reasonably adequate records
conforming to such accounting system showing all Gross Revenues for such Lease
Year. Lessor, at its own expense except as provided herein below, shall have
the right from time to time by its accountants or representatives, to review
and/or audit the information set forth in the Officer's Certificate referred to
in Section 3.2 and in connection with such review and/or audit to examine
Lessee's records with respect thereto (including supporting data and sales tax
returns) subject to any prohibitions or limitations on disclosure of any such
data under applicable law or regulations including any duly enacted "Patients'
Bill of Rights" or similar legislation, or as may be necessary to preserve the
confidentiality of the Facility-patient relationship and the physician-patient
privilege. If any such review and/or audit discloses a deficiency in the
payment of Additional Rent, Lessee shall forthwith pay to Lessor the amount of
the deficiency together with interest thereon at the Overdue Rate compounded
monthly from the date when said payment should have been made to the date of
payment thereof; :provided, however, that any dispute concerning such deficiency
shall be resolved through an arbitration proceeding reasonably approved by the
parties; provided, further, that as to any audit that is commenced more than two
(2) years after the date Gross Revenues for any Lease Year are reported by
Lessee to Lessor, the deficiency, if any, with respect to such Gross Revenues
shall bear interest as permitted herein only from the date such determination of
deficiency is made unless such deficiency is the result of gross negligence or
willful misconduct on the part of Lessee. If any such review and/or audit
discloses that the Gross Revenues actually received by Lessee for any Lease Year
exceed those reported by Lessee by more than two percent (2%), Lessee shall pay
the costs of such review and/or audit. Any proprietary information obtained by
Lessor pursuant
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to such review and/or audit shall be treated as confidential, except that such
information may be used, subject to appropriate confidentiality safeguards, in
any litigation or arbitration proceedings between the parties and except further
that Lessor may disclose such information to prospective lenders or purchasers.
3.4 ADDITIONAL CHARGES. In addition to the Minimum Rent and
Additional Rent, (i) Lessee shall also pay and discharge as and when due and
payable all other amounts, liabilities, obligations and Impositions which Lessee
assumes or agrees to pay under this Lease; and (ii) in the event of any failure
on the part of Lessee to pay any of those items referred to in clause (i) above,
Lessee shall also promptly pay and discharge every fine, penalty, interest and
cost which may be added for non-payment or late payment of such items (the items
referred to in clauses (i) and (ii) above being referred to herein collectively
as the "Additional Charges").
3.5 LATE PAYMENT OF RENT. Lessee hereby acknowledges that late
payment by Lessee to Lessor of Rent will cause Lessor to incur costs not
contemplated hereunder, the exact amount of which is presently anticipated to be
extremely difficult to ascertain. Such costs may include processing and
accounting charges and late charges which may be imposed on Lessor by the terms
of any loan agreement and other expenses of a similar or dissimilar nature.
Accordingly, if any installment of Rent other than Additional Charges payable to
a Person other than Lessor shall not be paid within three (3) Business Days
after its due date, Lessee will pay Lessor on demand a late charge equal to the
lesser of (i) the lesser of five percent (5%) or the maximum percentage
permitted by applicable law of the amount of such installment or (ii) the
maximum amount permitted by law. The parties agree that this late charge
represents a fair and reasonable estimate of the costs that Lessor will incur by
reason of late payment by Lessee. The parties further agree that such late
charge is Rent and not interest and such assessment does not constitute a lender
or borrower/creditor relationship between Lessor and Lessee. In addition, the
amount unpaid, including any late charges, shall bear interest at the Overdue
Rate compounded monthly from the due date of such installment to the date of
payment thereof, and Lessee shall pay such interest to Lessor on demand. The
payment of such late charge or such interest shall not constitute waiver of, nor
excuse or cure, any default under this Lease, nor prevent Lessor from exercising
any other rights and remedies available to Lessor.
3.6 NET LEASE. This Lease is and is intended to be what is commonly
referred to as a "net, net, net" or "triple net" lease. The Rent shall be paid
absolutely net to Lessor, so that this Lease shall yield to Lessor the full
amount of the installments of Minimum Rent, Additional Rent and Additional
Charges throughout the Term, all as more fully set forth in Article IV and
subject to any other provisions of this Lease which expressly provide for
adjustment or abatement of Rent or other charges.
ARTICLE IV.
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4.1 IMPOSITIONS.
4.1. 1 Subject to Article XII relating to permitted contests,
Lessee shall pay, or cause to be paid, all Impositions before any fine, penalty,
interest or cost may be added for non-payment. Lessee shall make such payments
directly to the taxing authorities where feasible, and promptly furnish to
Lessor copies of official receipts or other satisfactory proof evidencing such
payments. Lessee's obligation to pay Impositions shall be absolutely fixed upon
the date such Impositions become a lien upon the Leased Property or any part
thereof. If any Imposition may, at the option of the taxpayer, lawfully be paid
in installments, whether or not interest shall accrue on the unpaid balance of
such Imposition, Lessee may pay the same, and any accrued interest on the unpaid
balance of such Imposition, in installments as the same respectively become due
and before any fine, penalty, premium, further interest or cost may be added
thereto.
4.1.2 Lessor shall prepare and file all tax returns and reports
as may be required by Legal Requirements with respect to Lessor's net income,
gross receipts, franchise taxes and taxes on its capital stock, and Lessee shall
prepare and file all other tax returns and reports as may be required by Legal
Requirements.
4.1.3 Any refund due from any taxing authority in respect of any
Imposition paid by Lessee shall be paid over to or retained by Lessee if no
Event of Default shall have occurred hereunder and be continuing. Any other
refund shall be paid over to or retained by Lessor.
4.1.4 Lessor and Lessee shall, upon request of the other,
provide such data as is maintained by the party to whom the request is made with
respect to the Leased Property as may be necessary to prepare any required
returns and reports. If any property covered by this Lease is classified as
personal property for tax purposes, Lessee shall file all personal property tax
returns in such jurisdictions where it must legally so file. Lessor, to the
extent it possesses the same, and Lessee, to the extent it possesses the same,
shall provide the other party, upon request, with cost and depreciation records
necessary for filing returns for any property so classified as personal
property. Where Lessor is legally required to file personal property tax
returns and to the extent practicable, Lessee shall be provided with copies of
assessment notices indicating a value in excess of the reported value in
sufficient time for Lessee to file a protest.
4.1.5 Lessee may, upon notice to Lessor, at Lessee's option and
at Lessee's sole cost and expense, protest, appeal, or institute such other
proceedings as Lessee may deem appropriate to effect a reduction of real estate
or personal property assessments and Lessor, at Lessee's expense as aforesaid,
shall reasonably cooperate with Lessee in such protest, appeal, or other action
but at no cost or expense to Lessor. Billings for reimbursement by Lessee to
Lessor of personal property or real property taxes shall be
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accompanied by copies of a bill therefor and payments thereof which identify the
personal property or real property with respect to which such payments are made.
4.1.6 Lessor shall give prompt notice to Lessee of all
Impositions payable by Lessee hereunder of which Lessor has knowledge, but
Lessor's failure to give any such notice shall in no way diminish Lessee's
obligations hereunder to pay such Impositions.
4.1.7 Impositions imposed in respect of the tax-fiscal period
during which the Term terminates shall be adjusted and prorated between Lessor
and Lessee, whether or not such Imposition is imposed before or after such
termination.
4.2 UTILITIES. Lessee shall pay or cause to be paid all charges for
electricity, power, gas, oil, water and other utilities used in the Leased
Property and all Capital Additions thereto. Lessee shall also pay or reimburse
Lessor for all costs and expenses of any kind whatsoever which at any time with
respect to the Term hereof may be imposed against Lessor by reason of any of the
covenants, conditions and/or restrictions affecting the Leased Property or any
portion thereof, or with respect to easements, licenses or other rights over,
across or with respect to any adjacent or other property which benefits the
Leased Property, including any and all costs and expenses associated with any
utility, drainage and parking easements.
4.3 INSURANCE. Lessee shall pay or cause to be paid all premiums for
the insurance coverage required to be maintained by Lessee hereunder.
4.4 IMPOUND ACCOUNT. Lessor may, at its option to be exercised by
thirty (30) days' written notice to Lessee, require Lessee to deposit, at the
time of any payment of Minimum Rent, an amount equal to one-twelfth of Lessee's
estimated annual taxes, of every kind and nature, required pursuant to Section
4.1 plus, if Lessee fails to pay any insurance premium in a timely manner as
required by this Lease, one-twelfth of Lessee's estimated annual insurance
premiums required pursuant to Section 4.3 into an impound account as directed by
Lessor. Such amounts shall be applied to the Payment of the obligations in
respect of which said amounts were deposited in such order of priority as Lessor
shall determine, on or before the respective dates on which the same or any of
them would become delinquent. The cost of administering such impound account
shall be paid by Lessee. Nothing in this Section 4.4 shall be deemed to affect
any right or remedy of Lessor hereunder.
4-5 TAX SERVICE. If requested by Lessor, Lessee shall, at its sole
cost and expense, cause to be furnished to Lessor a tax reporting service, to be
designated by Lessor, covering the Leased Property.
ARTICLE V.
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5. NO TERMINATION, ABATEMENT. ETC. Except as otherwise specifically
provided in this Lease, Lessee shall remain bound by this Lease in accordance
with its terms and shall not seek or be entitled to any abatement, deduction,
deferment or reduction of Rent, or set-off against the Rent. Except as
otherwise specifically provided in this Lease, the respective obligations of
Lessor and Lessee shall not be affected by reason of (i) any damage to or
destruction of the Leased Property or any portion thereof from whatever cause or
any Condemnation of the Leased Property or any portion thereof; (ii) other than
a result of Lessor's willful misconduct or gross negligence, the lawful or
unlawful prohibition of, or restriction upon, Lessee's use of the Leased
Property, or any portion thereof, the interference with such use by any Person
or by reason of eviction by paramount title; (iii) any claim that Lessee has or
might have against Lessor by reason of any default or breach of any warranty by
Lessor hereunder or under any other agreement between Lessor and Lessee or to
which Lessor and Lessee are parties; (iv) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding up
or other proceedings affecting Lessor or any assignee or transferee of Lessor;
or (v) for any other cause, whether similar or dissimilar to any of the
foregoing, other than a discharge of Lessee from any such obligations as a
matter of law. Lessee hereby specifically waives all rights arising from any
occurrence whatsoever which may now or hereafter be conferred upon it by law (a)
to modify, surrender or terminate this Lease or quit or surrender the Leased
Property or any portion thereof; or (b) which may entitle Lessee to any
abatement, reduction, suspension or deferment of the Rent or other sums payable
by Lessee hereunder, except as otherwise specifically provided in this Lease;
provided, however, nothing in this sentence shall preclude Lessee from bringing
a separate action with respect to any claims that Lessee may have arising out of
any wrongful conduct of Lessor and Lessee is not waiving other rights and
remedies not expressly waived herein. The obligations of Lessor and Lessee
hereunder shall be separate and independent covenants and agreements and the
Rent and all other sums payable by Lessee hereunder shall continue to be payable
in all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Lease or by termination of this Lease
other than by reason of an Event of Default.
ARTICLE VI.
6.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee acknowledges that the
Leased Property is the property of Lessor and that Lessee has only the right to
the exclusive possession and use of the Leased Property upon the terms and
conditions of this Lease. Lessee shall, at its expense, restore the Leased
Property to the condition required by Section 9.1.4.
6.2 PERSONAL PROPERTY. During the Term, Lessee may, as necessary and
at its expense, install, affix or assemble or place on any parcels of the Land
or in any of the Leased Improvements, any items of Lessee's Personal Property
and replacements thereof which shall be the property of and owned by Lessee.
Except as provided in Sections 6.3 and 16.10, Lessor shall have no rights to
Lessee's Personal Property. Lessee shall provide and
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maintain during the entire Term all Personal Property necessary in order to
operate the Facility in compliance with all licensure and certification
requirements, all Legal Requirements and all Insurance Requirements and for the
Primary Intended Use and as required, in Lessee's prudent business judgment, to
meet the needs of residents of the Facility.
6.3 TRANSFER OF PERSONAL PROPERTY TO LESSOR. Upon the expiration or
earlier termination of this Lease, Lessee's Personal Property which does not
provide a new function with respect to Lessor's Personal Property shall become
the property of Lessor, free of any encumbrance and Lessee shall execute all
documents and take any actions reasonably necessary to evidence such ownership
and discharge any encumbrance.
ARTICLE VII.
7.1 CONDITION OF THE LEASED PROPERTY. Lessee acknowledges receipt
and delivery of possession of the Leased Property and that Lessee has examined
and otherwise has knowledge of the condition of the Leased Property prior to the
execution and delivery of this Lease and has found the same to be in good order
and repair, free from Hazardous Substances not in compliance with Legal
Requirements (except as disclosed in the Phase I Environmental Site Assessment
(Rosewood Court), dated November 25, 1994, prepared by Environmental Enterprise
Group, Inc. for Emeritus) and satisfactory for its purposes hereunder.
Regardless, however, of any or inspection made by Lessee and whether or not any
patent or latent defect or condition was revealed or discovered thereby, Lessee
is leasing the Leased Property "as is" in its present condition. Lessee waives
any claim or action against Lessor in respect of the condition of the Leased
Property including any defects or adverse conditions not discovered or otherwise
known by Lessee as of the date hereof. LESSOR MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY
PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY
PARTICULAR USE OR PURPOSE OR OTHERWISE, OR AS TO THE NATURE OR QUALITY OF THE
MATERIAL OR WORKMANSHIP THEREIN, OR THE EXISTENCE OF ANY HAZARDOUS SUBSTANCE, IT
BEING AGREED THAT ALL SUCH RISKS, LATENT OR PATENT, ARE TO BE BORNE SOLELY BY
LESSEE INCLUDING ALL RESPONSIBILITY AND LIABILITY FOR ANY ENVIRONMENTAL
REMEDIATION AND COMPLIANCE WITH ALL ENVIRONMENTAL LAWS.
7.2 USE OF THE LEASED PROPERTY
7.2.1 Lessee covenants that it will obtain and maintain all
authorization and approvals needed to use and operate the Leased Property and
the Facility for the Primary Intended Use and any other use conducted on the
Leased Property as may be permitted from time to time hereunder in accordance
with Legal Requirements including
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applicable licenses, provider agreements, permits, and, if appropriate, Medicare
and/or Medicaid certification.
7.2.2 Lessee shall use or cause to be used the Leased Property
and the improvements thereon for their Primary Intended Use. Lessee shall not
use the Leased Property or any portion thereof or any Capital Addition thereto
for any other use without the prior written consent of Lessor, which consent
Lessor may withhold in its sole discretion.
7.2.3 Lessee shall operate continuously the Leased Property and
all Capital Additions thereto in accordance with its Primary Intended Use.
Lessee shall devote the entire Facility and all Capital Additions thereto to the
Primary Intended Use, except for areas reasonably required for office or storage
space uses incidental to the Primary Intended Use. Lessee shall not modify the
services offered or take any other action (e.g., removing patients or residents
from the Facility or directing patients or residents, or prospective patients or
residents, to another facility) which would materially reduce Gross Revenues.
Lessee shall at all times maintain an adequate staff for the service of its
residents and/or patients. Lessee shall employ its best judgment, efforts and
abilities to operate the Facility in such a manner so as to maximize Gross
Revenues and to enhance the reputation and attractiveness of the Facility.
7.2.4 Lessee shall conduct its business at the Facility in
conformity with prudent standards of patient or resident care practice.
7.2.5 Lessee shall not commit or suffer to be committed any
waste on the Leased Property or any Capital Addition thereto or cause or permit
any nuisance thereon.
7.2.6 Lessee shall neither suffer nor permit the Leased Property
or any portion thereof or any Capital Addition thereto financed by Lessor to be
used in such a manner as (i) might reasonably tend to impair Lessor's title
thereto or to any portion thereof or (ii) may make possible a claim of adverse
use or possession, or an implied dedication of the Leased Property or any
portion thereof or any Capital Addition thereto financed by Lessor.
7.2.7 For purposes of computing Incremental Revenues for any
Lease Year or other period during which Lessee is in breach or violation of any
of the covenants set forth in Sections 7.2.1 through 7.2.4, Lessee's Gross
Revenues for such Lease Year or other period shall be deemed to be the greater
of Lessee's Gross Revenues for (i) such Lease Year or other period, or (ii)
eighty-five percent (85%) of the average Gross Revenues for the prior three (3)
Lease Years or any corresponding period of the prior three (3) Lease Years, as
applicable, as determined by Lessor; provided however that during the first
three (3) Lease Years averaging shall take place over the prior Lease Year(s).
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7.3 LESSOR TO GRANT EASEMENTS, ETC. Lessor shall, from time to time
so long as no Event of Default has occurred and is continuing, at the request of
Lessee and at Lessee's cost and expense, but subject to the approval of Lessor,
which approval shall not be unreasonably withheld or delayed (i) grant easements
and other rights in the nature of easements; (ii) release existing easements or
other rights in the nature of easements which are for the benefit of the Leased
Property; (iii) dedicate or transfer unimproved portions of the Leased Property
for road, highway or other public purposes; (iv) execute petitions to have the
Leased Property annexed to any municipal corporation or utility district; (v)
execute amendments to any covenants, conditions and restrictions affecting the
Leased Property; and (vi) execute and deliver to any Person any instrument
appropriate to confirm or effect such grants, releases, dedications and
transfers to the extent of its interest in the Leased Property, but only upon
delivery to Lessor of an Officer's Certificate stating that such grant release,
dedication, transfer, petition or amendment is not detrimental to the proper
conduct of the business of Lessee on the Leased Property and does not materially
reduce the value of the Leased Property.
7.4 PRESERVATION OF GROSS REVENUES. Lessee acknowledges that a fair
return to Lessor on its investment in the Leased Property is dependent, in part,
on the concentration on the Leased Property during the Term of the assisted
living business of Lessee and its Affiliates in the geographical area of the
Leased Property. Lessee further acknowledges that diversion of residents and/or
patients, as applicable, from the Facility to other facilities or institutions
owned, operated or managed, whether directly or indirectly, by Lessee or its
Affiliates will have a material adverse impact on the value and utility of the
Leased Property. Accordingly, Lessor and Lessee agree as follows:
7.4.1 If, during the Term, either Lessee or any of its
Affiliates, directly or indirectly, shall operate, own, manage or have any
interest in or otherwise participate in or receive revenues from any other
facility or institution providing services or similar goods to those provided in
connection with the Facility and the Primary Intended Use (which Lessee did not
operate, own, manage or have any interest in on the Commencement Date), within a
ten (10) mile radius outward from the outside boundary of the Leased Property,
thereafter Percentage Rent shall be determined using the greater of the actual
Gross Revenues in the applicable Lease Year or eighty-five percent (85%) of the
average Gross Revenues for the immediately preceding three (3) Lease Years;
provided however that during the first three (3) Lease Years averaging shall
take place over the prior Lease Year(s). All distances shall be measured on a
straight line rather than on a driving distance basis. In the event that any
portion of such other facility or institution is located within such restricted
area the entire facility or institution shall be deemed located within such
restricted area.
ARTICLE VIII.
8. COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS, INSTRUMENTS, ETC.
Subject to Article XII regarding permitted contests, Lessee, at its expense,
shall promptly (i) comply
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with all Legal Requirements and Insurance Requirements regarding the use,
operation, maintenance, repair and restoration of the Leased Property, Lessee's
Personal Property and all Capital Additions whether or not compliance therewith
may require structural changes in any of the Leased Improvements or Capital
Additions thereto or interfere with the use and enjoyment of the Leased Property
and (ii) procure, maintain and comply with all licenses, certificates of need,
provider agreements (but only to the extent Lessee, in its prudent business
judgment, elects to participate in the Medicare, Medicaid or other third party
payor programs) and other authorizations required for the use of the Leased
Property, Lessee's Personal Property and all Capital Additions for the Primary
Intended Use and any other use of the Leased Property, Lessee's Personal
Property and all Capital Additions then being made, and for the proper erection,
installation, operation and maintenance of the Leased Property, Lessee's
Personal Property and all Capital Additions. In an emergency or in the event of
a breach by Lessee of its obligations hereunder which is not cured within any
applicable cure period, Lessor may, but shall not be obligated to, enter upon
the Leased Property and all Capital Additions thereto and take such actions and
incur such costs and expenses to effect such compliance as it deems advisable to
protect its interest in the Leased Property and Capital Additions thereto, and
Lessee shall reimburse Lessor for all costs and expenses incurred by Lessor in
connection with such actions. Lessee covenants and agrees that the Leased
Property, Lessee's Personal Property and all Capital Additions shall not be used
for any unlawful purpose.
ARTICLE IX.
9.1 MAINTENANCE AND REPAIR
9.1.1 Lessee, at its expense, shall maintain the Leased
Property, and every portion thereof, Lessee's Personal Property and all Capital
Additions, and all private roadways, sidewalks and curbs appurtenant to the
Leased Property, and which are under Lessee's control in good order and repair
whether or not the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements or the age of the Leased Property, Lessee's Personal
Property or the Capital Additions, and, with reasonable promptness, make all
necessary and appropriate repairs thereto of every kind and nature, including,
without limitation, all repairs described in Section 9.1.6, within the time
periods specified in Section 9.1.6, and those necessary to comply with changes
in any Legal Requirements, whether interior or exterior, structural or non-
structural, ordinary or extraordinary, foreseen or unforeseen or arising by
reason of a condition existing prior to the Commencement Date. All repairs
shall be at least equivalent in quality to the original work. Lessee will not
take or omit to take any action the taking or omission of which might materially
impair the value or the usefulness of the Leased Property or any part thereof or
any Capital Addition thereto for its Primary Intended Use.
9.1.2 Lessor shall not under any circumstances be required to
(i) build or rebuild any improvements on the Leased Property; (ii) make any
repairs, replacements,
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alterations, restorations or renewals of any nature to the Leased Property,
whether ordinary or extraordinary, structural or non-structural, foreseen or
unforeseen, or to make any expenditure whatsoever with respect thereto; or (iii)
maintain the Leased Property in any way. Lessee hereby waives, to the extent
permitted by applicable law, the right to make repairs at the expense of Lessor
pursuant to any law in effect at the time of the execution of this Lease or
hereafter enacted.
9.1.3 Nothing contained in this Lease and no action or inaction
by Lessor shall be construed as (i) constituting the consent or request of
Lessor, expressed or implied, to any contractor, subcontractor, laborer,
materialman or vendor to or for the performance of any labor or services or the
furnishing of any materials or other property for the construction, alteration,
addition, repair or demolition of or to the Leased Property or any part thereof
or any Capital Addition thereto; or (ii) giving Lessee any right, power or
permission to contract for or permit the performance of any labor or services or
the furnishing of any materials or other property in such fashion as would
permit the making of any claim against Lessor in respect thereof or to make any
agreement that may create, or in any way be the basis for, any right, title,
interest, lien, claim or other encumbrance upon the estate of Lessor in the
Leased Property, or any portion thereof or any Capital Addition thereto.
9.1.4 Unless Lessor shall convey any of the Leased Property to
Lessee pursuant to the provisions of this Lease, Lessee shall, upon the
expiration or earlier termination of the Term, vacate and surrender the Leased
Property, Lessor's Personal Property, the portion of Lessee's Personal Property
for which Lessor exercises its option pursuant to Section 35.4, and all Capital
Additions to Lessor in the condition in which the Leased Property and Lessor's
Personal Property were originally received from Lessor and Lessee's Personal
Property and Capital Additions were originally introduced to the Facility,
except as repaired, rebuilt, restored, altered or added to as permitted or
required by the provisions of this Lease and except for ordinary wear and tear.
9.1.5 Without limiting Lessee's obligations to maintain the
Leased Property under this Lease, within thirty (30) days of the end of each
Lease Year, Lessee shall provide Lessor with evidence satisfactory to Lessor in
the reasonable exercise of Lessor's discretion that Lessee has in such Lease
Year spent at least $150 per living unit as such amount is adjusted annually at
the end of each Lease Year for increases in the Cost of Living Index for repair
and maintenance of the Facility excluding normal janitorial and cleaning. If
Lessee fails to make at least the above amount of expenditures, Lessee shall
promptly on demand from Lessor (but in no event more than five days) pay to
Lessor the applicable shortfall in expenditures. Such funds shall be the sole
property of Lessor and Lessor may in its sole discretion provide such funds to
Lessee to correct the shortfall in expenditures or may simply retain such funds
as supplemental rent hereunder.
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9.1.6 Within the times set forth below, Lessee shall do the
following and shall provide to Lessor evidence (including copies of invoices or
other receipts with respect to the work performed) reasonably satisfactory to
Lessor that the same have been done which evidence shall specifically identify
that it is provided in order to satisfy the requirements of this Section 9.1 of
the Lease:
(a) On or before June 30, 1996, Lessee shall repair the
cracked stucco material under the front eve as described on page
3 of the Building Condition Evaluation with respect to the Leased
Property, dated February 15, 1996, prepared by Barge, Waggoner,
Sumner and Cannon, Inc. (the "Building Condition Evaluation");
(b) On or before June 30, 1996, Lessee shall repaint the
stucco material around the right front window trim as described
on page 3 of the Building Condition Evaluation;
(c) On or before June 30, 1996, Lessee shall re-grade the new
rain gutter adjacent to the new second floor walkway on the north
side of the interior courtyard as pictured in Photo #6 of the
Building Condition Evaluation so that this rain gutter will drain
properly;
(d) On or before June 30, 1996, Lessee shall recaulk around
all tub/shower inserts as described on page 6 of the Building
Condition Evaluation;
(e) Lessee shall monitor the floor cracks in the electrical
room as described on page 6 of the Building Condition Evaluation
for any continued expansion and promptly make any repairs which
may be needed in the future;
(f) On or before June 30, 1996, Lessee shall oversee the
completion of all renovation work related to the trim,
furnishings, lighting etc., to be performed by others as
described on page 6 of the Building Condition Evaluation;
(g) On or before June 30, 1996, Lessee shall install a hot
water booster at the dishwasher as described on page 6 of the
Building Condition Evaluation; and
(h) On or before June 30, 1996, Lessee shall enclose the wires
connecting the public phone located in the first floor west
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hallway near the television room (as pictured in Photo 50 of the
Building Condition Evaluation) in conduit.
9.2 ENCROACHMENTS, RESTRICTIONS, MINERAL LEASES, ETC. If any
of the Leased Improvements or Capital Additions shall, at any time, encroach
upon any property, street or right-of-way, or shall violate any restrictive
covenant or other agreement affecting the Leased Property, or any part thereof
or any Capital Addition thereto, or shall impair the rights of others under any
easement or right-of-way to which the Leased Property is subject, or the use of
the Leased Property or any Capital Addition thereto is impaired, limited or
interfered with by reason of the exercise of the right of surface entry or any
other provision of a lease or reservation of any oil, gas, water or other
minerals, then promptly upon the request of Lessor or any Person affected by any
such encroachment, violation or impairment, Lessee, at its sole cost and
expense, but subject to its right to contest the existence of any such
encroachment, violation or impairment, shall protect, indemnify, save harmless
and defend Lessor from and against all losses, liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including reasonable
attorneys', consultants' and experts' fees and expenses) based on or arising by
reason of any such encroachment, violation or impairment. In the event of an
adverse final determination with respect to any such encroachment, violation or
impairment, Lessee shall either (i) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, whether the same shall affect Lessor or
Lessee; or (ii) make such changes in the Leased Improvements and any Capital
Addition thereto, and take such other actions, as Lessee in the good faith
exercise of its judgment deems reasonably practicable, to remove such
encroachment or to end such violation or impairment, including, if necessary,
the alteration of any of the Leased Improvements or any Capital Addition
thereto, and in any event take all such actions as may be necessary in order to
be able to continue the operation of the Leased Improvements and any Capital
Addition thereto for the Primary Intended Use substantially in the manner and to
the extent the Leased Improvements and Capital Additions were operated prior to
the assertion of such encroachment, violation or impairment. Lessee's
obligations under this Section 9.2 shall be in addition to and shall in no way
discharge or diminish any obligation of any insure under any policy of title or
other insurance and, to the extent the recovery thereof is not necessary to
compensate Lessor for any damages incurred by any such encroachment, violation
or impairment, Lessee shall be entitled to a credit for any sums recovered by
Lessor under any such policy of title or other insurance and Lessor, upon
request by Lessee, shall assign Lessor's rights under such policies to Lessee
provided such assignment does not adversely affect Lessor's rights under any
such policy and provided further that Lessee shall indemnify, defend, protect
and save Lessor harmless from and against any liability, cost or expense of any
kind that may be imposed upon Lessor in connection with any such assignment.
ARTICLE X.
10. CONSTRUCTION OF CAPITAL ADDITIONS TO THE LEASED PROPERTY.
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10.1 REQUESTS. No Capital Addition shall be made which would tie in
or connect any Leased Improvements with any improvements on property adjacent to
the Land without Lessor's approval which may be withheld in Lessor's sole and
absolute discretion. Except as provided above, Lessee shall, without the
consent of Lessor, have the right to make a Capital Addition if the Capital
Addition Cost for such Capital Addition project does not exceed $100,000. All
other Capital Additions shall be subject to Lessor's review and approval which
approval shall not be unreasonably withheld. For any Capital Addition which
does not require the approval of Lessor, Lessee shall, prior to commencing
construction of such Capital Addition, provide to Lessor a written description
of such Capital Addition and on an ongoing basis supply Lessor with related
documentation and information as Lessor may reasonably request. If Lessee
desires to make a Capital Addition for which Lessor's approval is required,
Lessee shall submit to Lessor in reasonable detail a general description of the
proposal, the projected cost of construction and such plans and specifications,
permits, licenses, contracts and other information concerning the proposal as
Lessor may reasonably request. Such description shall indicate the use or uses
to which such Capital Addition will be put and the impact, if any, on current
and forecasted gross revenues and operating income attributable thereto. It
shall be reasonable for Lessor to condition its approval of any Capital Addition
upon any or all of the following terms and conditions:
(a) Such construction shall be effected pursuant to detailed
plans and specifications approved by Lessor;
(b) Such construction shall be conducted under the supervision
of a licensed architect or engineer selected by Lessee and approved by
Lessor;
(c) Lessee shall have procured or caused to be procured a
performance and payment bond for the full value of such construction, which
such bond shall name Lessor as an additional obligee and otherwise be in
form and substance and issued by a Person reasonably satisfactory to
Lessor; and
(d) Such construction shall not be undertaken unless Lessee
demonstrates to the reasonable satisfaction of Lessor the financial ability
to complete the construction without adversely affecting its cash flow
position or financial viability.
10.2 CONSTRUCTION REQUIREMENTS FOR ALL CAPITAL ADDITIONS. Whether or
not Lessor's review and approval is required, for all Capital Additions:
(a) Such construction shall not be commenced until Lessee shall have
procured and paid for all municipal and other governmental permits and
authorizations required therefor, and Lessor shall join in the application
for such permits or authorizations whenever such action is necessary;
provided, however, that
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(i) any such joinder shall be at no cost or expense to Lessor; and (ii) any
plans required to be filed in connection with any such application which
require the approval of Lessor as hereinabove provided shall have been so
approved by Lessor;
(b) Such construction shall not, and Lessee's licensed architect or
engineer shall certify to Lessor that such construction shall not, impair
the structural strength of any component of the Facility or overburden the
electrical, water, plumbing, HVAC or other building systems of any such
component;
(c) Lessee's licensed architect or engineer shall certify to Lessor
that the detailed plans and specifications conform to and comply with all
applicable building, subdivision and zoning codes, laws, ordinances and
regulations imposed by all governmental authorities having jurisdiction
over the Leased Property;
(d) Such construction shall, when completed, be of such a character
as not to decrease the value of the Leased Property as it was immediately
before such Capital Addition;
(e) During and following completion of such construction, parking
which is located in the Facility or on the Land shall remain adequate for
the operation of the Facility for its Primary Intended Use and in no event
shall such parking be less than that which was or is required by law or
which was located in the Facility or on the Land prior to such
construction; provided, however, with Lessor's prior consent and at no
additional expense to Lessor, (i) to the extent additional parking is not
already a part of a Capital Addition, Lessee may construct additional
parking on the Land; or (ii) Lessee may acquire off-site parking to serve
the Facility as long as such parking shall be dedicated to, or otherwise
made available to serve, the Facility;
(f) All work done in connection with such construction shall be done
promptly and in a good and workmanlike manner using first-class materials
and
in conformity with all Legal Requirements; and
(g) Promptly following the completion of such construction, Lessee
shall deliver to Lessor "as built" drawings of such addition, certified as
accurate by the licensed architect or engineer selected by Lessee to
supervise such work, and copies of any new or revised Certificates of
Occupancy.
10.3 FUNDING BY LESSOR.
10.3.1 Lessee may request that Lessor fund a Capital Addition,
in which case Lessee shall provide to Lessor any information about such Capital
Addition which Lessor may reasonably request. Lessor may, but shall be under no
obligation to, provide the
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funds necessary to meet the request. Within thirty (30) days of receipt of a
request to fund a proposed Capital Addition, Lessor shall notify Lessee as to
whether it will fund the proposed Capital Addition and, if so, the terms and
conditions upon which it would do so, including the terms of any amendment to
this Lease. Lessee shall have ten (10) days to accept or reject Lessor's
funding proposal. In no event shall the portion of the projected Capital
Addition Cost comprised of land, if any, materials, labor charges and fixtures
be less than ninety percent (90%) of the total amount of the projected cost of
such Capital Addition.
10.3.2 If Lessor agrees to fund a proposed Capital Addition and
Lessee accepts the terms thereof, Lessee shall provide Lessor with the following
prior to any advance of funds:
(a) any information, certificates, licenses, permits or
documents requested by Lessor which are necessary and obtainable to confirm
that Lessee will be able to use the Capital Addition upon completion
thereof in accordance with the Primary Intended Use, including all required
federal, state or local government licenses and approvals;
(b) an Officer's Certificate and, if requested, a certificate
from Lessee's architect, setting forth in reasonable detail the projected
or actual Capital Addition Costs;
(c) an amendment to this Lease, in a form prepared by Lessor
and reasonably agreed to by Lessee, providing for an increase in the Rent
in amounts as agreed upon by the parties hereto and other provisions as may
be necessary or appropriate;
(d) a deed conveying title to Lessor to any land acquired for
the purpose of constructing the Capital Addition free and clear of any
liens or encumbrances except those approved by Lessor, and accompanied by
an ALTA survey thereof satisfactory to Lessor;
(e) for each advance, endorsements to any outstanding policy
of title insurance covering the Leased Property or commitments therefor
satisfactory in form and substance to Lessor (i) updating the same without
any additional exception except as may be approved by Lessor and (ii)
increasing the coverage thereof by an amount equal to the Fair Market Value
of the Capital Addition, except to the extent covered by the owner's policy
of title insurance referred to in subparagraph (f), below;
(f) if appropriate, an owner's policy of title insurance
insuring fee simple title to any land conveyed to Lessor free and clear of
all liens and
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encumbrances except those that do not materially affect the value of such
land and do not interfere with the use of the Leased Property or are
approved by Lessor;
(g) if requested by Lessor, a M.A.I. appraisal of the Leased
Property indicating that the Fair Market Value of the Leased Property upon
completion of the Capital Addition will exceed the Fair Market Value of the
Leased Property immediately prior thereto by an amount not less than
ninety-five percent (95%) of the cost of the Capital Addition; and
(h) such other billing statements, invoices, certificates,
endorsements, opinions, site assessments, surveys, resolutions,
ratifications, lien releases and waivers and other instruments and
information reasonably required by Lessor.
10.4 CAPITAL ADDITIONS FINANCED BY LESSEE. If Lessee provides or arranges
such financing, this Lease shall be and hereby is amended to provide as follows:
(a) Upon completion of any Capital Addition, Gross Revenues
attributable to any Capital Additions financed by Lessee shall be excluded
from Gross Revenues of the Leased Property for purposes of calculating
Percentage Rent. The Gross Revenues attributable to such Capital Addition
and all other Capital Additions, if any, financed by Lessee, shall be
deemed to be an amount which bears the same proportion to the total Gross
Revenues from the entire Leased Property including all Capital Additions)
as the Fair Market Added Value of all said Capital Additions financed by
Lessee bears to the Fair Market Value of the entire Leased Property
(including all Capital Additions) immediately after completion of said
Capital Addition. The above referenced proportion of the Fair Market Added
Value of Capital Additions paid for by Lessee to the Fair Market Value of
the entire Leased Property expressed as a percentage is referred to herein
as the "Added Value Percentage. The Added Value Percentage determined as
provided above for Capital Additions financed by Lessee shall remain in
effect until any subsequent Capital Addition financed by Lessee or Lessor
is completed.
(b) There shall be no adjustment in the Minimum Rent or CPI
Rent by reason of any such Capital Addition.
(c) Upon the expiration or earlier termination of this Lease,
except by reason of the default by Lessee hereunder, Lessor shall
compensate Lessee:
(i) By purchasing such Capital Additions from Lessee
for cash in the amount of the then Fair Market Added Value of such
Capital Additions; or
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(ii) By such other arrangement regarding such
compensation as shall be mutually and reasonably acceptable to Lessor
and Lessee.
ARTICLE XI.
11. LIENS. Subject to the provisions of Article XII relating to
permitted contests, Lessee will not directly or indirectly create or allow to
remain and will promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon the Leased Property or any
Capital Addition thereto or any attachment, levy, claim or encumbrance in
respect of the Rent, excluding, however, (i) this Lease; (ii) the matters that
existed as of the Commencement Date; (iii) restrictions, liens and other
encumbrances which are consented to in writing by Lessor, or any easements
granted pursuant to the provisions of Section 7.3; (iv) liens for Impositions
which Lessee is not required to pay hereunder; (v) subleases permitted by
Article XXIV; (vi) liens for Impositions not yet delinquent; (vii) liens of
mechanics, laborers, materialmen, suppliers or vendors for sums either disputed
or not yet due, provided that (1) the payment of such sums shall not be
postponed under any related contract for more than sixty (60) days after the
completion of the action giving rise to such lien and such reserve or other
appropriate provisions as shall be required by law or GAAP shall have been made
therefor or (2) any such liens are in the process of being contested as
permitted by Article XII; (viii) any liens which are the responsibility of
Lessor pursuant to the provisions of Article XXXVI; and (ix) liens related to
equipment leases for equipment which is used or useful in Lessee's business on
the Leased Property, provided that the payment of any sums due under such
equipment leases shall either (1) be paid as and when due in accordance with the
terms thereof, or (2) be in the process of being contested as permitted by
Article XII.
ARTICLE XII.
12. PERMITTED CONTESTS. Lessee, upon prior written notice to Lessor, on
its own or in Lessor's name, at Lessee's expense, may contest, by appropriate
legal proceedings conducted in good faith and with due diligence, the amount,
validity or application, in whole or in part, of any licensure or certification
decision, Imposition, Legal Requirement, Insurance Requirement, lien,
attachment, levy, encumbrance, charge or claim; provided, however, that (i) in
the case of an unpaid Imposition, lien, attachment, levy, encumbrance, charge or
claim, the commencement and continuation of such proceedings shall suspend the
collection thereof from Lessor and from the Leased Property or any Capital
Addition thereto; (ii) neither the Leased Property or any Capital Addition
thereto, the Rent therefrom nor any part or interest in either thereof would be
in any danger of being sold, forfeited, attached or lost pending the outcome of
such proceedings; (iii) in the case of a Legal Requirement, neither Lessor nor
Lessee would be in any danger of civil or criminal liability for failure to
comply therewith pending the outcome of such proceedings; (iv) if any such
contest shall involve a sum of money or potential loss in excess of Fifty
Thousand Dollars ($50,000),
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Lessee shall deliver to Lessor and its counsel an opinion of legal counsel
reasonably acceptable to Lessor to the effect set forth in clauses (i), (ii) and
(iii) above, to the extent applicable; (v) in the case of a Legal Requirement,
Imposition, lien, encumbrance or charge, Lessee shall give such reasonable
security as may be required by Lessor to insure ultimate payment of the same and
to prevent any sale or forfeiture of the Leased Property or any Capital Addition
thereto or the Rent by reason of such non-payment or noncompliance; (vi) in the
case of an Insurance Requirement, the coverage required by Article XIII shall be
maintained; and (vii) if such contest be finally resolved against Lessor or
Lessee, Lessee shall promptly pay the amount required to be paid, together with
all interest and penalties accrued thereon, or comply with the applicable Legal
Requirement or Insurance Requirement. Lessor, at Lessee's expense, shall
execute and deliver to Lessee such authorizations and other documents as may
reasonably be required in any such contest, and, if reasonably requested by
Lessee or if Lessor so desires, Lessor shall join as a party therein. The
provisions of this Article XII shall not be construed to permit Lessee to
contest the payment of Rent or any other amount (other than Impositions or
Additional Charges which Lessee may from time to time be required to impound
with Lessor) payable by Lessee to Lessor hereunder. Lessee shall indemnify,
defend, protect and save Lessor harmless from and against any liability, cost or
expense of any kind that may be imposed upon Lessor in connection with any such
contest and any loss resulting therefrom.
ARTICLE XIII.
13.1 GENERAL INSURANCE REQUIREMENTS. During the Term, Lessee shall at
all times keep the Leased Property, and all property located in or on the Leased
Property, including Capital Additions, the Fixtures and the Personal Property,
insured with the kinds and amounts of insurance described below. This insurance
shall be written by companies authorized to do insurance business in the State
in which the Leased Property is located. All liability type policies must name
Lessor as an "additional insured." All property policies shall name Lessor as
"loss payee." All business interruption policies shall name Lessor as "loss
payee" with respect to Rent only. Losses shall be payable to Lessor and/or
Lessee as provided in Article XIV. In addition, the policies, as appropriate,
shall name as an "additional insured" or "loss payee" the holder of any
mortgage, deed of trust or other security agreement ("Facility Mortgagee")
securing any indebtedness or any other Encumbrance placed on the Leased Property
in accordance with the provisions of Article XXXVI ("Facility Mortgage") by way
of a standard form of mortgagee's loss payable endorsement. Any loss adjustment
shall require the written consent of Lessor, Lessee, and each Facility Mortgagee
unless the amount of the loss is less than $10,000 in which event no consent
shall be required. Evidence of insurance shall be deposited with Lessor and, if
requested, with any Facility Mortgagee(s). If any provision of any Facility
Mortgage requires deposits of insurance to be made with such Facility
Mortgagee, Lessee shall either pay to Lessor monthly the amounts required and
Lessor shall transfer such amounts to each Facility Mortgagee, or, pursuant to
written direction by Lessor, Lessee shall make such
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deposits directly with such Facility Mortgagee. The policies shall insure
against the following risks:
13.1.1 Loss or damage by fire, vandalism and malicious mischief,
extended coverage perils commonly known as special form perils, earthquake
(including earth movement) and windstorm in an amount not less than the
insurable value on a replacement cost basis (as defined below in Section 13.2)
and including a building ordinance coverage endorsement;
13.1.2 Loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus, now or hereafter installed in the Facility, in
such limits with respect to anyone accident as may be reasonably requested by
Lessor from time to time;
13.1.3 Flood (when the Leased Property is located in whole or in
part within a designated 100-year flood plain area) and such other hazards and
in such amounts as may be customary for comparable properties in the area;
13.1.4 Loss of rental value in an amount not less than twelve
(12) months' Rent payable hereunder or business interruption in an amount not
less than twelve (12) months of income and normal operating expenses including
payroll and Rent payable hereunder with an endorsement extending the period of
indemnity by at least ninety (90) days (Building Ordinance Increased Period of
Restoration Endorsement) necessitated by the occurrence off any of the hazards
described in Sections 13.1.1, 13.1.2 or 13.1.3;
13.1.5 Claims for personal injury or property damage under a
policy of comprehensive general public liability insurance with amounts not less
than One Million and No/100 Dollars ($1,000,000.00) combined single limit and
Three Million No/100 Dollars ($3,000,000.00) in the annual aggregate; and
13.1.6 Medical professional liability with amounts not less than
One Million Dollars ($1,000,000) combined single limit and Three Million Dollars
($3,000,000)in the annual aggregate.
13.2 REPLACEMENT COST. The term "replacement cost" shall mean the
actual replacement cost of the insured property from time to time with new
materials and workmanship of like kind and quality. If either party believes
that the replacement cost has increased or decreased at any time during the
Term, it shall have the right to have such replacement cost redetermined by an
impartial national insurance company reasonably acceptable to both parties (the
"impartial appraiser"). The party desiring to have the replacement cost so
redetermined shall forthwith, on receipt of such determination by the impartial
appraiser, give written notice thereof to the other party hereto. The
determination of the impartial appraiser shall be final and binding on the
parties hereto, and Lessee shall forthwith increase or decrease the amount of
the insurance carried pursuant to this Article to
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the amount so determined by the impartial appraiser. Each party shall pay one-
half (1/2) of the fee, if any, of the impartial appraiser. If Lessee has made
improvements to the Leased Property, Lessor may at Lessee's expense have the
replacement cost redetermined at any time after such improvements are made,
regardless of when the replacement cost was last determined.
13.3 ADDITIONAL INSURANCE. In addition to the insurance described
above, Lessee shall maintain such additional insurance upon notice from Lessor
as may be reasonably required from time to time by any Facility Mortgagee and
shall further at all times maintain adequate workers' compensation coverage and
any other coverage required by Legal Requirements for all Persons employed by
Lessee on the Leased Property and any Capital Addition thereto in accordance
with Legal Requirements.
13.4 WAIVER OF SUBROGATION. All insurance policies carried. by either
party covering the Leased Property and any Capital Addition thereto and Lessee's
Personal Property including contents, fire and casualty insurance, shall
expressly waive any right of subrogation on the part of the insurer against the
other party. The parties hereto agree that their policies will include such
waiver clause or endorsement so long as the same are obtainable without extra
cost, and in the event of such an extra charge the other party, at its election,
may pay the same, but shall not be obligated to do so. Each party waives any
claims it has against the other party to the extent such claim is covered by
insurance.
13.5 POLICY REQUIREMENTS. All of the policies of insurance referred
to in this Article shall be written in form satisfactory to Lessor and by
insurance companies with a policyholder rating of "A" and a financial rating of
"X" in the most recent version of Best's Key Rating Guide. Lessee shall pay all
of the premiums therefor, and deliver such policies or certificates thereof to
Lessor prior to their effective date (and with respect to any renewal policy, at
least ten (10) days prior to the expiration of the existing policy), and in the
event of the failure of Lessee either to effect such insurance in the names
herein called for or to pay the premiums therefor, or to deliver such policies
or certificates thereof to Lessor, at the times required, Lessor shall be
entitled, but shall have no obligation, to effect such insurance and pay the
premiums therefor, in which event the cost thereof, together with interest
thereon at the Overdue Rate, shall be repayable to Lessor upon demand therefor.
Each insurer shall agree, by endorsement on the policy or policies issued by it,
or by independent instrument furnished to Lessor, that it will give to Lessor
ten (10) days' written notice before the policy or policies in question shall be
altered, allowed to expire or canceled. Each property policy shall have a
deductible or deductibles, if any, which are no greater than $5,000, unless such
requirement is specifically waived by Lessor. Each earthquake policy shall have
a deductible of ten percent of real property, personal property and rental value
limit at the subject location, unless such requirement is specifically waived by
Lessor.
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13.6 INCREASE IN LIMITS. If either party shall at any time believe
the limits of the insurance required hereunder to be either excessive or
insufficient, the parties shall
endeavor to agree in writing on the proper and reasonable limits for such
insurance to be carried and such insurance shall thereafter be carried with the
limits thus agreed on until further change pursuant to the provisions of this
Section. If the parties shall be unable to agree thereon, the proper and
reasonable limits for such insurance to be carried shall be determined by an
impartial third party reasonably selected by the parties. Nothing herein shall
permit the amount of insurance to be reduced below the amount or amounts
required by any Facility Mortgagee.
13.7 BLANKET POLICIES AND POLICIES COVERING MULTIPLE LOCATIONS.
Notwithstanding anything to the contrary contained in this Article, Lessee's
obligations to carry the insurance provided for herein may be brought within the
coverage of a blanket policy or policies of insurance carried and maintained by
Lessee; provided, however, that the coverage afforded Lessor will not be reduced
or diminished or otherwise be different from that which would exist under a
separate policy meeting all other requirements of this Lease by reason of the
use of such blanket policy of insurance, and provided further that the
requirements of this Article XIII are otherwise satisfied. For any liability
policies covering facilities in addition to the Leased Property, Lessor may
require excess limits as Lessor reasonably determines.
13.8 NO SEPARATE INSURANCE. Lessee shall not, on Lessee's own
initiative or pursuant to the request or requirement of any third party, (i)
take out separate insurance concurrent in form or contributing in the event of
loss with that required in this Article to be furnished by, or which may
reasonably be required to be furnished by, Lessee or (ii) increase the amounts
of any then existing insurance by securing an additional policy or additional
policies, unless all parties having an insurable interest in the subject matter
of the insurance, including in all cases Lessor and all Facility Mortgagees, are
included therein as additional insures and the loss is payable under such
insurance in the same manner as losses are payable under this Lease. Lessee
shall immediately notify Lessor of the taking out of any such separate insurance
or of the increasing of any of the amounts of the then existing insurance by
securing an additional policy or additional policies.
ARTICLE XIV.
14.1 INSURANCE PROCEEDS. All proceeds payable by reason of any loss
or damage to the Leased Property, or any portion thereof, under any policy of
insurance required to be carried hereunder shall be paid to Lessor and made
available by Lessor to Lessee from time to time for the reasonable costs of
reconstruction or repair, as the case may be, of any damage to or destruction of
the Leased Property, or any portion thereof; provided, however, that if the
total amount of proceeds payable is $10,000 or less, the proceeds shall be paid
to Lessee and used for the repair of any damage to the Leased Property. Any
excess proceeds of insurance remaining after the completion of the restoration
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or reconstruction of the Leased Property to substantially the same condition as
existed immediately before the damage or destruction and with materials and
workmanship of like kind and quality and to Lessor's reasonable satisfaction
shall be remitted by Lessor to Lessee free and clear upon completion of any
such repair and restoration except as otherwise specifically provided below in
this Article XIV. In the event neither Lessor nor Lessee is required or elects
to repair and restore the Leased Property, all such insurance proceeds shall
be retained by Lessor free and clear except as otherwise specifically provided
below in this Article XIV. All salvage resulting from any risk covered by
insurance shall belong to Lessor.
14.2 INSURED CASUALTY.
14.2.1 If the Leased Property is damaged or destroyed from a
risk covered by insurance carried by Lessee such that the Facility thereby is
rendered Unsuitable for its Primary Intended Use, Lessee shall either (i)
restore the Leased Property to substantially the same condition as existed
immediately before such damage or destruction, or (ii) offer to acquire the
Leased Property from Lessor for a purchase price equal to the greater of (y) the
Minimum Repurchase Price or (z) the Fair Market Value immediately prior to such
damage or destruction. If Lessor does not accept Lessee's offer to so purchase
the Leased Property, Lessee may either withdraw such offer and proceed to
restore the Leased Property to substantially the same condition as existed
immediately before such damage or destruction or terminate the Lease in which
event Lessor shall be entitled to retain the insurance proceeds.
14.2.2 If the Leased Property is damaged from a risk covered
by insurance carried by Lessee, but the Facility is not thereby rendered
Unsuitable for its Primary Intended Use, Lessee shall restore the Leased
Property to substantially the same condition as existed immediately before such
damage. Such damage shall not terminate this Lease; provided, however, that if
Lessee cannot within a reasonable time after diligent efforts obtain the
necessary government approvals needed to restore and operate the Facility for
its Primary Intended Use, Lessee may offer to purchase the Leased Property for a
purchase price equal to the greater of the Minimum Repurchase Price or the Fair
Market Value immediately prior to such damage. If Lessee shall make such offer
and Lessor does not accept the same, Lessee may either withdraw such offer and
proceed to restore the Leased Property to substantially the same condition as
existed immediately before such damage or destruction, or terminate the Lease,
in which event Lessor shall be entitled to retain the insurance proceeds.
14.2.3 If the cost of the repair or restoration exceeds the
amount of proceeds received by Lessor from the insurance required to be carried
hereunder, Lessee shall contribute any excess amounts needed to restore the
Facility. Such difference shall be paid by Lessee to Lessor together with any
other insurance proceeds, for application to the cost of repair and restoration.
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14.2.4 If Lessor accepts Lessee's offer to purchase the
Leased Property, this Lease shall terminate as to the Leased Property upon
payment of the purchase price and Lessor shall remit to Lessee all insurance
proceeds pertaining to the Leased Property, including insurance proceeds
pertaining to Capital Additions and Lessee's Personal Property, then held by
Lessor.
14.3 UNINSURED CASUALTY. If the Leased Property is damaged or
destroyed from a risk not covered by insurance carried by Lessee, whether or not
such damage or destruction renders the Leased Property Unsuitable for its
Primary Intended Use, Lessee at its expense shall restore the Leased Property to
substantially the same condition it was in immediately before such damage or
destruction and such damage or destruction shall not terminate this Lease;
provided, however, that if Lessee cannot within a reasonable time after diligent
efforts obtain the necessary government approvals needed to restore and operate
the Facility for its Primary Intended Use, Lessee shall purchase the Leased
Property for a purchase price equal to the greater of the Minimum Repurchase
Price or the Fair Market Value immediately prior to such damage.
14.4 NO ABATEMENT OF RENT. This Lease shall remain in full force and
effect and Lessee's obligation to pay the Rent and all other charges required by
this Lease shall remain unabated during the period required for adjusting
insurance, satisfying Legal Requirements, repair and restoration.
14.5 WAIVER. Lessee waives any statutory rights of termination which
may arise by reason of any damage or destruction of the Leased Property.
14.6 DAMAGE NEAR END OF TERM. If the damage or destruction
contemplated hereunder occurs during the last year of the Fixed Term or any
Extended Term, as applicable, and Lessee terminates any options it might then
have to purchase the Leased Property or extend the Term of this Lease, Lessee
may, in lieu of repairing and restoring the Leased Property as contemplated
hereunder, terminate this Lease effective as of the date of payment to Lessor of
the greater of (a) the insurance proceeds attributable to such damage or
destruction and (b) the cost to repair such damage or destruction as reasonably
estimated by Lessor.
ARTICLE XV.
15. CONDEMNATION
15.1 TOTAL TAKING. If the Leased Property is totally and permanently
taken by Condemnation, this Lease shall terminate as of the day before the Date
of Taking.
15.2 PARTIAL TAKING. If a portion of the Leased Property is taken by
Condemnation, this Lease shall remain in effect if the Facility is not thereby
rendered
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Unsuitable for Its Primary Intended Use, but if the Facility is thereby rendered
Unsuitable for its Primary intended Use, this Lease shall terminate as of the
day before the Date of Taking.
15.3 RESTORATION. If there is a partial taking of the Leased Property
and this Lease remains in full force and effect pursuant to Section 15.2, Lessor
shall make available to Lessee the portion of the Award necessary and
specifically identified for restoration of the Leased Property and Lessee shall
accomplish all necessary restoration whether or not the amount provided by the
condemnor for restoration is sufficient.
15.4 AWARD DISTRIBUTION. The entire Award shall belong to and be paid
to Lessor, except that, subject to the rights of the Facility Mortgagees, Lessee
shall be entitled to receive from the Award, if and to the extent such Award
specifically includes such item, lost profits value and moving expenses,
provided, that in any event Lessor shall receive from the Award, subject to the
rights of the Facility Mortgagees, no less than the greater of the Fair Market
Value prior to the institution of the Condemnation or the Minimum Repurchase
Price.
15.5 TEMPORARY TAKING. The taking of the Leased Property, or any part
thereof, shall constitute a taking by Condemnation only when the use and
occupancy by the taking authority has continued for longer than 180 consecutive
days. During any shorter period, which shall be a temporary taking, all the
provisions of this Lease shall remain in full force and effect and the Award
allocable to the Term shall be paid to Lessee.
ARTICLE XVI.
16.1 EVENTS OF DEFAULT. Any one or more of the following shall
constitute an "Event of Default":
(a) a default shall occur under any other lease or agreement,
including the Contract of Acquisition, between Lessor or an Affiliate of
Lessor and Lessee or an Affiliate of Lessee, or any letter of credit,
guaranty, mortgage, deed of trust, or other instrument executed by Lessee
or an Affiliate of Lessee in favor of Lessor or an Affiliate of Lessor, in
every case, whether now or hereafter existing, where the default is not
cured within any applicable grace period set forth therein;
(b) Lessee shall fail to pay any installment of Rent when the
same becomes due and payable and such failure is not cured by Lessee within
a period of five (5) days after notice thereof from Lessor; provided,
however, that such notice shall be in lieu of and not in addition to any
notice required under applicable law;
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(c) Lessee shall fail to obtain a letter of credit as required
by Article XXI;
(d) Provided that no other cure period is specified under the
terms of this Lease, if Lessee shall fail to observe or perform any term,
covenant or condition of this Lease other than those contained within this
Section 16.1 and such failure is not cured by Lessee within thirty (30)
days after notice thereof from Lessor, unless such failure cannot with due
diligence be cured within a period of thirty (30) days, in which case such
failure shall not be deemed to be an Event of Default if Lessee proceeds
promptly and with due diligence to cure the failure and diligently
completes the curing thereof; provided, however, that such notice shall be
in lieu of and not in addition to any notice required under applicable law;
(e) Lessee or any Guarantor shall:
(i) admit in writing its inability to pay its debts
generally as they become due,
(ii) file a petition in bankruptcy or a petition to
take advantage of any insolvency act,
(iii) make an assignment for the benefit of its
creditors,
(iv) consent to the appointment of a receiver of itself
or of the whole or any substantial part of its Property, or
(v) file a petition or answer seeking reorganization
or arrangement under the Federal bankruptcy laws or any other applicable law
or statute of the United States of America or any state thereof;
(f) Lessee or any Guarantor shall be adjudicated as bankrupt
or a court of competent jurisdiction shall enter an order or decree
appointing, without the consent of Lessee, a receiver of Lessee or of the
whole or substantially all of its property, or approving a petition filed
against it seeking reorganization or arrangement of Lessee under the
Federal bankruptcy laws or any other applicable law or statute of the
United States of America or any state thereof, and such judgment, order or
decree shall not be vacated or set aside or stayed within sixty (60) days
from the date of the entry thereof;
(g) Lessee or any Guarantor shall be liquidated or dissolved,
or shall begin proceedings toward such liquidation or dissolution, or
shall, in any manner, permit the sale or divestiture of substantially all
its assets;
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(h) the estate or interest of Lessee in the Leased Property or
any part thereof shall be levied upon or attached in any proceeding and the
same shall not be vacated or discharged within the later of ninety (90)
days after commencement thereof or thirty (30) days after receipt by Lessee
of notice thereof from Lessor, provided, however, that such notice shall be
in lieu of and not in addition to any notice required under applicable law;
(i) except as a result of damage, destruction or Condemnation,
Lessee voluntarily ceases operations on the Leased Property for a period in
excess of thirty (30) days;
(j) any of the representations or warranties made by Lessee in
the Contract of Acquisition or otherwise proves to be untrue when made in
any material respect which materially and adversely affects Lessor;
(k) the Facility's applicable license or third-party provider
reimbursement agreements material to the Facility's operation for its
Primary Intended Use are at any time terminated or revoked or suspended for
more than twenty (20) days;
(l) any local, state or federal agency having jurisdiction
over the operation of the Facility removes ten percent (10%) or more of the
patients or residents located in the Facility;
(m) Lessee voluntarily transfers ten (10) or more patients
located in the Facility to any other facility in which Lessee or any
Affiliate of Lessee has any ownership or other financial interest,
including, without limitation, fees earned under any management agreement,
provided that Lessee's transfer of any patient to a different type of care
facility as a result of such patient's special needs that cannot be met at
the Facility shall not be deemed a voluntary transfer;
(n) Lessee fails to give notice to Lessor not later than ten
(10) days after Lessee's receipt thereof of any Class A or equivalent fine
notice from any governmental authority or officer acting on behalf thereof
relating to the Facility;
(o) Lessee fails to notify Lessor within twenty-four (24)
hours after receipt of any notice from any governmental agency terminating
or suspending or threatening termination or suspension, of any material
license or certification relating to the Facility;
(P) Lessee fails to give notice to Lessor not later than ten
(10) days after any notice, claim or demand from any governmental authority
or any
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officer acting on behalf thereof, of any violation of any law, order,
ordinance, rule or regulation with respect to the operation of the
Facility;
(q) Lessee fails to cure or abate any Class A or equivalent
violation occurring during the Term that is claimed by any governmental
authority, or any officer acting on behalf thereof, of any law, order,
ordinance, rule or regulation pertaining to the operation of the Facility,
and within the time permitted by such authority for such cure or abatement;
(r) any proceedings are instituted against Lessee by any
governmental authority which are reasonably likely to result in (i) the
revocation of any license granted to Lessee for the operation of the
Facility, (ii) if applicable, the decertification of the Facility from
participation in the Medicare or Medicaid reimbursement program, or (iii)
the issuance of a stop placement order with respect to the Facility;
(s) any default and acceleration of any recourse funded
indebtedness of Lessee or any recourse funded indebtedness of any Affiliate
of Lessee has occurred, and such funded indebtedness has an unpaid
principal balance of $1,000,000 or more or such default and acceleration
could reasonably be expected to have a material adverse impact on the
financial condition or operations of Lessee or any Guarantor; and
(t) any default which is not cured within any applicable cure
period shall occur under any guaranty of Lessee's or an Affiliate of
Lessee's obligations to Lessor or an Affiliate of Lessor, in every case,
whether such guaranty is now or hereafter existing.
16.2 CERTAIN REMEDIES. If an Event of Default shall have occurred,
Lessor may terminate this Lease by giving Lessee notice of such termination and
the Term shall terminate and all rights of Lessee under this Lease shall cease.
Lessor shall have all rights at law and in equity available to Lessor under
applicable law as a result of any Event of Default. Lessee shall pay as
Additional Charges all costs and expenses incurred by or on behalf of Lessor,
including reasonable attorneys' fees and expenses, as a result of any Event of
Default hereunder. If an Event of Default shall have occurred and be
continuing, whether or not this Lease has been terminated pursuant to Section
16.1, Lessee shall, to the extent permitted by law, if required by Lessor so to
do, immediately surrender to Lessor possession of the Leased Property and any
Capital Additions thereto and quit the same and Lessor may enter upon and
repossess the Leased Property and any Capital Addition thereto by reasonable
force, summary proceedings, ejectment or otherwise, and, to the extent permitted
by applicable law, may remove Lessee and all other Persons (other than the
Residents of the Facility) and any of Lessee's Personal Property from the Leased
Property and any Capital Addition thereto.
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16.3 DAMAGES. (i) The termination of this Lease; (ii) the repossession
of the Leased Property and any Capital Addition thereto; (iii) the failure of
Lessor, notwithstanding reasonable good faith efforts, to relet the Leased
Property; (iv) the reletting of all or any portion of the Leased Property; or
(v) the inability of Lessor to collect or receive any rentals due upon any such
reletting, shall not relieve Lessee of its liabilities and obligations
hereunder, all of which shall survive any such termination, repossession or
reletting. If any such termination occurs, Lessee shall forthwith pay to Lessor
all Rent due and payable with respect to the Leased Property to and including
the date of such termination. Thereafter:
Lessee shall forthwith pay to Lessor, at Lessor's option, as and for
liquidated and agreed current damages for Lessee's Default, either:
(A) the sum of:
(i) the worth at the time of award of the unpaid Rent which
had been earned at the time of termination to the extent not previously
paid by Lessee under this Section 16.3,
(ii) the worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss that Lessee proves could
have been reasonably avoided,
(iii) the worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term after the time of award exceeds the
amount of such rental loss that Lessee proves could be reasonably avoided,
plus
(iv) any other amount necessary to compensate Lessor for all
the detriment proximately caused by Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom.
As used in clauses (i) and (ii) above, the "worth at the time of award"
shall be computed by allowing interest at the Overdue Rate. As used in
clause (iii) above, the "worth at the time of award" shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (1%). For purposes of
determining the worth at the time of the award, Additional Rent that would
have been payable for the remainder of the Term shall be deemed to be the
greater of (y) the same as the Additional Rent for the then current Lease
Year or, if not determinable, the immediately preceding Lease Year; and (z)
such other amount as Lessor shall demonstrate could reasonably have been
earned.
or (B)
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without termination of Lessee's right to possession of the Leased Property,
each installment of said Rent and other sums payable by Lessee to Lessor
under the Lease as the same becomes due and payable, together with interest
at the Overdue Rate from the date when due until paid, and Lessor may
enforce, by action or otherwise, any other term or covenant of this Lease.
16.4 RECEIVER. Upon the occurrence of an Event of Default, and upon
commencement of proceedings to enforce the rights of Lessor hereunder, Lessor
shall be entitled, as a matter of right, to the appointment of a receiver or
receivers acceptable to Lessor of the Leased Property and any Capital Addition
thereto and of the revenues, earnings, income, products and profits thereof,
pending the outcome of such proceedings, with such powers as the court making
such appointment shall confer.
16.5 LESSEE'S OBLIGATION TO PURCHASE. If an Event of Default shall
have occurred, Lessor may require Lessee to purchase the Leased Property on the
first Minimum Rent Payment Date occurring not less than thirty (30) days after
the date specified in a notice from Lessor requiring such purchase for an amount
equal to the greater of (i) the Fair Market Value, or (ii) the Minimum
Repurchase Price, plus, in either event, all Rent then due and payable
(excluding the installment of Minimum Rent due on the purchase date). If Lessor
exercises such right, Lessor shall convey the Leased Property to Lessee on the
date fixed therefor in accordance with the provisions of Article XVIII upon
receipt of the purchase price therefor and this Lease shall thereupon terminate.
Any purchase by Lessee of the Leased Property pursuant to this Section shall be
in lieu of the damages specified in Section 16.3.
16.6 WAIVER. If Lessor initiates judicial proceedings or if this
Lease is terminated by Lessor pursuant to this Article, Lessee waives, to the
extent permitted by applicable law, (i) any right of redemption, re-entry or
repossession; and (ii) the benefit of any laws now or hereafter in force
exempting property from liability for rent or for debt.
16.7 APPLICATION OF FUNDS. Any payments received by Lessor under any
of the provisions of this Lease during the existence or continuance of any Event
of Default which are made to Lessor rather than Lessee due to the existence of
an Event of Default shall be applied to Lessee's obligations in the order which
Lessor may reasonably determine or as may be prescribed by the laws of the
State.
16.8 RESERVED.
16.9 RESERVED.
16.10 LANDLORD'S SECURITY INTEREST. The parties intend that if an
Event of Default occurs under this Lease, Lessor will control Lessee's Personal
Property and the Intangible Property so that Lessor or its designee or nominee
can operate or re-let the Leased
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Property intact for its Primary Intended Use. Accordingly, to implement such
intention, and for the purpose of securing the payment and performance
obligations of Lessee hereunder, Lessor and Lessee agree as follows:
16.10.1 Lessee, as debtor, hereby grants to Lessor, as secured
party, a security interest and an express contractual lien upon all of Lessee's
right, title and interest in and to Lessee's Personal Property and in and to the
Intangible Property and any and all products, proceeds, rents and profits
thereof in which Lessee now owns or hereafter acquires an interest or right,
including any leased Lessee's Personal Property. This Lease constitutes a
security agreement covering all such Lessee's Personal Property and the
Intangible Property. The security interest granted to Lessor with respect to
Lessee's Personal Property in this Section 16.10 is intended by Lessor and
Lessee to be subordinate to any security interest granted in connection with the
financing or leasing of all or any portion of the Lessee's Personal Property so
long as Lessee uses its best efforts to secure an agreement in Lessor's favor
that the Lessor or financier of such Lessee's Personal Property agrees to give
Lessor written notice of any default by Lessee under the terms of such lease or
financing arrangement, to give Lessor a reasonable time following such notice to
cure any such default and consents to Lessor's written assumption of such lease
or financing arrangement upon Lessor's curing of any such defaults. This
security agreement and the security interest created herein shall survive the
termination, but not the expiration, of this Lease until such time as Lessor has
been fully compensated for all damages resulting from such termination.
16.10.2 If required by Lessor at any time during the Term,
Lessee shall execute and deliver to Lessor, in form reasonably satisfactory to
Lessor, additional security agreements, financing statements, fixture filings
and such other documents as Lessor may reasonably require to perfect or continue
the perfection of Lessor's security interest in Lessee's Personal Property and
the Intangible Property and any and all products and proceeds thereof now owned
or hereinafter acquired by Lessee. In the event Lessee fails to execute any
financing statement or other documents for the perfection or continuation of
Lessor's security interest, Lessee hereby appoints Lessor as its true and lawful
attorney-in-fact to execute any such documents on its behalf, which power of
attorney shall be irrevocable and is deemed to be coupled with an interest.
16.10.3 Upon the occurrence of an Event of Default, Lessor
shall be entitled to exercise any and all rights or remedies available to a
secured party under the Uniform Commercial Code, or available to a lessor under
the laws of the State, with respect to Lessee's Personal Property and the
Intangible Property, including the right to sell the same at public or private
sale.
ARTICLE XVII.
17. LESSOR'S RIGHT TO CURE LESSEE'S DEFAULT. If Lessee shall fail to make
any payment or to perform any act required to be made or performed hereunder,
Lessor, without
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waiving or releasing any obligation or default, may, but shall be under no
obligation to, make such payment or perform such act for the account and at the
expense of Lessee, and may, to the extent permitted by law, enter upon the
Leased Property and any Capital Addition thereto for such purpose and take all
such action thereon as, in Lessor's opinion, may be necessary or appropriate
therefor. No such entry shall be deemed an eviction of Lessee. All sums so
paid by Lessor and all costs and expenses, including reasonable attorneys' fees
and expenses, so incurred, together with interest thereon at the Overdue Rate
from the date on which such sums or expenses are paid or incurred by Lessor,
shall be paid by Lessee to Lessor on demand.
ARTICLE XVIII.
18. PURCHASE OF THE LEASED PROPERTY. If Lessee purchases the Leased
Property from Lessor, Lessor shall, upon receipt from Lessee of the applicable
purchase price, together with full payment of any unpaid Rent due and payable
with respect to any period ending on or before the date of the purchase, deliver
to Lessee an appropriate deed or other conveyance conveying the entire interest
of Lessor in and to the Leased Property to Lessee free and clear of all
encumbrances other than (i) those that Lessee has agreed hereunder to pay or
discharge; (ii) those mortgage liens, if any, which Lessee has agreed in writing
to accept and to take title subject to; (iii) those liens and encumbrances which
were in effect on the date of conveyance of the Leased Property to Lessor; and
(iv) any other encumbrances permitted hereunder to be imposed on the Leased
Property which are assumable at no cost to Lessee or to which Lessee may take
subject without cost to Lessee; provided, however, that in no event shall Lessee
be obligated to assume or take subject to any encumbrance with a principal
balance in excess of the applicable purchase or option price, and provided
further that where the purchase price is equal to the Minimum Repurchase Price
and if any such encumbrance may not be removed without penalty, the applicable
purchase price shall be increased or decreased by an amount equal to the
positive or negative effect on Fair Market Value attributable to the interest
rate, amortization schedule, maturity date, prepayment penalty and other terms
and conditions of such encumbrance. The difference between the applicable
purchase price and the total of the encumbrances assumed or taken subject to
shall be paid to Lessor or as Lessor may direct in immediately available funds.
All expenses of such conveyance, including the cost of title insurance,
attorneys' fees incurred by Lessor in connection with such conveyance and
release, transfer taxes and recording and escrow fees, shall be paid by Lessee.
ARTICLE XIX.
19. RENEWAL TERMS. Provided that Lessee exercises its right to renew the
lease for each of the Seven Properties in accordance with the respective terms
of the renewal option relating to each such lease and provided that no Event of
Default, or event which, with notice or lapse of time or both, would constitute
an Event of Default, has occurred and is continuing, either at the date of
exercise or upon the commencement of an Extended Term
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(as hereunder defined), then Lessee shall have the right to renew this Lease for
three (3) five year renewal terms (each, an "Extended Term), upon giving written
notice to Lessor of such renewal not less than twelve (12) months and not more
than fifteen (15) months prior to the expiration of the then current Fixed Term
or Extended Term, as applicable. During each Extended Term, all of the terms
and conditions of this Lease shall continue in full force and effect except that
the annual Minimum Rent and Additional Rent for and during such Extended Term
shall be the greater of (a) the then current annual Fair Market Rental for the
Leased Property and (b) One Hundred and Three Percent (103%) of the annual
Minimum Rent and Additional Rent payable for the last Lease Year of the
immediately preceding Fixed Term or Extended Term, as applicable.
Notwithstanding anything to the contrary in this Article XIX, Lessor, in its
sole discretion, may waive the condition to Lessee's right to renew this Lease
that no Event of Default, or event which, with notice or lapse of time or both,
would constitute an Event of Default, have occurred or be continuing, and the
same may not be used by Lessee as a means to negate the effectiveness of
Lessee's exercise of its renewal right for such Extended Term.
ARTICLE XX.
20. HOLDING OVER. Except as provided in Article XIX, if Lessee shall for
any reason remain in possession of the Leased Property after the expiration or
earlier termination of the Fixed Term, such possession shall be as a month-to-
month tenant during which time Lessee shall pay as Minimum Rent each month twice
the sum of (i) monthly Minimum Rent applicable to the prior Lease Year, plus
(ii) one-twelfth of the aggregate Additional Rent payable applicable to the
prior Lease Year, together with all Additional Charges and all other sums
payable by Lessee pursuant to this Lease. During such period of month-to-month
tenancy, Lessee shall be obligated to perform and observe all of the terms,
covenants and conditions of this Lease, but shall have no rights hereunder other
than the right, to the extent given by law to month-to-month tenancies, to
continue its occupancy and use of the Leased Property. Nothing contained herein
shall constitute the consent, express or implied, of Lessor to the holding over
of Lessee after the expiration or earlier termination of this Lease.
ARTICLE XXI.
21.1 LETTERS OF CREDIT. During the entire Term and for sixty (60)
days after the expiration or earlier termination of this Lease, Lessee shall
have obtained letters of credit from a financial institution satisfactory to
Lessor naming Lessor as beneficiary to secure Lessee's obligations hereunder and
Lessee's and any Affiliate of Lessee's obligations under any other lease or
other agreement or instrument with or in favor of Lessor or any Affiliate of
Lessor, at the times, in the amounts and for the purposes set forth below. Each
letter of credit shall be in substantially the form of Exhibit D hereto. Each
letter of credit shall be for a term of not less than one (1) year and
irrevocable during that term. Each letter of credit shall provide that it will
be honored upon a signed statement by Lessor that Lessor is entitled to draw
upon the letter of credit under this Lease, and shall require no signature or
statement
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from any party other than Lessor. No notice to Lessee shall be required to
enable Lessor to draw upon the letter of credit. Each letter of credit shall
also provide that following the honor of any drafts in an amount less than the
aggregate amount of the letter of credit, the financial institution shall return
the original letter of credit to Lessor and Lessor's rights as to the remaining
amount of the letter of credit will not be extinguished. In the event of a
transfer of Lessor's interest in the Leased Property, Lessor shall have the
right to transfer the letter of credit to the transferee and thereupon shall,
without any further agreement between the parties, be released by Lessee from
all liability therefor, and it is agreed that the provisions hereof shall apply
to every transfer or assignment of the letter of credit to a new Lessor. The
letter of credit may be assigned as security in connection with a Facility
Mortgage. If the financial institution from which Lessee has obtained a letter
of credit shall admit in writing its inability to pay its debts generally as
they become due, file a petition in bankruptcy or a petition to take advantage
of any insolvency act, make an assignment for the benefit of its creditors
consent to the appointment of a receiver of itself or of the whole or any
substantial part of its property, or file a petition or answer seeking
reorganization or arrangement under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America or any state thereof,
then Lessee shall obtain a replacement letter of credit within thirty (30) days
of such act from another financial institution satisfactory to Lessor.
21.2 TIMES FOR OBTAINING LETTERS OF CREDIT. The initial letter of
credit shall be obtained and delivered to Lessor prior to the execution and
delivery of this Lease. The letters of credit covering subsequent periods shall
be obtained and delivered to Lessor not less than thirty (30) days prior to the
expiration of the then existing letter of credit ("Letter of Credit Date"). The
term for each such letter of credit shall begin no later than the expiration
date of the previous letter of credit.
21.3 AMOUNTS FOR LETTERS OF CREDIT.
21.3.1 Letters of credit covering the first and second Lease
Years shall be in an amount equal to one-half of the annual Minimum Rent payable
by Lessee under this Lease for the applicable Lease Year. The letters of credit
covering subsequent Lease Years shall be in an amount equal to one-half of the
sum of the annual Minimum Rent plus Lessor's reasonable estimate of the
Additional Rent to be payable by Lessee for the applicable Lease Year.
21.3.2 Notwithstanding subsection 21.3.1 above, if for any
eight (8) consecutive month period during the Term the average Cash Flow
Coverage for the Facility equals or exceeds 1.25 and during such time period
Lessee maintains a Consolidated Net Worth in excess of Twenty Million Dollars
($20,000,000), then Lessee shall be entitled to reduce the amount of the letter
of credit for the then current and each subsequent Lease Year by fifty percent
(50%) of the amount required by subsection 21.3.1 above, and if for any eight
(8) consecutive month period during the Term the average Cash Flow Coverage for
the
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Facility equals or exceeds 1.4 and during such time period Lessee maintains a
Consolidated Net Worth in excess of Twenty Million Dollars ($20,000,000), then
Lessee shall no longer be required to supply a letter of credit pursuant to this
Lease; provided, however, that if, following any such reduction in the amount or
elimination of the applicable letter of credit, the average Cash Flow Coverage
for the Facility for any three (3) consecutive month period decreases below 1.4,
then Lessee shall again be required to provide a letter of credit for the then
current and each subsequent Lease Year in an amount equal to fifty percent (50%)
of the amount required by subsection 21.3.1 above and Lessee shall promptly
deliver to Lessor a letter of credit in the readjusted amount, and if the
average Cash Flow Coverage for the Facility for any three (3) consecutive month
period decreases below 1.25 or if at any time Lessee's Consolidated Net Worth
falls below Twenty Million Dollars ($20,000,000), then Lessee shall again be
required to provide a letter of credit for the then current and each subsequent
Lease Year in an amount equal to that required by subsection 21.3.1 above and
Lessee shall promptly deliver to Lessor a letter of credit in the readjusted
amount; provided further that following any such increase, the letter of credit
may be reduced, released and increased as provided above.
21.4 USES OF LETTERS OF CREDIT. Lessor shall have the right to draw
upon a letter of credit up to its full amount whenever an Event of Default has
occurred or an event of default under any other lease or agreement between
Lessor or an Affiliate of Lessor and Lessee or an Affiliate of Lessee or any
letter of credit, guaranty, mortgage, deed of trust, or other instrument
executed by Lessee or an Affiliate of Lessee in favor of Lessor or an Affiliate
of Lessor has occurred and any applicable cure periods have expired; provided
further, if Lessee fails to obtain a satisfactory letter of credit prior to the
applicable Letter of Credit Date, Lessor may draw upon the full amount of the
then existing letter of credit without giving any notice or time to cure to
Lessee. No such draw shall (i) cure or constitute a waiver of an Event of
Default, (ii) be deemed to fix or determine the amounts to which Lessor is
entitled to recover under this Lease or otherwise, or (iii) be deemed to limit
or waive Lessor's right to pursue any remedies provided for in this Lease. If
all or any portion of a letter of credit is drawn against by Lessor, Lessee
shall, within two (2) business days after demand by Lessor, order the issuer of
such letter of credit to issue Lessor, at Lessee's expense, a replacement or
supplementary letter of credit in substantially the form attached hereto as
Exhibit D such that at all times during the Term, Lessor shall have the ability
to draw on one or more letters of credit totaling, in the aggregate, the amount
required pursuant to Section 21.3 and Lessor, upon the receipt thereof, shall
return any amounts drawn down because of Lessee's failure to timely procure a
replacement or supplementary letter of credit and held pending receipt of such
replacement or supplementary letter of credit. However, nothing shall preclude
Lessee from bringing a separate action with respect to the matters governed by
this Section 21.4 and Lessee is not waiving other rights and remedies not
expressly waived with respect to the matters governed by this Section 21.4.
ARTICLE XXII.
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22. RISK OF LOSS. The risk of loss or of decrease in the enjoyment and
beneficial use of the Leased Property as a consequence of the damage or
destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise, or in consequence of foreclosures, attachments, levies or executions
(other than by Lessor and Persons claiming from, through or under Lessor) is
assumed by Lessee, and except as otherwise provided herein no such event shall
entitle Lessee to any abatement of Rent.
ARTICLE XXIII.
23. GENERAL INDEMNIFICATION. In addition to the other indemnities
contained herein, and notwithstanding the existence of any insurance carried by
or for the benefit of Lessor or Lessee, and without regard to the policy limits
of any such insurance, Lessee shall protect, indemnify, save harmless and defend
Lessor from and against all liabilities, obligations, claims, damages penalties,
causes of action, costs and expenses, including reasonable attorneys',
consultants' and experts' fees and expenses, imposed upon or incurred by or
asserted against Lessor by reason of: (i) any accident, injury to or death of
Persons or loss of or damage to property occurring on or about the Leased
Property or adjoining sidewalks; (ii) any use, misuse, non-use, condition,
maintenance or repair by Lessee of the Leased Property; (iii) any failure on the
part of Lessee to perform or comply with any of the terms of this Lease; (iv)
the non-performance of any of the terms and provisions of any and all existing
and future subleases of the Leased Property to be performed by any party
thereunder; (v) any claim for malpractice, negligence or misconduct committed by
any Person on or working from the Leased Property; and (vi) the violation by
Lessee of any Legal Requirement. Any amounts which become payable by Lessee
under this Article shall be paid within ten (10) days after liability therefor
is determined by litigation or otherwise, and if not timely paid shall bear
interest at the Overdue Rate from the date of such determination to the date of
payment. Lessee, at its sole cost and expense, shall contest, resist and defend
any such claim, action or proceeding asserted or instituted against Lessor or
may compromise or otherwise dispose of the same as Lessee sees fit. For
purposes of this Article XXIII, any acts or omissions of Lessee, or by
employees, agents, assignees, contractors, subcontractors or others acting for
or on behalf of Lessee (whether or not they are negligent, intentional, willful
or unlawful), shall be strictly attributable to Lessee.
Lessor shall indemnify, save harmless and defend Lessee from and
against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses, including, but not limited to, reasonable attorneys'
fees, imposed upon or incurred by or asserted against Lessee as a result of the
gross negligence or wilful misconduct of Lessor. Lessor, at its expense, shall
contest, resist, and defend any claim, action or proceeding asserted or
instituted against Lessee with respect to the foregoing or may compromise or
otherwise dispose of the same as Lessor sees fit. Any amounts which become
payable by Lessor under this Section shall be paid within ten (10) days after
liability therefor on the part of Lessor is determined by litigation or
otherwise, and if not timely paid shall bear a late
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charge (to the extent permitted by law) at the Overdue Rate from the date of
such determination to the date of payment.
ARTICLE XXIV.
24. SUBLETTING AND ASSIGNMENT.
24.1 PROHIBITION. Lessee shall not, without Lessor's prior written
consent, which may be withheld in Lessor's sole and absolute discretion,
voluntarily or by operation of law assign (which term includes any sale,
encumbering, pledge or other transfer or hypothecation) this Lease, master
sublet all or any part of the Leased Property or engage the services of any
Person for the management or operation of the Facility. Lessee acknowledges
that Lessor is relying upon the expertise of Lessee in the operation of the
Facility and that Lessor entered into this Lease with the expectation that
Lessee would remain in and operate the Facility during the entire Term and for
that reason Lessor retains sole and absolute discretion in approving or
disapproving any assignment or master sublease. If Lessee is a corporation or
partnership, any transfer of its stock (other than a transfer of any of Lessee's
stock owned by Daniel R. Baty for estate planning purposes) or partnership
interests (or the stock or partnership interests of the entity(ies) that
controls Lessee) or any dissolution or merger or consolidation of Lessee (or its
controlling entity(ies)) with any other entity, which results in any Person
(other than Daniel R. Baty) and such Person's Affiliates collectively owning
greater than twenty-five percent (25%) of the total outstanding shares of any
class of Lessee's stock or partnership interests, or the sale or other transfer
of all or substantially all of the assets of Lessee (or its controlling
entity(ies)), shall constitute an assignment of Lessee's interest in this Lease
within the meaning of this Article XXIV and the provisions requiring consent
contained herein shall apply (provided, however, that the foregoing provision
regarding transfer of Lessee's stock constituting an assignment shall not apply
if (i) Lessee's stock is publicly traded, and (ii) Lessee's Consolidated Net
Worth after such transfer is not less than Lessee's Consolidated Net Worth as of
the Commencement Date. Any sublease of more than ten percent (10%) of the
Facility to any Person or its Affiliates, in one transaction or in a series of
transactions, shall be deemed to be a master sublease hereunder. For any
sublease transaction not requiring the consent of Lessor hereunder, Lessee
shall, within ten (10) days of entering into any such sublease, notify Lessor of
the existence of such sublease and the identity of the sublessee and supply
Lessor with a copy of the sublease, any related documentation and any other
materials or information reasonably requested by Lessor.
24.1.1 Lessor will not unreasonably withhold its written
consent to an assignment of this Lease to (A) any Person which acquires all or
substantially all of the assets and business of Lessee by virtue of a merger or
consolidation of, with or into Lessee or (B) any purchaser of 51% or more of the
outstanding voting stock or partnership interest of Lessee, if in Lessor's
reasonable judgment such assignee, together with any guarantor of such
assignee's obligations under this Lease, has (1) a consolidated net worth equal
to or
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greater than Lessee's consolidated net worth at the time of the proposed
assignment or as of the Commencement Date, whichever is greater, and (2) the
operational expertise and reputation at least equal to that of Lessee at the
time of the proposed assignment or as of the Commencement Date, whichever is
greater.
24.2 CONSENT. If Lessee desires at any time to assign this Lease, to
master sublet the Facility or any portion thereof or engage the services of any
Person for the management or operation of the Facility, it shall first notify
Lessor of its desire to do so and shall submit in writing to Lessor: (i) the
name of the proposed master sublessee, assignee or manager; (ii) the terms and
provisions of the proposed master sublease, assignment or management agreement;
and (iii) such financial information as Lessor reasonably may request concerning
the proposed master sublessee, assignee or manager.
24.2.1 Lessor may, as a condition to granting such consent,
require that the obligations of any sublessee, assignee, or manager which is an
Affiliate of another Person be guaranteed by its parent or controlling Person if
(i) the Consolidated Net Worth of Lessee would be diminished as a result of any
such assignment of Lessee's interest described in this Article XXIV, or (ii) the
new controlling Person(s) would have a consolidated net worth less than the
Lessee's consolidated net worth as of the Closing Date and that any guaranty of
this Lease be reaffirmed by any Guarantor notwithstanding such subletting,
assignment or management arrangement. Any sublease shall be expressly subject
and subordinate to all applicable terms and conditions of this Lease and provide
that Lessor, at its option and without any obligation to-do so, may require any
sublessee to attorn to Lessor, in which event Lessor shall undertake the
obligations of Lessee, as sublessor under such sublease from the time of the
exercise of such option to the termination of such sublease and in such case
Lessor shall not be liable for any prepaid rents or security deposit paid by
such sublessee to Lessee unless Lessor actually receives the same from Lessee or
for any other prior defaults of Lessee under such sublease. In the event that
Lessor shall not require such attornment with respect to any sublease, then such
sublease shall automatically terminate upon the expiration or earlier
termination of this Lease, including any early termination by mutual agreement
of Lessor and Lessee. Furthermore, any sublease, assignment or management
agreement shall expressly provide that the sublessee, assignee or manager shall
furnish Lessor with such financial and operational information and information
about the physical condition of the Facility, including the information required
by Section 25.2 herein, as Lessor may request from time to time.
24.2.2 Lessor may, as a condition to its consent to any such
master subletting, require Lessee to pay to Lessor one hundred percent (100%) of
all Transfer Consideration (defined below). "Transfer Consideration" shall mean
the positive difference, if any, between the Fair Market Rental and the Rent
payable by Lessee determined on a monthly basis, prorating the Rent, as
appropriate, if less than all of the Facility is sublet; provided, however, in
no event shall Lessor be entitled to receive any amount in excess of the amount
Lessee is entitled to receive as a result of the master sublease. The Transfer
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Consideration for each month shall be paid by Lessee to Lessor monthly when the
Minimum Rent is due for the duration of the master subletting.
24.2.3 Lessor may, as a condition to its consent to any
assignment or management arrangement, require Lessee to pay to Lessor upon the
effective date of such assignment or management arrangement an amount equal to
one hundred percent (100%) of the gross fair market value of Lessee's leasehold
interest, which shall be deemed to equal the Transfer Consideration for the
remaining Term of the Lease assuming all renewal options are exercised and there
is no early termination of the Lease and Lessor shall refund any amounts
attributable to renewal options if they subsequently are not exercised with
interest thereon at the Prime Rate; provided, however, in no event shall Lessor
be entitled to receive any amount in excess of the amount Lessee is entitled to
receive as a result of the assignment or management agreement.
24.2.4 The consent by Lessor to any assignment, master
subletting or management arrangement shall not constitute a consent to any
subsequent assignment, master subletting or management arrangement by Lessee or
to any subsequent or successive assignment, master subletting or management
arrangement by the master sublessee, assignee or manager. Any purported or
attempted assignment, sublease, management agreement or other permission to use
the Facility contrary to the provisions of this Article shall be void and, at
the option of Lessor, shall Terminate this Lease.
24.2.5 Notwithstanding the preceding, Lessee may sublease or
assign the Lease to an Affiliate of Lessee without the written consent of Lessor
and Lessee shall not be required to pay any Transfer Consideration to Lessor as
a result of such sublease or assignment to an Affiliate, but such sublease or
assignment of the Lease from Lessee to an Affiliate of Lessee will not relieve
Lessee from its obligations under the Lease or any Guarantor from its
obligations under any guaranty of this Lease.
24.3 COSTS. Lessee shall reimburse Lessor for Lessor's reasonable
costs and expenses incurred in conjunction with the processing and documentation
of any assignment, master subletting or management arrangement, including
reasonable attorneys', architects', engineers' or other consultants' fees
whether or not such master sublease, assignment or management agreement is
actually consummated.
24.4 NO RELEASE OF LESSEE'S OBLIGATIONS. No assignment, subletting or
management agreement shall relieve Lessee of its obligation to pay the Rent and
to perform all of the other obligations to be performed by Lessee hereunder.
The liability of Lessee named herein and any immediate and remote successor in
interest of Lessee (by assignment or otherwise), and the due performance of the
obligations of this Lease on Lessee's part to be performed or observed, shall
not in any way be discharged, released or impaired by any(i) agreement which
modifies any of the rights or obligations of the parties under this Lease, (ii)
stipulation which extends the time within which an obligation under this Lease
is to be
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performed, (iii) waiver of the performance of an obligation required under this
Lease, or (iv) failure to enforce any of the obligations set forth in this
Lease.
24.5 ASSIGNMENT OF LESSEE'S RIGHTS AGAINST SUBLESSEE. If Lessor shall
consent to a master subletting, then the written instrument of consent, executed
and acknowledged by Lessor, Lessee and sublessee, shall contain a provision
substantially similar to the following:
(i) Lessee and sublessee hereby agree that, if sublessee shall
be in default of any obligation of Lessee under the sublease, which default
also constitutes a default by Lessee under the Lease, then Lessor shall be
permitted to avail itself of all of the rights and remedies available to
Lessee in connection therewith.
(ii) Without limiting the generality of the foregoing, Lessor
shall be permitted (by assignment of a cause of action or otherwise) to
institute an action or proceeding against sublessee in the name of Lessee
in order to enforce Lessee's rights under the sublease, and also shall be
permitted to take all ancillary actions (e.g., serve default notices and
demands) in the name of Lessee as Lessor reasonably shall determine to be
necessary.
(iii) Lessee agrees to cooperate with Lessor, and to execute
such documents as shall be reasonably necessary, in connection with the
implementation of the foregoing rights of Lessor.
(iv) Lessee expressly acknowledges and agrees that the exercise
by Lessor of any of the foregoing rights and remedies shall not constitute
an election of remedies, and shall not in any way impair Lessor's
entitlement to pursue other rights and remedies directly against Lessee.
24.6 Reserved
24.7 REIT PROTECTION. Anything contained in this Lease to the
contrary notwithstanding, Lessee shall not (i) sublet, assign or enter into a
management arrangement for the Leased Property on any basis such that the rental
or other amounts to be paid by the sublessee, assignee or manager thereunder
would be based, in whole or in part, on the income or profits delivered by the
business activities of the sublessee, assignee or manager; (ii) furnish or
render any services to the sublessee, assignee or manager or manage or operate
the Leased Property so subleased, assigned or managed; (iii) sublet, assign or
enter into a management arrangement for the Leased Property to any Person in
which Lessee or Lessor owns an interest, directly or indirectly (by applying
constructive ownership rules set forth in Section 856(d)(5) of the Code); or
(iv) sublet, assign or enter into a management arrangement for the Leased
Property in any other manner which could cause any portion of
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the amounts received by Lessor pursuant to this Lease or any sublease to fail to
qualify as "rents from real property" within the meaning of Section 856(d) of
the Code, or any similar or successor provision thereto or which could cause any
other income of Lessor to fail to qualify as income described in Section
856(c)(2) of the Code.
24.8 PREPAID RENT. Lessee shall not require or accept prepayment for
more than three (3) months' use of individual units or rooms of the Facility.
Amounts charged to residents for individual units or rooms shall not be
materially less than fair market value.
ARTICLE XXV.
25. OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS
25.1 OFFICER'S CERTIFICATE. At any time and from time to time upon
Lessee's receipt of not less than ten (10) days' prior written request by
Lessor, Lessee shall furnish to Lessor an Officer's Certificate certifying (i)
that this Lease is unmodified and in full force and effect, or that this Lease
is in full force and effect as modified and setting forth the modifications;
(ii) the dates to which the Rent has been paid; (iii) whether or not, to the
best knowledge of Lessee, Lessor is in default in the performance of any
covenant, agreement or condition contained in this Lease and, if so, specifying
each such default of which Lessee may have knowledge, and (iv) responses to such
other questions or statements of fact as Lessor, any ground or underlying
lessor, any purchaser or any current or prospective Facility Mortgagee shall
reasonably request. Lessee's failure to deliver such statement within such time
shall constitute an acknowledgment by Lessee that (x) this Lease is unmodified
and in full force and effect except as may be represented to the contrary by
Lessor; (y) Lessor is not in default in the performance of any covenant,
agreement or condition contained in this Lease; and (z) the other matters set
forth in such request, if any, are true and correct. Any such certificate
furnished pursuant to this Article may be relied upon by Lessor and any current
or prospective Facility Mortgagee, ground or underlying lessor or purchaser of
the Leased Property.
25.2 STATEMENTS. Lessee shall furnish the following statements to
Lessor:
(a) within 120 days after the end of each of Lessee's fiscal
years, a copy of the audited consolidated balance sheets of Lessee and its
consolidated Subsidiaries as of the end of such fiscal year, and related
audited consolidated statements of income, changes in common stock and
other stockholders' equity and changes in the financial position of Lessee
and its consolidated Subsidiaries for such fiscal year, prepared in
accordance with GAAP applied on a basis consistently maintained throughout
the period involved, such consolidated financial statements to be certified
by nationally recognized certified public accountants;
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(b) within 120 days after the end of Lessee's fiscal years,
and together with the annual audit report furnished in accordance with
clause (a) above, an Officer's Certificate stating that to the best of the
signer's knowledge and belief after making due inquiry, Lessee is not in
default in the performance or observance of any of the terms of this LEASE,
or if Lessee shall be in default, specifying all such defaults, the nature
thereof, and the steps being taken to remedy the same;
(c) within thirty (30) days after the end of each month for
those months occurring from the Commencement Date to three months after the
first month in which the average Cash Flow Coverage for the Facility equals
or exceeds 1.3 for such month, all consolidated financial reports Lessee
produces for reporting purposes and detailed statements of income and
detailed operational statistics regarding occupancy rates, patient and
resident mix and patient and resident rates by type for the Facility; and
thereafter within sixty (60) days after the end of each of Lessee's
quarters, all quarterly consolidated financial reports Lessee produces for
reporting purposes and detailed statements of income and detailed
operational statistics regarding occupancy rates, patient and resident mix
and patient and resident rates by type for the Facility;
(d) within 120 days after the end of each of Lessee's fiscal
years, a copy of each cost report, if any, FILED with the appropriate
governmental agency for the Facility;
(e) within thirty (30) days after they are required to be
FILED with the SEC, copies of any annual reports and of information,
documents and other reports, or copies of such portions of any of the
foregoing as the SEC may prescribe, which Lessee is required to file with
the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934;
(f) within three (3) Business Days after Lessee's receipt
thereof, copies of all written communications received by Lessee from any
regulatory agency relating to (i) surveys of the Facility for purposes of
licensure, Medicare and Medicaid certification and accreditation and (ii)
any proceeding, formal or informal, with respect to cited deficiencies with
respect to services and activities provided and performed at the Facility,
including patient and resident care, patient and resident activities,
patient and resident therapy, dietary, medical records, drugs and
medicines, supplies, housekeeping and maintenance, or the condition of the
Facility, and involving an actual or threatened warning, imposition of a
fine or a penalty, or suspension, termination or revocation of the
Facility's license to be operated in accordance with its Primary Intended
Use;
(g) to the extent reasonably obtainable by Lessee, within 120
days after the end of each fiscal year of the financial institution issuing
the letter of
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credit required under Article XXI, a copy of the audited consolidated
balance sheets of such financial institution as of the end of such fiscal
year, and related unaudited consolidated statements of income, changes in
common stock and other stockholders equity and changes in the financial
position of such financial institution and its consolidated subsidiaries
for each such fiscal year, prepared in accordance with generally accepted
accounting principles applied on a basis consistently maintained throughout
the period involved, such consolidated financial statements to be certified
by nationally recognized certified public accountants;
(h) immediately upon Lessee's receipt thereof, copies of all
material claims, complaints, notices, warnings or asserted violations
relating in any way to the Leased Property or Lessee's use thereof; and
(i) with reasonable promptness, such other information
respecting the financial and operational condition and affairs of Lessee
and the Facility and the physical condition of the Leased Property and any
Capital Addition thereto as Lessor may reasonably request, in the form of a
questionnaire or otherwise, from time to time.
25.3 CHARGES. Lessee acknowledges that the failure to furnish Lessor
with any of the certificates or statements required by this Article XXV will
cause Lessor to incur costs and expenses not contemplated hereunder, the exact
amount of which is presently anticipated to be extremely difficult to ascertain.
Accordingly, if Lessee fails to furnish Lessor with any of the certificates or
statements required by this Article XXV, Lessee shall pay to Lessor upon demand
$1,000 for each such failure as Additional Charges. The parties agree that this
charge represents a fair and reasonable estimate of the costs that Lessor will
incur by reason of Lessee's failure to furnish Lessor with such certificates and
statements.
ARTICLE XVI.
26. LESSOR'S RIGHT TO INSPECT. Lessee shall permit Lessor and its
authorized representatives to inspect the Leased Property and any Capital
Addition thereto during usual business hours and on reasonable notice subject to
any security, health, safety or confidentiality requirements of Lessee or any
Legal Requirement or Insurance Requirement.
ARTICLE XXVII.
27. NO WAIVER. No failure by Lessor to insist upon the strict performance
of any term hereof or to exercise any right, power or remedy hereunder and no
acceptance of full or partial payment of Rent during the continuance of any
default or Event of Default shall constitute a waiver of any such breach or of
any such term. No waiver of any breach shall affect or alter this Lease, which
shall continue in full force and effect with respect to any other then existing
or subsequent breach.
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ARTICLE XXVIII.
28. REMEDIES CUMULATIVE. Each legal, equitable or contractual right,
power and remedy of Lessor now or hereafter provided either in this Lease or by
statute or otherwise shall be cumulative and concurrent and shall be in addition
to every other right, power and remedy and the exercise or beginning of the
exercise by Lessor of any one or more of such rights, powers and remedies shall
not preclude the simultaneous or subsequent exercise by Lessor of any or all of
such other rights, powers and remedies.
ARTICLE XXIX.
29. ACCEPTANCE OF SURRENDER. No surrender to Lessor of this Lease or of
the Leased Property, or any part thereof or of any interest therein, shall be
valid or effective unless agreed to and accepted in writing by Lessor and no act
by Lessor or any representative or agent of Lessor, other than such a written
acceptance by Lessor, shall constitute an acceptance of any such surrender.
ARTICLE XXX.
30. NO MERGER. There shall be no merger of this Lease or of the leasehold
estate created hereby by reason of the fact that the same Person may acquire,
own or hold, directly or indirectly, (i) this Lease or the leasehold estate
created hereby or any interest in this Lease or such leasehold estate and (ii)
the fee estate in the Leased Property.
ARTICLE XXXI.
31. CONVEYANCE BY LESSOR. If Lessor or any successor owner of the Leased
Property shall convey the Leased Property other than as security for a debt,
Lessor or such successor owner, as the case may be, shall thereupon be released
from all future liabilities and obligations of the Lessor under this Lease
arising or accruing from and after the date of such conveyance or other transfer
and all such future liabilities and obligations shall thereupon be binding upon
the new owner.
ARTICLE XXXII.
32. QUIET ENJOYMENT. So long as Lessee shall pay the Rent as the same
becomes due and shall fully comply with all of the terms of this Lease and fully
perform its obligations hereunder, Lessee shall peaceably and quietly have, hold
and enjoy the Leased Property for the Term, free of any claim or other action by
Lessor or anyone claiming by, through or under Lessor, but subject to all liens
and encumbrances of record as of the date hereof, or the Commencement Date or
created thereafter as permitted hereunder or thereafter consented to by Lessee.
No failure by Lessor to comply with the foregoing covenant shall give Lessee any
right to cancel or terminate this Lease or abate, reduce or make a deduction
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from or offset against the Rent or any other sum payable under this Lease, or to
fail to perform any other obligation of Lessee hereunder. Notwithstanding the
foregoing, Lessee shall have the right, by separate and independent action to
pursue any claim it may have against Lessor as a result of a breach by Lessor of
the covenant of quiet enjoyment contained in this Article.
ARTICLE XXXIII.
33. NOTICES. Any notice, consent, approval, demand or other communication
required or permitted to be given hereunder (a "notice") must be in writing and
may be served personally or by U.S. Mail. If served by U.S. Mail, it shall be
addressed as follows:
If to Lessor: Health Care Property Investors Inc.
1O990 Wilshire Boulevard
Suite 1200
Los Angeles, California 90024
Attn: Legal Department
Fax: (310) 444-7817
with a copy to: Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attn: David H. Vena, Esq.
Fax: (213) 891-8763
If to Lessee: Emeritus Corporation
Market Place One
2003 Western Avenue
Suite 660
Seattle, Washington 98121
Attn: Raymond Brandstrom
Fax: (206) 443-5432
with a copy to: The Nathanson Group
1411 Fourth Ave., Suite 905
Seattle, Washington 98101
Attn: Randi S. Nathanson, Esq.
Fax: (206) 623-1738
Any notice which is personally served shall be effective upon the date of
service; any notice given by U.S. Mail shall be deemed effectively given, if
deposited in the United States Mail, registered or certified with return receipt
requested, postage prepaid and addressed as provided above, on the date of
receipt, refusal or non-delivery indicated on the return
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receipt. In addition, either party may send notices by facsimile or by a
nationally recognized overnight courier service which provides written proof of
delivery (such as U.P.S. or Federal Express). Any notice sent by facsimile
shall be effective upon confirmation of receipt in legible form, and any notice
sent by a nationally recognized overnight courier shall be effective on the date
of delivery to the party at its address specified above as set forth in the
courier's delivery receipt. Either party may, by notice to the other from time
to time in the manner herein provided, specify a different address for notice
purposes.
ARTICLE XXXIV.
34. APPRAISER. If it becomes necessary to determine the Fair Market Value
or Fair Market Rental for any purpose of this Lease, the same shall be
determined by Valuation Counselors, or in the event Valuation Counselors no
longer exists upon the date the same is to be determined, any other nationally
recognized appraisal firm, in which one or more of the members, officers or
principals of such firm are members of the American Institute of Real Estate
Appraisers (or any successor organization thereto), as may be selected by Lessor
in writing to Lessee (the "Appraiser"). Lessor shall cause such Appraiser to
determine the Fair Market Value or Fair Market Rental as of the relevant date
(giving effect to the impact, if any, of inflation from the date of the
Appraiser's decision to the relevant date) and the determination of such
Appraiser shall be final and binding upon the parties. If the Facility had
reached stabilized operations prior to the Commencement Date, to the extent
consistent with sound appraisal practice as then existing at the time of any
such appraisal, an appraisal for Fair Market Value shall be made on a basis
consistent with the basis on which the Leased Property was appraised for
purposes of determining its fair market value at the time the Leased Property
was acquired by Lessor. This provision for determination by appraisal shall be
specifically enforceable to the extent such remedy is available under applicable
law, and any determination hereunder shall be final and binding upon the parties
except as otherwise provided by applicable law. Lessor and Lessee shall each
pay one-half of the fees and expenses of the Appraiser and one-half of all other
cost and expenses incurred in connection with such appraisal.
ARTICLE XXXV.
35.1 LESSEE'S OPTION TO PURCHASE THE LEASED PROPERTY. Provided no Event of
Default, or event which, with notice or lapse of time or both, would constitute
an Event of Default, has occurred and is continuing hereunder, Lessee shall have
the option to purchase the Leased Property upon the expiration of the Fixed Term
and each Extended Term at the Shared Appreciation Purchase Price, calculated as
of the Outside Closing Date, provided that Lessee or one of its Affiliates
exercises its option to purchase each of the Seven Properties in accordance with
the respective terms of the option relating to each such property. Lessee may
exercise such option to purchase the Leased Property by opening an escrow (the
"Escrow") with and by depositing a copy of this Lease with a national title
company reasonably acceptable to Lessor ("Escrow Holder") and giving written
notice to
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Lessor of such deposit with Escrow Holder no earlier than fifteen (15) months
and not less than twelve (12) months prior to the expiration of the Fixed Term
or the Extended Term, as applicable. If Lessee shall not be entitled to
exercise such option (e.g., by reason of an Event of Default) or shall be
entitled to exercise the same but shall fail to do so within the time and in the
manner herein provided, such option shall lapse and thereafter not be
exercisable by Lessee. No failure by Lessor to notify Lessee of any defect in
any attempted exercise of the foregoing option shall be deemed a waiver by
Lessor of the right to insist upon Lessee's exercise of such option in strict
accordance with the provisions hereof. Not less than six (6) months prior to
the expiration of the Fixed Term for the Extended Term, as applicable, Lessee
shall deposit one and one-half percent of the Minimum Repurchase Price of the
Seven Properties in the aggregate (the "Opening Deposit") with Escrow Holder.
In the event that Lessee shall properly and timely exercise such option and make
the Opening Deposit, then such transaction shall be consummated on or within ten
(10) days after the expiration of the Fixed Term or Extended Term, as applicable
(the "Outside Closing Date").
35.2 DEFAULTS
35.2.1 LIQUIDATED DAMAGES. IF, FOLLOWING A VALID AND PROPER
EXERCISE OF THE FOREGOING OPTION, LESSEE FAILS TO COMPLETE THE PURCHASE OF THE
LEASED PROPERTY AND SUCH FAILURE CONSTITUTES A BREACH HEREOF, THEN LESSOR, AT
ITS OPTION, MAY TERMINATE THE PURCHASE CONTRACT FORMED BY LESSEE'S EXERCISE OF
SUCH OPTION AND THE ESCROW BY GIVING WRITTEN NOTICE TO LESSEE AND ESCROW HOLDER
AND, THEREUPON, THE ESCROW SHALL BE CANCELED, ALL DOCUMENTS SHALL BE RETURNED TO
THE RESPECTIVE PARTIES WHO DEPOSITED THE SAME, AND LESSEE SHALL PAY ALL TITLE
AND ESCROW CANCELLATION CHARGES AND ALL OF LESSOR'S LEGAL FEES AND COSTS. IN
ADDITION, LESSOR AND LESSEE AGREE THAT, BASED ON THE CIRCUMSTANCES NOW EXISTING,
KNOWN OR UNKNOWN, IT WOULD BE EXCESSIVELY COSTLY AND IMPRACTICABLE TO ESTABLISH
LESSOR'S DAMAGES BY REASON OF LESSEE'S DEFAULT RESULTING IN A FAILURE OF THE
ESCROW TO CLOSE, AND, THEREFORE, LESSOR AND LESSEE AGREE THAT IT WOULD BE
REASONABLE TO AWARD LESSOR LIQUIDATED DAMAGES IN THE AMOUNT OF THE OPENING
DEPOSIT PLUS ANY ACCRUED INTEREST ON THE OPENING DEPOSIT. BY THEIR RESPECTIVE
INITIALS SET FORTH BELOW, LESSOR AND LESSEE ACKNOWLEDGE AND AGREE THAT THE
OPENING DEPOSIT, PLUS ANY INTEREST ACCRUED ON THE OPENING DEPOSIT, TOGETHER WITH
PAYMENT OF LESSOR'S LEGAL FEES AND COSTS, IS REASONABLE AS LIQUIDATED DAMAGES
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FOR A DEFAULT OF LESSEE UNDER THE PURCHASE CONTRACT FORMED BY LESSEE'S EXERCISE
OF SUCH OPTION THAT RESULTS IN A FAILURE OF THE ESCROW TO CLOSE AND SHALL BE IN
LIEU OF ANY OTHER RELIEF, RIGHT OR REMEDY, AT LAW OR IN EQUITY, TO WHICH LESSOR
MIGHT OTHERWISE BE ENTITLED BY REASON OF A LESSEE'S DEFAULT THAT
RESULTS IN A FAILURE OF THE ESCROW TO CLOSE, BUT NOTHING CONTAINED HEREIN SHALL
LIMIT LESSOR'S RIGHTS AND REMEDIES FOR LESSEE'S DEFAULT OCCURRING AFTER THE
CLOSE OF ESCROW OR FOR LESSEE'S DEFAULT UNDER THIS LEASE. ESCROW HOLDER IS
HEREBY AUTHORIZED AND INSTRUCTED TO RELEASE THE OPENING DEPOSIT PLUS ACCRUED
INTEREST THEREON TO LESSOR UPON THE DELIVERY OF UNILATERAL WRITTEN INSTRUCTIONS
THEREOF TO ESCROW HOLDER BY LESSOR, AND ESCROW HOLDER IS HEREBY RELIEVED OF ALL
LIABILITY THEREFOR. IF LESSEE ATTEMPTS TO INTERFERE WITH THE RELEASE OF ANY
SUCH SUMS BY ESCROW HOLDER TO LESSOR, OR COMMENCES ANY ACTION AGAINST LESSOR OR
THE LEASED PROPERTY ARISING OUT OF THIS ARTICLE, THEN LESSOR SHALL NOT BE
LIMITED IN THE AMOUNT OF DAMAGES IT MAY RECOVER FROM LESSEE.
Lessor's Initials:
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Lessee's Initials: /s/DRB
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35.2.2 OTHER DEFAULTS. A default under any other lease or other
agreement, including any purchase contract formed upon exercise of any other
option, between Lessor or any Affiliate of Lessor and Lessee or any Affiliate of
Lessee where such default is not cured within the applicable time period, if
any, shall be deemed a default under this Article XXXV and the purchase contract
formed upon proper exercise by Lessee of the option herein provided, entitling
Lessor, as seller, at its option, to terminate such purchase contract and the
Escrow and upon any such termination the Opening Deposit plus all accrued
interest shall be paid over to Lessee.
35.3 ESCROW PROVISIONS.
35.3.1 OPENING OF ESCROW. Escrow shall be deemed open when the
Opening Deposit and a copy of this Lease are delivered to Escrow Holder.
35.3.2 GENERAL AND SUPPLEMENTAL INSTRUCTIONS. Lessee and Lessor each
shall execute, deliver and be bound by such further escrow instructions or other
instruments as may be reasonably requested by the other party or by Escrow
Holder from time to time, so long as the same are consistent with the provisions
of this Lease.
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35.3.3 DISPOSITION OF OPENING DEPOSITS. Escrow Holder shall hold the
Opening Deposit in interest-bearing accounts. All interest earned on the
Opening Deposit shall accrue to Lessee's benefit unless Lessor is entitled
thereto under Section 35.2.1. The Opening Deposit plus interest thereon shall
be (i) applied against the purchase price (as herein determined) if Escrow
closes, (ii) returned to Lessee in full if Escrow does not close for any reason
other than Lessee's default, or (iii) be paid to Lessor as nonrefundable
liquidated damages under Section 35.2.1, if Escrow fails to close under the
provisions of hereof as a result of Lessee's default.
35.3.4 CLOSING FUNDS. At least one (1) business day before the Close
of Escrow (as hereinafter defined), Escrow Holder shall calculate and Lessee
shall wire cash into Escrow (using wiring instructions reasonably satisfactory
to Escrow Holder) in an amount which, when added to the Opening Deposit and all
accrued interest shall equal the purchase price for the Leased Property plus any
other sums payable by Lessee pursuant to the provisions hereof.
35.3.5 CLOSE OF ESCROW. Escrow shall close on the Outside Closing
Date. The term "Close of Escrow" as used in this Article shall mean the time
and date that an appropriate deed or other conveyance document conveying
Lessor's entire interest in the Leased Property, subject to the permitted liens
and encumbrances described in Article XVIII hereof, is recorded in appropriate
records of the county in which the Leased Property is located. The Outside
Closing Date shall not be extended for any reason.
35.3.6 CLOSING COSTS. The closing costs of consummating the purchase
of the Leased Property shall be paid by Lessee as provided in Article XVIII.
35.3.7 ASSURANCES. At any time prior to Close of Escrow, Lessor may
request and Lessee shall provide reasonable assurances that it will be able to
consummate the purchase of the Leased Property, including that Lessee has a
firm, written commitment from a reputable lending institution to finance such
purchase and/or has sufficient liquidity to pay any balance of the purchase
price owing by Lessee on the date of the Close of Escrow; provided, however,
that in no event shall Lessee be entitled to exercise such option conditioned
upon Lessee obtaining any such financing.
35.4 LESSOR'S OPTION TO PURCHASE THE LESSEE'S PERSONAL PROGRAM. Effective
on not less than ninety (90) days prior written notice, or such shorter notice
as shall be appropriate if this Lease is terminated prior to its expiration
date, Lessor shall have the option to purchase some or all of Lessee's Personal
Property which does provide a new function with respect to Lessor's Personal
Property, at the expiration or termination of this Lease, for an amount equal to
the then net book value thereof as shown on Lessee's books, subject to, and with
appropriate price adjustments for, all equipment leases, conditional sale
contracts, UCC-1 financing statements and other encumbrances to which such
personal property is subject.
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ARTICLE XXXVI.
36.1 LESSOR MAY GRANT LIENS. Without the consent of Lessee, Lessor may,
from time to time, directly or indirectly, create or otherwise cause to exist
any lien, encumbrance or title retention agreement upon the Leased Property, or
any portion thereof or
interest therein, whether to secure any borrowing or other means of financing or
refinancing. This Lease is and at all times shall be subject and subordinate to
any ground or underlying leases, mortgages, deeds of trust or like encumbrances
(collectively, "Priority Encumbrances"), which may now or hereafter affect the
Leased Property and to all renewals, modifications, consolidations, replacements
and extensions of any such lease, mortgage, deed of trust or like encumbrance;
PROVIDED, HOWEVER, that the subjection and subordination of this Lease and
Lessee's leasehold interest hereunder to any Priority Encumbrance shall be
conditioned upon the execution by the holder of each Priority Encumbrance and
delivery to Lessee of a non-disturbance and attornment agreement which provides
that so long as no default has occurred and is continuing beyond the period of
time allowed for the remedy thereof under the terms of this Lease, the holder of
such Priority Encumbrance (i) shall not disturb either Lessee's leasehold
interest or possession of the Leased Property in accordance with the terms
hereof, or any of its rights, privileges and options, (ii) shall permit
application of all proceeds of insurance and all Awards and payments in
connection with the taking of all or any portion of the Leased Property in
accordance with the provisions of Articles XIV and XV of this Lease, (iii)
waives all Priority Encumbrance rights or interests in any of Lessee's Personal
Property, and (iv) shall execute a release of such rights, privileges, options
and all liens and claim s that the holder of such Priority Encumbrance may have
in the Leased Property upon payment of the purchase price therefor in the event
Lessee exercises any of its options or rights to purchase the Leased Property
provided in this Lease. In connection with the foregoing and at the request of
Lessor, Lessee shall promptly execute a reasonable subordination, non-
disturbance and attornment agreement which will incorporate the terms set forth
in the preceding sentence. Except for the documents described in the preceding
sentences, this clause shall be self-operative and no further instrument of
subordination shall be required by any ground or underlying lessor or by any
mortgagee or beneficiary, affecting any lease or the Leased Property. In
confirmation of such subordination, Lessee shall execute promptly any
certificate that Lessor may request for such purposes.
36.2 ATTORNMENT. If Lessor's interest am the Leased Property is sold or
conveyed upon the exercise of any remedy provided for in any Facility Mortgage,
or otherwise by operation of law: (i) at the new owner's option, Lessee shall
attorn to and recognize the new owner as Lessee's Lessor under this Lease or
enter into a new lease substantially in the form of this Lease with the new
owner, and Lessee shall take such actions to confirm the foregoing within ten
(10) days after request; and (ii) the new owner shall not be (a) liable for any
act or omission of Lessor under this Lease occurring prior to such sale or
conveyance, or (b) subject to any offset, abatement or reduction of rent because
of any default of Lessor under this Lease occurring prior to such sale or
conveyance.
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ARTICLE XXXVII.
37.1 HAZARDOUS SUBSTANCES. Lessee shall not allow any Hazardous
Substance to be located in, on, under or about the Leased Property or
incorporated in the Facility; provided, however, that Hazardous Substances may
be brought, kept, used or
disposed of in, on or about the Leased Property in quantities and for purposes
similar to those brought, kept, used or disposed of in, on or about similar
facilities used for purposes similar to the Primary Intended Use or in
connection with the construction of facilities similar to the Facility and which
are brought, kept, used and disposed of in strict compliance with Legal
Requirements. Lessee shall not allow the Leased Property to be used as a waste
disposal site or for the manufacturing, handling, storage, distribution or
disposal of any Hazardous Substance.
37.2 NOTICES. Lessee shall provide to Lessor promptly, and in any event
immediately upon Lessee's receipt thereof, a copy of any notice, or notification
with respect to, (i) any violation of a Legal Requirement relating to Hazardous
Substances located in, on, or under the Leased Property or any adjacent
property; (ii) any enforcement, cleanup, removal, or other governmental or
regulatory action instituted, completed or threatened with respect to the Leased
property; (iii) any claim made or threatened by any Person against Lessee or the
Leased Property relating to damage, contribution, cost recovery, compensation,
loss, or injury resulting from or claimed to result from any Hazardous
Substance; and (iv) any reports made to any federal, state or local
environmental agency arising out of or in connection with any Hazardous
Substance in, on, under or removed from the Leased Property, including any
complaints, notices, warnings or asserted violations in connection therewith.
37.3 REMEDIATION. If Lessee becomes aware of a violation of any Legal
Requirement relating to any Hazardous Substance in, on, under or about the
Leased Property or any adjacent property, or if Lessee, Lessor or the Leased
Property becomes subject to any order of any federal, state or local agency to
repair, close, detoxify, decontaminate or otherwise remediate the Leased
Property, Lessee shall immediately notify Lessor of such event and, at its sole
cost and expense, cure such violation or effect such repair, closure,
detoxification, decontamination or other remediation; provided, however, that
Lessee's obligation to remediate with respect to any adjacent property shall
only apply if such contamination of the adjacent property poses a material
threat to the Leased Property, including the value thereof. If Lessee fails to
implement and diligently pursue any such cure, repair, closure, detoxification,
decontamination or other remediation, Lessor shall have the right, but not the
obligation, to carry out such action and to recover from Lessee all of Lessor's
costs and expenses incurred in connection therewith.
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37.4 INDEMNITY. Lessee shall indemnify, defend, protect, save, hold
harmless, and reimburse Lessor for, from and against any and all costs, losses
(including, losses of use or economic benefit or diminution in value),
liabilities, damages, assessments, lawsuits, deficiencies, demands, claims and
expenses (collectively, "Environmental Costs") (whether or not arising out of
third-party claims and regardless of whether liability without fault is imposed,
or sought to be imposed, on Lessor) incurred in connection with, arising out of,
resulting from or incident to, directly or indirectly, before or during (but not
after) the Term or such portion thereof during which the Leased Property is
leased to Lessee (i) the
production, use, generation, storage, treatment, transporting, disposal,
discharge, release or other handling or disposition of any Hazardous Substances
from, in, on or about the Leased Property (collectively, "Handling"), including
the effects of such handling of any Hazardous Substances on any Person or
property within or outside the boundaries of the Leased Property, (ii) the
presence of any Hazardous Substances in, on, under or about the Leased Property
and (iii) the violation of any Environmental Law. "Environmental Costs" include
interest, costs of response, removal, remedial action, containment, cleanup,
investigation, design, engineering and construction, damages (including actual,
consequential and punitive damages) for personal injuries and for injury to,
destruction of or loss of property or natural resources, relocation or
replacement costs, penalties, fines, charges or expenses, attorney's fees,
expert fees, consultation fees, and court costs, and all amounts paid in
investigating, defending or settling any of the foregoing.
Without limiting the scope or generality of the foregoing, Lessee expressly
agrees to reimburse Lessor for any and all costs and expenses incurred by Lessor
in connection with, arising out of, resulting from or incident to, directly or
indirectly, before or during (but not after) the Term or such portion thereof
during which the Leased Property is leased to Lessee of the following:
(a) In investigating any and all matters relating to the Handling of any
Hazardous Substances, in, on, from, under or about the Leased Property,
(b) In bringing the Leased Property into compliance with all Legal
Requirements; and
(c) Removing, treating, storing, transporting, cleaning-up and/or
disposing of any Hazardous Substances used, stored, generated, released or
disposed of in, on, from, under or about the Leased Property or off-site.
If any claim is made by Lessor for reimbursement for Environmental Costs
incurred by it hereunder, Lessee agrees to pay such claim promptly, and in any
event to pay such claim within thirty (30) calendar days after receipt by Lessee
of notice thereof. If any such claim is not so paid and Lessor is ultimately
found or agrees to be responsible therefore, Lessee agrees also to pay interest
on the amount paid from the date of the first notice of such claim, at the
Overdue Rate.
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37.5 ENVIRONMENTAL INSPECTION. Lessor shall have the right, from time to
time, during normal business hours and upon not less than five (5) days written
notice to Lessee, except in the case of an emergency in which event no notice
shall be required, to conduct an inspection of the Leased Property to determine
the existence or presence of Hazardous Substances on or about the Leased
Property. Lessor shall have the right to enter and inspect the Leased Property,
conduct any testing, sampling and analyses it deems necessary and shall have the
right to inspect materials brought into the Leased Property.
Lessor may, in its discretion, retain such experts to conduct the inspection,
perform the tests referred to herein, and to prepare a written report in
connection therewith. All costs and expenses incurred by Lessor under this
Section shall be paid on demand as Additional Charges by Lessee to Lessor.
Failure to conduct an environmental inspection or to detect unfavorable
conditions if such inspection is conducted shall in no fashion be intended as a
release of any liability for environmental conditions subsequently determined to
be associated with or to have occurred during Lessee's tenancy. Lessee shall
remain liable for any environmental condition related to or having occurred
during its tenancy regardless of when such conditions are discovered and
regardless of whether or not Lessor conducts an environmental inspection at the
termination of the Lease. The obligations set forth in this Article shall
survive the expiration or earlier termination of the Lease.
ARTICLE XXXVIII.
38. MEMORANDUM OF LEASE. Lessor and Lessee shall, promptly upon the
request of either, enter into a short form memorandum of this Lease, in form
suitable for recording under the laws of the State. Lessee shall pay all costs
and expenses of recording any such memorandum and shall fully cooperate with
Lessor in removing from record any such memorandum upon the expiration or
earlier termination of the Term.
ARTICLE XXXIX.
39. SALE OF ASSETS. Notwithstanding any other provision of this Lease,
Lessor shall not be required to (i) sell or transfer the Leased Property, or any
portion thereof, which is a real estate asset as defined in Section
856(c)(6)(B), or functionally equivalent successor provision, of the Code, to
Lessee if Lessor's counsel advises Lessor that such sale or transfer may not be
a sale of property described in Section 857(b)(6)(C), or functionally equivalent
successor provision, of the Code or (ii) sell or transfer the Leased Property,
or any portion thereof, to Lessee if Lessor's counsel advises Lessor that such
sale or transfer could result in an unacceptable amount of gross income for
purposes of the ninety five percent (95%) gross income test contained in Section
856(c)(2), or functionally equivalent successor provision, of the Code. If
Lessee has the obligation to purchase the property pursuant to the terms herein,
and if Lessor determines not to sell such property pursuant to the above
sentence, then Lessee shall purchase such property, upon and subject to all
applicable terms and conditions set forth in this Lease, including the
provisions of Article XXXV, at such time as the transaction, upon the advice of
Lessor's counsel, would be a sale of property (to the extent the Leased Property
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is a real estate asset) described in Section 857(b)(6)(C), or functionally
equivalent successor provision, of the Code, and would not result in an
unacceptable amount of gross income for purposes of the ninety five percent
(95%) gross income test contained in Section 856(c)(2), or functionally
equivalent successor provision of the Code and until such time Lessee shall
lease the Leased Property from Lessor at the Fair Market Rental determined in
accordance with Article XXXIV; provided, however, that if Lessee's obligation to
purchase arises pursuant to Section 16.5, and if the events giving rise to the
Event of Default for which Lessor exercised its right to put the Leased Property
to Lessee pursuant to Section 16.5 has been cured prior to the time Lessor
determines to sell the Leased Property, then this Lease shall continue in full
force and effect as if such Event of Default had not occurred. If Lessee has
the right to purchase the property pursuant to the terms herein, and if Lessor
determines not to sell such property pursuant to the above sentence, Lessee's
right, if any, to purchase any or all of such property shall, upon notice to
Lessor that Lessee intends to continue such right, continue and be exercisable,
upon and subject to all applicable terms and conditions set forth in this Lease,
including the provisions of Article XXXV, at such time as the transaction, upon
the advice of Lessor's counsel, would be a sale of property (to the extent the
Leased Property is a real estate asset) described in Section 857(b)(6)(C), or
functionally equivalent successor provision, of the Code, and would not result
in an unacceptable amount of gross income for purposes of the ninety five
percent (95%) gross income test contained in Section 856(c)(2), or functionally
equivalent successor provision of the Code and until such time Lessee shall
lease the Leased Property from Lessor at the Fair Market Rental determined in
accordance with Article XXXIV.
ARTICLE XL.
40. SUBDIVISION. If the Land is in excess of that which is required to
operate the Leased Property in accordance with its Primary Intended Use, Lessor
may subdivide the Land and amend this Lease and the legal description attached
hereto as Exhibit A such that the Land contains only so much of the Land as is
necessary to operate the Leased Property in accordance with its Primary Intended
Use. If Lessor subdivides the Land, Lessee shall have the right to an
appropriate abatement of Rent payable and of the purchase price payable in the
event that Lessee exercises its option to purchase the Leased Property pursuant
to Article XXXV and the right to reasonably adjust any other obligations of
either party accordingly. After any such subdivision Lessee shall have no
rights to any land which is no longer part of the Leased Property and Lessor may
sell, lease or develop any land which is no longer part of the Leased Property,
provided that Lessor may not use such land for the operation of a facility
providing assisted living services, and provided rather that Lessor may not sell
or lease such land to a third party that Lessor knows intends to use such land
for the development of a facility providing assisted living services. If Lessor
elects to subdivide the Land Lessee shall cooperate with Lessor and take all
actions reasonably requested by Lessor to effect such subdivision.
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ARTICLE XLI
41. AUTHORITY. If Lessee is a corporation, trust, or partnership, Lessee,
and each individual executing this Lease on behalf of Lessee, represent and
warrant that each is duly authorized to execute and deliver this Lease on behalf
of Lessee and shall within thirty (30) days after execution of this Lease
deliver to Lessor evidence of such authority satisfactory to Lessor.
ARTICLE XLII.
42. ATTORNEYS' FEES. If Lessor or Lessee brings an action for other
proceeding against the other to enforce any of the terms, covenants or
conditions hereof or any instrument executed pursuant to this Lease, or by
reason of any breach or default hereunder or thereunder, the party prevailing in
any such action or proceeding and any appeal thereupon shall be paid all of its
costs and reasonable outside attorneys' fees incurred therein. In addition to
the foregoing and other provisions of this Lease that specifically require
Lessee to reimburse, pay or indemnify against Lessor's attorneys' fees, Lessee
shall pay, as Additional Charges, all of Lessor's reasonable outside attorneys'
fees incurred in connection with the administration or enforcement of this
Lease, including attorneys' fees incurred in connection with Lessee's exercise
of its option to purchase the Leased Property or the renewal of this Lease for
any Extended Term, the review of any letters of credit, the review, negotiation
or documentation of any subletting, assignment, or management arrangement or any
consent requested in connection therewith, and the collection of past due Rent.
ARTICLE XLIII.
43. BROKERS. Lessee warrants that it has not had any contact or dealings
with any Person or real estate broker which would give rise to the payment of
any fee or brokerage commission in connection with this Lease, and Lessee shall
indemnify, protect, hold harmless and defend Lessor from and against any
liability with respect to any fee or brokerage commission arising out of any act
or omission of Lessee. Lessor warrants that it has not had any contact or
dealings with any Person or real estate broker which would give rise to the
payment of any fee or brokerage commission in connection with this Lease, and
Lessor shall indemnify, protect, hold harmless and defend Lessee from and
against any liability with respect to any fee or brokerage commission arising
out of any act or omission of Lessor.
ARTICLE XLIV.
44. MISCELLANEOUS
44.1 SURVIVAL. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities and indemnities of, Lessee
or Lessor arising prior to the expiration or earlier termination of the Term
shall survive such expiration or termination.
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44.2 SEVERABILITY. If any term or provision of this Lease or any
application thereof shall be held invalid or unenforceable, the remainder of
this Lease and any other application of such term or provision shall not be
affected thereby.
44.3 NON-RECOURSE. Lessee specifically agrees to look solely to the Leased
Property for recovery of any judgment from Lessor. It is specifically agreed
that no constituent partner in Lessor or officer or employee of Lessor shall
ever be personally liable for any such judgment or for the payment of any
monetary obligation to Lessee. The provision contained in the foregoing
sentence is not intended to, and shall not, limit any right that Lessee might
otherwise have to obtain injunctive relief against Lessor, or any action not
involving the personal liability of Lessor. Furthermore, except as otherwise
expressly provided herein, in no event shall Lessor ever be liable to Lessee for
any indirect or consequential damages suffered by Lessee from whatever cause.
44.4 LICENSES. Upon the expiration or earlier termination of the Term,
Lessee shall use its best efforts to transfer to Lessor or Lessor's nominee and
shall cooperate with Lessor or Lessor's designee or nominee in connection with
the processing by Lessor or Lessor's designee or nominee of any applications for
all licenses, operating permits and other governmental authorization, all
contracts, including contracts with governmental or quasi-governmental entities,
business records, data, patient and resident records, and patient and resident
trust accounts, which may be necessary or useful for the operation of the
Facility; provided that the costs and expenses of any such transfer or the
processing of any such application shall be paid by Lessor or Lessor's designee
or nominee. Lessee shall not commit any act or be remiss in the undertaking of
any act that would jeopardize the licensure or certification of the Facility,
and Lessee shall comply with all requests for an orderly transfer of the same
upon the expiration or early termination of the Term. In addition, upon
request, Lessee shall promptly deliver copies of all books and records relating
to the Leased Property and its operation to Lessor or Lessor's designee or
nominee but Lessee shall not be required to deliver corporate financial records
or proprietary materials. Lessee shall indemnify, defend, protect and hold
harmless Lessor from and against any loss, damage, cost or expense incurred by
Lessor or Lessor's designee or nominee in connection with the correction of any
and all deficiencies of a physical nature identified by any governmental
authority responsible for licensing the Leased Property in the course of any
change of ownership inspection and audit and previously identified during the
Term by such governmental authority.
44.5 SUCCESSORS AND ASSIGNS. This Lease shall be binding upon Lessor and
its successors and assigns and, subject to the provisions of Article XXIV, upon
Lessee and its successors and assigns.
44.6 GOVERNING LAW. THIS LEASE (AND ANY AGREEMENT FORMED PURSUANT TO THE
TERMS HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
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OF LAW) AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. Lessee and
Lessor each hereby (i) irrevocably submit to the jurisdiction of the State and
federal courts of the State and consent to service of process in any legal
proceedings arising out of, or in
connection with, this Lease (or any agreement formed pursuant to the terms
hereof), by any means authorized by applicable law; (ii) irrevocably waive, to
the fullest extent permitted by law, any objection to which such party may now
or hereinafter have to the lying or to the laying of venue of any litigation
arising out of, in connection with, this Lease (or any agreement formed pursuant
to the terms hereof), brought in the State courts of Orange County, California,
or in the United States District Court for the district in which such County is
located; and (iii) irrevocably waive any claim in any litigation brought in any
such court that the same has been brought in an inconvenient forum.
44.7 WAIVER OF TRIAL BY JURY. EACH OF LESSOR AND LESSEE ACKNOWLEDGES THAT
IT HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO
TRIAL BY JURY UNDER THE CONSTITUTION OF THE UNITED STATES AND THE STATE. TO THE
MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH OF LESSOR AND LESSEE HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (i) ARISING UNDER THIS LEASE (OR ANY AGREEMENT FORMED PURSUANT
TO THE TERMS HEREOF) OR (ii) IN ANY MANNER CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF LESSOR AND LESSEE WITH RESPECT TO THIS LEASE (OR
ANY AGREEMENT FORMED PURSUANT TO THE TERMS HEREOF) OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREINAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; EACH
OF LESSOR AND LESSEE HEREBY AGREES AND CONSENTS THAT, TO THE MAXIMUM EXTENT
PERMITTED BY APPLICABLE LAW, (A) ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY, AND (B) EITHER PARTY
MAY FILE A COPY OF THIS SECTION WITH ANY COURT AS CONCLUSIVE EVIDENCE OF THE
CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
LESSOR'S INITIALS:
----------
LESSEE'S INITIALS: /s/DRB
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44.8 RESERVED.
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44.9 ENTIRE AGREEMENT. This Lease, together with the other Lessee
Documents, as defined in the Contract of Acquisition, the Exhibits hereto and
thereto and such other documents as are contemplated hereunder or thereunder,
constitutes the entire agreement of the parties with respect to the subject
matter hereof, and may not be changed or modified except by an agreement in
writing signed by the parties. Lessor and Lessee hereby
connection with, this Lease (or any agreement formed pursuant to the terms
hereof), by any means authorized by applicable law; (ii) irrevocably waive, to
the fullest extent permitted by law, any objection to which such party may now
or hereinafter have to the lying or to the laying of venue of any litigation
arising out of, in connection with, this Lease (or any agreement formed pursuant
to the terms hereof), brought in the State courts of Orange County, California,
or in the United States District Court for the district in which such County is
located; and (iii) irrevocably waive any claim in any litigation brought in any
such court that the same has been brought in an inconvenient forum.
44.7 WAIVER OF TRIAL BY JURY. EACH OF LESSOR AND LESSEE ACKNOWLEDGES THAT
IT HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO
TRIAL BY JURY UNDER THE CONSTITUTION OF THE UNITED STATES AND THE STATE. TO THE
MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH OF LESSOR AND LESSEE HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (i) ARISING UNDER THIS LEASE (OR ANY AGREEMENT FORMED PURSUANT
TO THE TERMS HEREOF) OR (ii) IN ANY MANNER CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF LESSOR AND LESSEE WITH RESPECT TO THIS LEASE (OR
ANY AGREEMENT FORMED PURSUANT TO THE TERMS HEREOF) OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREINAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; EACH
OF LESSOR AND LESSEE HEREBY AGREES AND CONSENTS THAT, TO THE MAXIMUM EXTENT
PERMITTED BY APPLICABLE LAW, (A) ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY, AND (B) EITHER PARTY
MAY FILE A COPY OF THIS -SECTION WITH ANY COURT AS CONCLUSIVE EVIDENCE OF THE
CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
LESSOR'S INITIALS: /s/EJH
----------
LESSEE'S INITIALS:
----------
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<PAGE>
44.8 RESERVED.
44.9 ENTIRE AGREEMENT. This Lease, together with the other Lessee
Documents, as defined in the Contract of Acquisition, the Exhibits hereto and
thereto and such other documents as are contemplated hereunder or thereunder,
constitutes the entire agreement of the parties with respect to the subject
matter hereof, and may not be changed or modified except by an agreement in
writing signed by the parties. Lessor and Lessee hereby
agree that all prior or contemporaneous oral understandings, agreements or
negotiations relative to the leasing of the Leased Property are merged into and
revoked by this Lease.
44.10 HEADINGS. All titles and headings to sections, subsections,
paragraphs or other divisions of this Lease are only for the convenience of the
parties and shall not be construed to have any effect or meaning with respect to
the other contents of such sections, subsections, paragraphs or other divisions,
such other content being controlling as to the agreement among the parties
hereto.
44.11 COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which shall be a valid and binding original, but all of
which together shall constitute one and the same instrument.
44.12 JOINT AND SEVERAL. If more than one Person is the Lessee under this
Lease, the liability of such Persons under this Lease shall be joint and
several.
44.13 INTERPRETATION. Both Lessor and Lessee have been represented by
counsel and this Lease and every provision hereof has been freely and fairly
negotiated. Consequently, all provisions of this Lease shall be interpreted
according to their fair meaning and shall not be strictly construed against any
party.
44.14 TIME OF ESSENCE. Time is of the essence of this Lease and each
provision hereof in which time of performance is established.
44.15 FURTHER ASSURANCES. The parties agree to promptly sign all
documents reasonably requested to give effect to the provisions of this Lease.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease to be executed
by their duly authorized officers as of the date first set forth above.
LESSOR:
HEALTH CARE PROPERTY
INVESTORS, INC., a Maryland
corporation
By: /s/Edward J. Hinning
--------------------------------
Name: Edward J. Hinning
------------------------------
Title: Senior Vice President
-----------------------------
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<PAGE>
LESSEE:
EMERITUS CORPORATION, a
Washington corporation
By: /s/Daniel R. Baty
-------------------------------
Name: Daniel R. Baty
-----------------------------
Title: Chairman
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<PAGE>
AMENDMENT TO LEASE
(Rosewood Court Facility)
This First Amendment to Lease ("Amendment") is dated as of April 25, 1996
by and between HEALTH CARE PROPERTY INVESTORS, INC., a Maryland corporation
("Lessor") and EMERITUS CORPORATION, a Washington corporation ("Lessee").
RECITALS
A. Lessor and Lessee entered into that certain Lease (Rosewood Court Facility)
dated as of March 29, 1996 (the "Lease") for a facility located in Fullerton,
California.
B. Lessor and Lessee desire to memorialize their understanding with respect to
certain provisions of the Lease.
AGREEMENT
Capitalized terms not otherwise defined herein shall have the meaning ascribed
to them in the Lease. Lessor and Lessee hereby agree as follows:
1. The Commencement Date of the Lease is April 2, 1996;
2. The Fixed Term of the Lease shall end on January 31, 2011;
3. The first Lease Year for the Lease commences on May 1, 1996 and ends on
April 30, 1997; and
4. The first Quarter for which Additional Rent shall be due shall be the
Quarter beginning May 1, 1998 and ending July 31, 1998.
Except as amended above, the Lease shall remain in full force and effect. This
Amendment may be executed in any number of counterparts, all of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
HEALTH CARE PROPERTY INVESTORS, INC.,
a Maryland corporation
By: ----------------------
Its: ----------------------
<PAGE>
EMERITUS CORPORATION, a
Washington corporation
By: /s/ Raymond R. Brandstrom
------------------------------
Its: President
-----------
2
THE FOLLOWING AGREEMENT IS SUBSTANTIALLY THE SAME FOR THE FOLLOWING PROPERTIES
EXCEPT FOR THE FOLLOWING:
Midland: Lease Term commences April 15, 1996 and ends March 31, 2009
Lubbock: Lease Term commences April 15, 1996 and ends March 31, 2009
Beaumont: Lease Term commences April 15, 1996 and ends March 31, 2009
Amarillo: Lease Term commences July 10, 1996 and ends March 31, 2010
Clarksville: Lease Term commences July 10, 1996 and ends March 31, 2010
Wichita Falls: Lease Term commences August 1, 1996 and ends March 31, 2010
San Angelo: Lease Term commences August 1, 1996 and ends March 31, 2010
ALL THE ABOVE MENTIONED COMMUNITIES HAVE FOUR FIVE-YEAR RENEWAL OPTIONS.
<PAGE>
F A C I L I T Y L E A S E A G R E E M E N T
MEDITRUST ACQUISITION CORPORATION I
(A Massachusetts corporation)
as
Lessor
AND
ESC I, L.P.
(A Washington limited partnership)
as
Lessee
Dated as of , 1996
For Premises Located in
<PAGE>
FACILITY LEASE AGREEMENT
This FACILITY LEASE AGREEMENT ("Lease") is dated as of the day of
1996 and is between MEDITRUST ACQUISITION CORPORATION I ("Lessor"), a
Massachusetts corporation having its principal office at 197 First Avenue,
Needham Heights, Massachusetts 02194, and ESC I, L.P. ("Lessee"), a Washington
limited partnership, the sole general partner of which is ESC G.P. I, Inc., a
Washington corporation, having its principal office at c/o Emeritus Corporation,
Market Place One, 2003 Western Avenue, Suite 660, Seattle, Washington
98121-2162.
ARTICLE I
LEASED PROPERTY: TERM: CONSTRUCTION: EXTENSIONS
1.1 LEASED PROPERTY. Upon and subject to the terms and conditions
hereinafter set forth, Lessor leases to Lessee and Lessee rents and leases from
Lessor all of Lessor's rights and interests in and to the following real and
personal property (collectively, the "Leased Property"):
(a) the real property described in EXHIBIT A attached hereto (the
"Land");
(b) all buildings, structures, Fixtures (as hereinafter defined) and
other improvements of every kind including, but not limited to, alleyways
and connecting tunnels, sidewalks, utility pipes, conduits and lines, and
parking areas and roadways appurtenant to such buildings and structures
presently or hereafter situated upon the Land (collectively, the "Leased
Improvements");
(c) all easements, rights and appurtenances of every nature and
description now or hereafter relating to or benefiting any or all of the
Land and the Leased Improvements;
(d) all equipment, machinery, building fixtures, and other items of
property (whether realty, personality or mixed), including all components
thereof, now or hereafter located in, on or used in connection with, and
permanently affixed to or incorporated into the Leased Improvements,
including, without limitation, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling
and air-conditioning systems and apparatus, sprinkler systems and fire and
theft protection equipment, and built-in oxygen and vacuum systems, all of
which, to the greatest extent
<PAGE>
permitted by law, are hereby deemed by the parties hereto to constitute
real estate, together with all replacements, modifications, alterations and
additions thereto, but specifically excluding all items included within the
category of Tangible Personal Property (as hereinafter defined) which are
not permanently affixed to or incorporated in the Leased Property
(collectively, the "Fixtures"); and
The Leased Property is leased in its present condition, AS IS, without
representation or warranty of any kind, express or implied, by Lessor and
subject to: (i) the rights of parties in possession; (ii) the existing state of
title including all covenants conditions, Liens (as hereinafter defined) and
other matters of record (including, without limitation, the matters set forth in
EXHIBIT B); (iii) all applicable laws and (iv) all matters, whether or not of a
similar nature, which would be disclosed by an inspection of the Leased Property
or by an accurate survey thereof.
1.2 TERM. The term of this Lease shall consist of: the "Initial Term",
which shall commence on April 15, 1996 (the "Commencement Date") and end on
March 31, 2009 (the "Expiration Date"); PROVIDED, HOWEVER, that this Lease may
be sooner terminated as hereinafter provided. In addition, Lessee shall have
the option(s) to extend the Term (as hereinafter defined) as provided for in
Section 1.3.
1.3 EXTENDED TERMS. Provided that this Lease has not been previously
terminated, and as long as there exists no Lease Default (as hereinafter
defined) at the time of exercise and on the last day of the Initial Term or the
then current Extended Term (as hereinafter defined), as the case may be, Lessee
is hereby granted the option to extend the Initial Term of this Lease for four
(4) additional periods (collectively, the "Extended Terms") as follows: four (4)
successive five (5) year periods for a maximum Term, if all such options are
exercised, which ends on March 31, 2029. Lessee's extension option rights shall
be exercised by Lessee by giving written notice to Lessor of each such extension
at least one hundred eighty (180) days, but not more than three hundred sixty
(360) days, prior to the termination of the Initial Term or the then current
Extended Term, as the case may be. Lessee shall have no right to rescind any
such notice once given. Lessee may not exercise its option for more than one
Extended Term at a time. During each effective Extended Term, all of the terms
and conditions of this Lease shall continue in full force and effect, except
that the Base Rent (as hereinafter defined) for each such Extended Term shall be
adjusted as set forth in Section 3.1(a).
2
<PAGE>
Notwithstanding anything to the contrary set forth herein, Lessee's rights
to exercise the options granted in this Section 1.3 are subject to the further
condition that concurrently with the exercise of any extension option hereunder,
Lessee shall have exercised its option to extend the terms of all of the Related
Leases in accordance with the provisions of the Agreement Regarding Related
Transactions and the provisions of Section 1.3 of each of the Related Leases.
ARTICLE 2
DEFINITIONS AND RULES OF CONSTRUCTION
2.1 DEFINITIONS. For all purposes of this Lease and the other Lease
Documents (as hereinafter defined), except as otherwise expressly provided or
unless the context otherwise requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular and (ii) all references in this Lease or any of the other
Lease Documents to designated "Articles", "Sections" and other subdivisions are
to the designated Articles, Sections and other subdivisions of this Lease or the
other applicable Lease Document.
ACCOUNTS: As defined in the UCC.
ACCREDITATION BODY: Any person, including any Person having or claiming
jurisdiction over the accreditation, certification, evaluation or operation of
the Facility.
ADDED VALUE PERCENTAGE: The proportion of the Fair Market Added Value of
Capital Additions paid for or financed by Lessee to the Fair Market Value of the
entire Leased Property, expressed as a percentage.
ADDITIONAL CHARGES: As defined in Article 3.
ADDITIONAL LAND: As defined in Section 9.3.
ADDITIONAL RENT: As defined in Article 3.
ADDITIONAL RENT COMMENCEMENT DATE: As defined in Article 3.
AFFILIATE: With respect to any Person (i) any other Person which, directly
or indirectly, controls or is controlled by or is under common control with such
Person, (ii) any other Person that owns, beneficially, directly or indirectly,
five percent (5%) or more of the outstanding capital stock, shares or equity
interests of such Person or (iii) any officer, director, employee, general
partner or trustee of such Person, or any other Person
3
<PAGE>
controlling, controlled by, or under common control with, such Person (excluding
trustees and Persons serving in a fiduciary or similar capacity who are not
otherwise an Affiliate of such Person). For the purposes of this definition,
"control" (including the correlative meanings of the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests provided,
however, that, (a) for purposes of determining a Related Party Default, the
percentage of outstanding capital stock, shares or equity interests referenced
in (ii) above shall be fifty percent (50%) and (b) any Person who is an
Affiliate by virtue of the ownership thereof by Daniel R. Baty or his status
therein as an officer or director shall not be deemed an Affiliate for purposes
of determining a Related Party Default.
AFFILIATED PARTY SUBORDINATION AGREEMENT: That certain Affiliated Party
Subordination Agreement of even date by and among Lessee, the Guarantor, various
Affiliates of Lessee and various Affiliates of Lessor.
AGREEMENT REGARDING RELATED TRANSACTIONS: The First Amended and Restated
Agreement Regarding Related Transactions (Development) of even date, as amended
from time to time, between Lessee, Lessor and any Related Party that is party to
any Related Lease or Related Party Agreement. Lessor and Lessee anticipate that
the Agreement Regarding Related Transactions (Development) will be amended from
time to time to include Affiliates of Lessor and Lessee as parties thereto in
connection with future transactions and acknowledge and agree that for all
purposes under this Lease Agreement such amendments shall be deemed to be
included in this definition.
ANNUAL FACILITY UPGRADE EXPENDITURE: An aggregate annual amount equal to
the product of TWO HUNDRED DOLLARS ($200) (as increased as of the first day of
each Lease Year in which the Annual Facility Upgrade Expenditure is to be made
by an amount equal to the product of the CPI Increase multiplied by TWO HUNDRED
DOLLARS ($200)) times the number of units in the Facility, such amount to be
spent on Upgrade Renovations. The term "CPI Increase" means a fraction, the
numerator of which is the Price Index in effect as of the first day of the Lease
Year in which the Annual Facility Upgrade Expenditure is to be made and the
denominator of which is the Price Index in effect as of the date hereof. The
term "Price Index" means the Consumer Price Index for Urban Wage Earners and
Clerical Workers, All Items Series A (1982-84=100), published by the Bureau of
Labor Statistics, U.S. Department of Labor. If the Bureau of Labor Statistics
should cease to publish such Price Index in its
4
<PAGE>
present form and calculated on the present basis, then the most similar index
published by the same Bureau shall be used for the same purpose. If there is no
such similar index, a substitute index which is then generally recognized as
being similar to such Price Index, such substitute index to be reasonably
selected by Lessor.
APPURTENANT AGREEMENTS: Collectively, all instruments, documents and other
agreements that now or hereafter create any utility, access or other rights or
appurtenances benefiting or relating to the Leased Property.
AWARD: All compensation, sums or anything of value awarded, paid or
received on a total or partial Condemnation.
BASE GROSS REVENUES: The annualized Gross Revenues of the Facility for the
second twelve month period following the Conversion Date, initially as shown by
Lessee's certified Consolidated Financial Statements and as later verified by
Lessee's Consolidated Financial Statements.
BASE RENT: Pre-Conversion Base Rent and/or Post-Conversion Base Rent, as
the context permits.
BUSINESS DAY: Any day which is not a Saturday or Sunday or a public holiday
under the laws of the United States of America, the Commonwealth of
Massachusetts, the State or the state in which Lessor's depository bank is
located.
CAPITAL ADDITIONS: Collectively, all new buildings and additional
structures annexed to any portion of any of the Leased Improvements and material
expansions of any of the Leased Improvements which are constructed on any
portion of the Land during the Term, including, without limitation, the
construction of a new wing or new story, the renovation of any of the Leased
Improvements on the Leased Property and any expansion, construction, renovation
or conversion in connection therewith (a) in order to provide a functionally new
facility that is needed or used to provide services not previously offered or
(b) in order to (i) increase the bed capacity of a Facility, (ii) change the
purpose for which such beds are utilized and/or (iii) change the utilization of
any material portion of any of the Leased Improvements, provided that for the
purposes of Article 9 hereof, the Project shall not be treated as a Capital
Addition.
CAPITAL ADDITION COST: The cost of any Capital Addition made by Lessee
whether paid for by Lessee or Lessor. Such cost shall include all costs and
expenses of every nature whatsoever incurred directly or indirectly in
connection with the development, permitting, construction and financing of a
Capital
5
<PAGE>
Addition as reasonably determined by, or to the reasonable satisfaction of,
Lessor.
CASH COLLATERAL: As defined in the Deposit Pledge Agreement.
CASH FLOW: The Consolidated Net Income (or Consolidated Net Loss) before
federal and state income taxes for any period PLUS (i) the amount of the
provision for depreciation and amortization actually deducted on the books of
the applicable Person for the purposes of computing such Consolidated Net Income
(or Consolidated Net Loss) for the period involved, PLUS (ii) Rent and interest
on all other Indebtedness which is fully subordinated to the Lease Obligations,
plus (iii) any indebtedness which is fully subordinated to the Lease
Obligations pursuant to the Affiliated Party Subordination Agreement or the
Management Subordination Agreement.
CASUALTY: As defined in Section 13.1.
CHATTEL PAPER: As defined in the UCC.
CLOSING: As defined in Section 18.3.6.
CODE: The Internal Revenue Code of 1986, as amended.
COLLATERAL: All of the property in which security interests are granted to
Lessor and the other Meditrust Entities pursuant to the Lease Documents and the
Related Party Agreements to secure the Lease Obligations, including, without
limitation, the Cash Collateral.
COMPETITIVE ACTIVITY: As defined in Section 11.5.
COMPLETION DATE: As defined in the Leasehold Improvement Agreement.
COMPLETION OF THE PROJECT: As defined in the Leasehold Improvement
Agreement.
CONDEMNATION: With respect to the Leased Property or any interest therein
or right accruing thereto or use thereof (i) the exercise of any governmental
authority, whether by legal proceedings or otherwise, by a Condemnor or (ii) a
voluntary sale or transfer by Lessor to any Condemnor, either under threat of
Condemnation or Taking or while legal proceedings for Condemnation or Taking are
pending.
CONDEMNOR: Any public or quasi-public authority, or private corporation or
individual, having the power of condemnation.
6
<PAGE>
CONSOLIDATED: The consolidated accounts of the relevant Person and its
Subsidiaries consolidated in accordance with GAAP.
CONSOLIDATED FINANCIALS: For any fiscal year or other accounting period for
any Person and its consolidated Subsidiaries, statements of earnings and
retained earnings and of changes in financial position for such period and for
the period from the beginning of the respective fiscal year to the end of such
period and the related balance sheet as at the end of such period, together with
the notes thereto, all in reasonable detail and setting forth in comparative
form the corresponding figures for the corresponding period in the preceding
fiscal year, and prepared in accordance with GAAP, and disclosing all
liabilities of such Person and its consolidated Subsidiaries, including, without
limitation, contingent liabilities.
CONSULTANTS: Collectively, the architects, engineers, inspectors,
surveyors and other consultants that are engaged from time to time by Lessor to
perform services for Lessor in connection with this Lease.
CONTRACTS: All agreements (including, without limitation, Provider
Agreements to the extent applicable, and any Residence Agreement), contracts
(including without limitation, construction contracts, subcontracts, and
architects' contracts), contract rights, warranties and representations,
franchises, and records and books of account benefiting, relating to or
affecting the Leased Property or the ownership, construction, development,
maintenance, management, repair, use occupancy, possession, or operation
thereof, or the operation of any programs or services in conjunction with the
Facility and all renewals, replacement and substitutions therefor, now or
hereafter issued to any member of the Leasing Group by, or entered into by any
member of the Leasing Group with, any Governmental Authority, Accreditation Body
or Third Party Payor or maintained or used by any member of the Leasing Group or
entered into by any member of the Leasing Group with any third Person.
CONVERSION DATE: The earlier to occur of (a) the Completion Date, (b) the
Completion of the Project and (c) the occupancy of the Facility by a resident.
CURRENT ASSETS: All assets of any Person which would, in accordance with
GAAP, be classified as current assets.
CURRENT LIABILITIES: All liabilities of any Person which would, in
accordance with GAAP, be classified as current liabilities.
DATE OF TAKING: The date the Condemnor has the right to possession of the
property being condemned.
7
<PAGE>
DEBT COVERAGE RATIO: The ratio of (i) Cash Flow for each applicable period
to (ii) the total of all Rent (excluding Additional Rent due under this Lease)
paid or payable during such period or accrued for such period.
DECLARATION: As defined in Article 23.
DEED: As defined in Section 18.3.
DEPOSIT: As defined in Section 18.3.
DEPOSIT PLEDGE AGREEMENT: The pledge and security agreement so captioned
and dated as of even date herewith between Lessee and Lessor.
DOCUMENTS: As defined in the UCC.
ENCUMBRANCE: As defined in section 20.3.
ENVIRONMENTAL INDEMNITY AGREEMENT: The Environmental Indemnity Agreement of
even date herewith by and among Lessee the Guarantor and Lessor.
ENVIRONMENTAL LAWS: As defined in the Environmental Indemnity Agreement.
ERISA: The Employment Retirement Income Security Act of 1974, as amended.
EVENT OF DEFAULT: As defined in Article 16.
EXCESS GROSS REVENUES: Gross Revenues less Base Gross Revenues.
EXPIRATION DATE: As defined in Section 1.2.
EXTENDED TERMS: As defined in Section 1.4.
FACILITY: The 80 unit, 90 bed, fully licensed assisted living facility to
be constructed on the Land and to be known as Remington Park (together with
related parking and other amenities).
FAILURE TO OPERATE: As defined in Article 16.
FAILURE TO PERFORM: As defined Article 16.
8
<PAGE>
FAIR MARKET ADDED VALUE: The Fair Market Value of the Leased Property
(including all Capital Additions) MINUS the Fair Market Value of the Leased
Property determined as if no Capital Additions paid for by Lessee had been
constructed.
FAIR MARKET VALUE OF THE CAPITAL ADDITION: The amount by which the Fair
Market Value of the Leased Property upon the completion of a particular Capital
Addition exceeds the Fair Market Value of the Leased Property just prior to the
construction of the particular Capital Addition.
FAIR MARKET VALUE OF THE LEASED PROPERTY: The fair market value of the
Leased Property, including all Capital Additions, and including the Land and all
other portions of the Leased Property, and (a) assuming the same is unencumbered
by this Lease, (b) determined in accordance with the appraisal procedures set
forth in Section 18.2 or in such other manner as shall be mutually acceptable to
Lessor and Lessee and (c) not taking into account any reduction in value
resulting from any Lien to which the Leased Property is subject and which Lien
Lessee or Lessor is otherwise required to remove at or prior to closing of the
transaction. However, the positive or negative effect on the value of the
Leased Property attributable to the interest rate, amortization schedule,
maturity date, prepayment provisions and other terms and conditions of any Lien
on the Leased Property which is not so required or agreed to be removed shall be
taken into account in determining the Fair Market Value of the Leased Property.
The Fair Market Value shall be determined as the overall value based on due
consideration of the "income" approach, the "comparable sales" approach, and the
"replacement cost" approach.
FEE MORTGAGE: As defined in section 20.3.
FEE MORTGAGEE: As defined in Section 20.3.
FINANCING PARTY: Any Person who is or may be participating with Lessor in
any way in connection with the financing of any Capital Addition.
FINANCING STATEMENTS: Uniform Commercial Code financing statements
evidencing the security interests granted to Lessor in connection with the Lease
Documents.
FISCAL QUARTER: Each of the three (3) month periods commencing on January
1st, April 1st, July 1st and October 1st.
FISCAL YEAR: The twelve (12) month period from January 1st to
December 31st.
FIXTURES: As defined in Article 1.
9
<PAGE>
GAAP: Generally accepted accounting principles, consistently applied
throughout the relevant period.
GENERAL INTANGIBLES: As defined in the UCC.
GENERAL PARTNER: ESC G.P. I, Inc., a Washington corporation.
GOVERNMENTAL AUTHORITIES: Collectively, all agencies, authorities, bodies,
boards, commissions, courts, instrumentalities, legislatures, and offices of any
nature whatsoever of any government, quasi-government unit or political
subdivision, whether with a federal, state, county, district, municipal, city or
otherwise and whether now or hereinafter in existence.
GROSS REVENUES: Collectively, all revenues generated by reason of the
operation of the Leased Property (including any Capital Additions), directly or
indirectly received or to be received by Lessee or any Affiliate of Lessee,
including, without limitation, all resident revenues received or receivable for
the use of, or otherwise by reason of, all rooms, units and other facilities
provided, meals served, services performed, space or facilities subleased or
goods sold on or from the Leased Property and further including, without
limitation, except as otherwise specifically provided below, any consideration
received under any subletting, licensing, or other arrangements with any Person
relating to the possession or use of the Leased Property and all revenues from
all ancillary services provided at or relating to the Leased Property; PROVIDED,
HOWEVER, that Gross Revenues shall not include non-operating revenues such as
interest income or gain from the sale of assets not sold in the ordinary course
of business; and PROVIDED, FURTHER, that there shall be excluded or deducted (as
the case may be) from such revenues:
(i) all applicable contractual allowances (relating to any period
during the Term of this Lease and thereafter until the Rent hereunder is
paid in full), if any, for billings not paid by or received from the
appropriate Governmental Agencies or Third Party Payors,
(ii) all applicable allowances according to GAAP for uncollectible
accounts,
(iii) all proper resident billing credits and adjustments according
to GAAP, if any, relating to health care accounting,
(iv) federal, state or local sales, use, gross receipts and excise
taxes and any tax based upon or measured by said Gross Revenues which is
added to or made a part of
10
<PAGE>
the amount billed to the resident or other recipient of such services or
goods, whether included in the billing or stated separately,
(v) provider discounts for hospital or other medical facility
utilization contracts, if any,
(vi) the cost, if any, of any federal, state or local governmental
program imposed specially to provide or finance indigent resident care
(other than Medicare, Medicaid and the like),
(vii) deposits refundable to residents of the Facility, and
(viii) payments received on behalf of, and paid to, Persons who are
not Affiliates of Lessee.
To the extent that the Leased Property is subleased or occupied by an
Affiliate of Lessee, Gross Revenues calculated for all purposes of this Lease
(including, without limitation, the determination of the Additional Rent payable
under this Lease) shall include the Gross Revenues of such Sublessee with
respect to the premises demised under the applicable Sublease (i.e., the Gross
Revenues generated from the operations conducted on such subleased portion of
the Leased Property) and the rent received or receivable from such Sublessee
pursuant to such Subleases shall be excluded from Gross Revenues for all such
purposes. As to any Sublease between Lessee and a non-Affiliate of Lessee, only
the rental actually received by Lessee from such non-Affiliate shall be included
in Gross Revenues.
GROUP ONE DEVELOPMENT FACILITIES: As defined in the Agreement Regarding
Related Transactions.
GUARANTOR: Emeritus Corporation, a Washington corporation, and its
successors and assigns.
GUARANTY OF LEASE OBLIGATIONS: The Guaranty of Lease Obligations of even
date executed by Guarantor in favor of Lessor, relating to the Lease
Obligations.
HAZARDOUS SUBSTANCES: As defined in the Environmental Indemnity Agreement.
IMPOSITIONS: Collectively, all taxes (including, without limitation, all
capital stock and franchise taxes of Lessor, all ad valorem, property, sales and
use, single business, gross receipts, transaction privilege, rent or similar
taxes), assessments (including, without limitation, all assessments for public
improvements or benefits, whether or not commenced or
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completed prior to the date hereof and whether or not to be completed within the
Term), ground rents, water and sewer rents, water charges or other rents and
charges, excises, tax levies, fees (including, without limitation, license,
permit, inspection, authorization and similar fees), transfer taxes and
recordation taxes imposed as a result of this Lease or any extensions hereof,
and all other governmental charges, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character in
respect of either or both of the Leased Property and the Rent (including all
interest and penalties thereon due to any failure in payment by Lessee), which
at any time prior to, during or in respect of the Term hereof and thereafter
until the Leased Property is surrendered to Lessor as required by the terms of
this Lease, may be assessed or imposed on or in respect of or be a Lien upon (a)
Lessor or Lessor's interest in the Leased Property, (b) the Leased Property or
any rent therefrom or any estate, right, title or interest therein, or (c) any
occupancy, operation, use or possession of, sales from, or activity conducted
on, or in connection with, the Leased Property or the leasing or use of the
Leased Property. Notwithstanding the foregoing, nothing contained in this Lease
shall be construed to require Lessee to pay (1) any tax based on net income
(whether denominated as a franchise or capital stock or other tax) imposed on
Lessor or any other Person, except Lessee or its successors, (2) any net revenue
tax of Lessor or any other Person, except Lessee and its successors, (3) any tax
imposed with respect to the sale, exchange or other disposition by Lessor of the
Leased Property or the proceeds thereof, or (4) except as expressly provided
elsewhere in this Lease, any principal or interest on any Encumbrance on the
Leased Property; PROVIDED, HOWEVER, the provisos set forth in clauses (1) and
(2) of this sentence shall not be applicable to the extent that any real or
personal property tax, assessment, tax levy or charge which Lessee is obligated
to pay pursuant to the first sentence of this definition and which is in effect
at any time during the Term hereof is totally or partially repealed, and a tax,
assessment, tax levy or charge set forth in clause (1) or (2) is levied,
assessed or imposed expressly in lieu thereof. In computing the amount of any
franchise tax or capital stock tax which may be or become an Imposition, the
amount payable by Lessee shall be equitably apportioned based upon all
properties owned by Lessor that are located within the particular jurisdiction
subject to any such tax.
INDEBTEDNESS: The total of all obligations of a Person, whether current or
long-term, which in accordance with GAAP would be included as liabilities upon
such Person's balance sheet at the date as of which Indebtedness is to be
determined, and shall also include (i) all capital lease obligations and (ii)
all guarantees, endorsements (other than for collection of instruments in the
ordinary course of business), or other
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arrangements whereby responsibility is assumed for the obligations of others,
whether by agreement to purchase or otherwise acquire the obligations of others,
including any agreement contingent or otherwise to furnish funds through the
purchase of goods, supplies or services for the purpose of payment of the
obligations of others.
INDEMNIFIED PARTIES: As defined in Section 12.2.2.
INDEX: The rate of interest of actively traded marketable United States
Treasury Securities bearing a fixed rate of interest adjusted for a constant
maturity of ten (10) years as calculated by the Federal Reserve Board.
INITIAL TERM: As defined in Section 1.2.
INSTRUMENTS: As defined in the UCC.
INSURANCE REQUIREMENTS: All terms of any insurance policy required by this
Lease, all requirements of the issuer of any such policy with respect to the
Leased Property and the activities conducted thereon and the requirements of any
insurance board, association or organization or underwriters' regulations
pertaining to the Leased Property.
LAND: As defined in Article 1.
LEASE: As defined in the preamble of this Lease.
LEASE DEFAULT: The occurrence of any default or breach of condition
continuing beyond any applicable notice and/or grace periods under this Lease
and/or any of the other Lease Documents.
LEASE DOCUMENTS: Collectively, this Lease, the Guaranty of Lease
Obligations, the Agreement Regarding Related Transactions, the Leasehold
Improvement Agreement, the Security Agreement, the Deposit Pledge Agreement, the
Negative Pledge Agreement, the Permits Assignment, the Financing Statements, the
Affiliated Party Subordination Agreement, the Environmental Indemnity Agreement,
and any and all other instruments, documents, certificates or agreements
executed or furnished by any member of the Leasing Group in connection with the
transactions evidenced by the Lease and/or any of the foregoing documents.
LEASE OBLIGATIONS: Collectively, all indebtedness, covenants, liabilities,
obligations, agreements and undertakings (other than Lessor's obligations) under
this Lease and the other Lease Documents.
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LEASE YEAR: A twelve month period ending on March 31st of each year;
PROVIDED, THAT the first Lease Year shall begin on the Commencement Date and
shall end on March 31, 1997.
LEASED IMPROVEMENTS: As defined in Article 1.
LEASED PROPERTY: As defined in Article 1.
LEASEHOLD IMPROVEMENT AGREEMENT: The Leasehold Improvement Agreement of
even date by and between Lessee and Lessor.
LEASING GROUP: Collectively, Lessee, the Guarantor, the General Partner,
any Sublessee which is an Affiliate of Lessee and any Manager which is an
Affiliate of Lessee.
LEGAL REQUIREMENTS: Collectively, all statutes, ordinances, by-laws, codes,
rules, regulations, restrictions, orders, judgments, decrees and injunctions
(including, without limitation, all applicable building, health code, zoning,
subdivision, and other land use and assisted living licensing statutes,
ordinances, by-laws, codes, rules and regulations), whether now or hereafter
enacted, promulgated or issued by any Governmental Authority, Accreditation Body
or Third Party Payor affecting Lessor, any member of the Leasing Group or the
Leased Property or the ownership, construction, development, maintenance,
management, repair, use, occupancy, possession or operation thereof or the
operation of any programs or services in connection with the Leased Property,
including, without limitation, any of the foregoing which may (i) require
repairs, modifications or alterations in or to the Leased Property, (ii) in any
way affect (adversely or otherwise) the use and enjoyment of the Leased Property
or (iii) require the assessment, monitoring, clean-up, containment, removal,
remediation or other treatment of any Hazardous Substances on, under or from the
Leased Property. Without limiting the foregoing, the term Legal Requirements
includes all Environmental Laws and shall also include all Permits and Contracts
issued or entered into by any Governmental Authority, any Accreditation Body
and/or any Third Party Payor and all Permitted Encumbrances.
LESSEE: As defined in the preamble of this Lease and its successors and
assigns.
LESSEE'S ELECTION NOTICE: As defined in Section 14.3.
LESSEE'S PURCHASE OPTION NOTICE: As defined in Section 18.3.
LESSOR: As defined in the preamble of this Lease and its successors and
assigns.
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LIEN: With respect to any real or personal property, any mortgage,
easement, restriction, lien, pledge, collateral assignment, hypothecation,
charge, security interest, title retention agreement, levy, execution, seizure,
attachment, garnishment or other encumbrance of any kind in respect of such
property, whether or not inchoate, vested or perfected.
LIMITED PARTIES: As defined in Section 11.5.4; PROVIDED, HOWEVER, in no
event shall the term Limited Parties include any Person in its capacity as a
shareholder of a public entity, unless such shareholder is a member of the
Leasing Group or an Affiliate thereof.
MANAGED CARE PLANS: All health maintenance organizations, preferred
provider organizations, individual practice associations, competitive medical
plans, and similar arrangements.
MANAGEMENT AGREEMENT: Any agreement, whether written or oral, between
Lessee or any Sublessee and any other Person pursuant to which Lessee or such
Sublessee provides any payment, fee or other consideration to any other Person
to operate or manage the Facility.
MANAGEMENT SUBORDINATION AGREEMENT: The Management Subordination Agreement
as of even date herewith between Lessee and Lessor.
MANAGER: Any Person who has entered into a Management Agreement with
Lessee or any Sublessee.
MATERIAL STRUCTURAL WORK: Any (i) structural alteration, (ii) structural
repair or (iii) structural renovation to the Leased Property, which would
customarily require or which require the design and/or involvement of a
structural engineer or architect or which would require the issuance of a
Permit.
MEDICAID: The medical assistance program established by Title XIX of the
Social Security Act (42 USC Sections 1396 ET SEQ.) and any statute succeeding
thereto.
MEDICARE: The health insurance program for the aged and disabled
established by Title XVIII of the Social Security Act (42 USC Sections 1395 ET
SEQ.) and any statute succeeding thereto.
MEDITRUST: As defined in Article 23.
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MEDITRUST/EMERITUS TRANSACTION AFFILIATE: An Affiliate of Lessee, the
business and activities of which are limited to those subject to
Meditrust/Emeritus Transaction Documents (other than the Affiliated Party
Subordination Agreement, the Agreement Regarding Related Transactions and
comparable agreement now or hereafter in effect among Affiliates of Lessee and
of Lessor) to which such Affiliate is a party.
MEDITRUST/EMERITUS TRANSACTION DOCUMENTS: As defined in the Agreement
Regarding Related Transactions.
MEDITRUST ENTITIES: Collectively, Meditrust, Lessor and any other
Affiliate of Lessor which may now or hereafter be a party to any Related Party
Agreement.
MEDITRUST INVESTMENT: The sum of (i) the Original Meditrust Investment
PLUS (ii) the aggregate amount of all Subsequent Investments PLUS (iii) so much
of the Project Funds as Lessor has expended from time to time LESS the sum of
any Net Award Amounts and/or Net Proceeds Amounts.
MONTHLY DEPOSIT DATE: As defined in Section 4.6.
NEGATIVE PLEDGE AGREEMENT: The Negative Pledge Agreement of even date by
and between Guarantor, Lessee and Lessor.
NET AWARD AMOUNT: As defined in section 3.7.
NET INCOME (OR NET LOSS): The net income (or net loss, expressed as a
negative number) of a Person for any period, after all taxes actually paid or
accrued and all expenses and other charges determined in accordance with GAAP.
NET PROCEEDS AMOUNT: As defined in Section 3.7.
NET WORTH: An amount determined in accordance with GAAP equal to the total
assets of any Person, minus the total liabilities of such Person.
OBLIGATIONS: Collectively, the Lease Obligations and the Related Party
Obligations.
OFFICER'S CERTIFICATE: A certificate of the General Partner signed on
behalf of the Lessee by the Chairman of the Board of Directors, the President,
any Vice President or the Treasurer of the General Partner, or another officer
authorized to so sign by the Board of Directors or By-Laws of the General
Partner, or any other Person whose power and authority to act has been
authorized by delegation in writing by any of the Persons holding the foregoing
offices.
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ORIGINAL MEDITRUST INVESTMENT: The sum of FIVE MILLION FIVE HUNDRED
EIGHTY-TWO THOUSAND ONE HUNDRED NINETY-FIVE DOLLARS ($5,582,195.00).
OTHER PERMITTED USES: To the extent permitted under applicable Legal
Requirements and under Insurance Requirements, and so long as the same do not
detract in any material manner from the Primary Intended Use and do not occupy
more than ten percent (10%) of the useable floor area of the building comprising
the Facility, such uses as Lessee reasonably determines are appropriate and
incidental to the Primary Permitted Use.
OVERDUE RATE: On any date, a rate of interest per annum equal to the
greater of: (i) a variable rate of interest per annum equal to one hundred
twenty percent (120%) of the Prime Rate, or (ii) eighteen percent (18%) per
annum; PROVIDED, HOWEVER, in no event shall the Overdue Rate be greater than the
maximum rate then permitted under applicable law to be charged by Lessor.
PBGC: Pension Benefit Guaranty Corporation.
PERMITS: Collectively, all permits, licenses, approvals, qualifications,
rights, variances, permissive uses, accreditation, certificates, certifications,
consents, agreements, contracts, contract rights, franchises, interim licenses,
permits and other authorizations of every nature whatsoever required by, or
issued under, applicable Legal Requirements relating or affecting the Leased
Property or the construction, development, maintenance, management, use or
operation thereof, or the operation of any programs or services in conjunction
with the Facility and all renewals, replacements and substitutions therefor, now
or hereafter required or issued by any Governmental Authority, Accreditation
Body or Third Party Payor to any member of the Leasing Group, or maintained or
used by any member of the Leasing Group, or entered into by any member of the
Leasing Group with any third Person with respect to the Leased Property.
PERMITS ASSIGNMENT: The Collateral Assignment of Permits, Licenses and
Contracts of even date granted by Lessee to Lessor.
PERMITTED ENCUMBRANCES: As defined in Section 10.1.18.
PERMITTED PRIOR SECURITY INTERESTS: As defined in Section 6.1.2.
PERSON: Any individual, corporation, general partnership, limited
partnership, joint venture, stock company or association, company, bank, trust,
trust company, land trust, business trust,
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unincorporated organization, unincorporated association, Governmental Authority
or other entity of any kind or nature.
PLANS AND SPECIFICATIONS: As defined in Section 13.1.3.
PRE-CONVERSION BASE RENT: As defined in Section 3.1.
PRE-CONVERSION RENT ADJUSTMENT RATE: 175 basis points over the Prime Rate.
POST-CONVERSION BASE RENT: As defined in Section 3.1.
PRIMARY INTENDED USE: The use of the Facility as an assisted living
facility with eighty (80) units, ninety (90) beds or such additional number of
units or beds as may hereafter be permitted under this Lease, and such ancillary
uses as are permitted by law and may be necessary in connection therewith or
incidental thereto.
PRIME RATE: The variable rate of interest per annum from time to time
announced by the Reference Bank as its prime rate of interest and in the event
that the Reference Bank no longer announces a prime rate of interest, then the
Prime Rate shall be deemed to be the variable rate of interest per annum which
is the prime rate of interest or base rate of interest from time to time
announced by any other major bank or other financial institution reasonably
selected by Lessor.
PRINCIPAL PLACE OF BUSINESS: As defined in Section 10.1.28.
PROCEEDS: As defined in the UCC.
PROJECT: As defined in the Leasehold Improvement Agreement.
PROJECT FUNDS: As defined in the Leasehold Improvement Agreement.
PROVIDER AGREEMENTS: All participation, provider and reimbursement
agreements or arrangements, if any, now or hereafter in effect for the benefit
of Lessee or any Sublessee in connection with the operation of the Facility
relating to any right of payment or other claim arising out of or in connection
with Lessee's or such Sublessee's participation in any Third Party Payor
Program.
PURCHASE OPTION: As defined in Section 18.3.
PURCHASE OPTION DATE: As defined in Section 18.3.
PURCHASE OPTION PURCHASE PRICE: As defined in Section 18.3.
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PURCHASER: As defined in Section 11.5.
RECEIVABLES: Collectively, (i) all rights to payment for goods sold or
leased or services rendered by Lessee or any other party, whether now in
existence or arising from time to time hereafter and whether or not yet earned
by performance, including, without limitation, obligations evidenced by an
account, note, contract, security agreement, chattel paper, or other evidence of
indebtedness, including Accounts and Proceeds, and (ii) a license to use such
Instruments, Documents, Accounts, Proceeds, General Intangibles and Chattel
Paper as are reasonably required for purposes of exercising the rights set forth
in (i) above.
REFERENCE BANK: Fleet Bank of Connecticut, N.A.
RELATED LEASES: The Group One Development Facility Leases (as defined in
the Agreement Regarding Related Transactions), together with such other new
leases identified from time to time in the Agreement Regarding Related
Transactions.
RELATED PARTIES: Collectively, each Person that may now or hereafter be a
party to any Related Party Agreement other than the Meditrust Entities.
RELATED PARTY AGREEMENT: Any agreement, document or instrument now or
hereafter evidencing or securing any Related Party Obligation, including,
without limitation, the Related Leases.
RELATED PARTY DEFAULT: The occurrence of a default or breach of condition
continuing beyond the expiration of any applicable notice and grace periods, if
any, under the terms of any Related Party Agreement.
RELATED PARTY OBLIGATIONS: Collectively, all indebtedness, covenants,
liabilities, obligations, agreements and undertakings due to, or made for the
benefit of, Lessor or any of the other Meditrust Entities by Lessee or any other
member of the Leasing Group or any of their respective Affiliates in connection
with any of the properties described in EXHIBIT E to the Agreement Regarding
Related Transactions, as the same may be modified and amended from time to time;
whether such indebtedness, covenants, liabilities, obligations, agreements
and/or undertakings are direct or indirect, absolute or contingent, liquidated
or unliquidated, due or to become due, joint, several or joint and several,
primary or secondary, now existing or hereafter arising.
RENT: Collectively, the Base Rent, Additional Rent, the Additional Charges
and all other sums payable under this Lease and the other Lease Documents.
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RENT ADJUSTMENT DATE: The first day of any of the Extended Terms.
RENT ADJUSTMENT RATE: 325 basis points over the Index.
RENT INSURANCE PROCEEDS: As defined in Section 13.8.
RESIDENCY AGREEMENT: All contracts, agreements and consents executed by or
on behalf of any resident or other Person seeking services at the Facility,
including, without limitation, assignments of benefits and guarantees.
RETAINAGE: As defined in Section 13.1.3.
SECURITY AGREEMENT: The Security Agreement as of even date herewith
between Lessee and Lessor.
SELLER: Boatmen's First National Bank of Amarillo.
STATE: The state or commonwealth in which the Leased Property is
located.
SUBLEASE: Collectively, all subleases, licenses, use agreements,
concession agreements, tenancy at will agreements and other occupancy agreements
of every kind and nature (but excluding any Residency Agreement), whether oral
or in writing, now in existence or subsequently entered into by Lessee,
encumbering or affecting the Leased Property.
SUBLESSEE: Any sublessee, licensee, concessionaire, tenant or other
occupant under any of the Subleases.
SUBSEQUENT INVESTMENTS: The aggregate amount of all sums expended and
liabilities incurred by Lessor in connection with Capital Additions.
SUBSIDIARY OR SUBSIDIARIES: With respect to any Person, any corporation or
other entity of which such Person, directly, or indirectly, through another
entity or otherwise, owns, or has the right to control or direct the voting of,
fifty percent (50%) or more of the outstanding capital stock or other ownership
interest having general voting power (under ordinary circumstances).
TAKING: A taking or voluntary conveyance during the Term of the Leased
Property, or any interest therein or right accruing thereto, or use thereof, as
the result of, or in settlement of, any Condemnation or other eminent domain
proceeding affecting the Leased Property whether or not the same shall have
actually been commenced.
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TANGIBLE PERSONAL PROPERTY: All machinery, equipment, furniture,
furnishings, movable walls or partitions, computers or trade fixtures, goods,
inventory, supplies, and other personal property owned or leased (pursuant to
equipment leases) by Lessee and used in the operation of the Leased Property.
TERM: Collectively, the Initial Term and each Extended Term which has
become effective pursuant to Section 1.4, as the context may require, unless
earlier terminated pursuant to the provisions hereof.
THIRD PARTY PAYOR PROGRAMS: Collectively, all third party payor programs
in which Lessee or any Sublessee presently or in the future may participate,
including without limitation, Medicare, Medicaid, Blue Cross and/or Blue Shield,
Managed Care Plans, other private insurance plans and employee assistance
programs.
THIRD PARTY PAYORS: Collectively, Medicare, Medicaid, Blue Cross and/or
Blue Shield, private insurers and any other Person which presently or in the
future maintains Third Party Payor Programs.
TIME OF CLOSING: As defined in Section 18.3.
UCC: The Uniform Commercial Code as in effect from time to time in the
State.
UNITED STATES TREASURY SECURITIES: The uninsured treasury securities
issued by the United States Federal Reserve Bank.
UNSUITABLE FOR ITS PRIMARY INTENDED USE: As used anywhere in this Lease,
the term "Unsuitable For Its Primary Intended Use" shall mean that, by reason of
Casualty, or a partial or temporary Taking by Condemnation, in the good faith
judgment of Lessor, the Facility cannot be operated on a commercially
practicable basis for the Primary Intended Use, taking into account, among other
relevant factors, the number of usable units or beds affected by such Casualty
or partial or temporary Taking.
UNAVOIDABLE DELAYS: Delays due to strikes, lockouts, inability to procure
materials, power failure, acts of God, governmental restrictions, enemy action,
civil commotion, fire, unavoidable casualty or other causes beyond the control
of the party responsible for performing an obligation hereunder, provided that
lack of funds shall not be deemed a cause beyond the control of either party
hereto.
UPGRADE RENOVATIONS: Repair and refurbishing other than normal janitorial,
cleaning and maintenance activities.
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WORK: As defined in Section 13.1.1.
WORK CERTIFICATES: As defined in Section 13.1.3.
WORKING CAPITAL LOAN: As defined in Section 6.1.3.
WORKING CAPITAL STOCK PLEDGE: As defined in Section 16.1(h).
2.2 RULES OF CONSTRUCTION. The following rules of construction shall
apply to the Lease and each of the other Lease Documents: (a) references to
"herein", "hereof" and "hereunder" shall be deemed to refer to this Lease or the
other applicable Lease Document, and shall not be limited to the particular text
or section or subsection in which such words appear; (b) the use of any gender
shall include all genders and the singular number shall include the plural and
vice versa as the context may require; (a) references to Lessor's attorneys
shall be deemed to include, without limitation, special counsel and local
counsel for Lessor; (d) reference to attorneys' fees and expenses shall be
deemed to include all costs for administrative, paralegal and other support
staff and to exclude any fees and expenses of attorneys who are employees of an
Affiliate of Lessor; (e) references to Leased Property shall be deemed to
include references to all of the Leased Property and references to any portion
thereof; (f) references to the Lease Obligations shall be deemed to include
references to all of the Lease Obligations and references to any portion
thereof; (g) references to the Obligations shall be deemed to include references
to all of the Obligations and references to any portion thereof; (h) the term
"including", when following any general statement, will not be construed to
limit such statement to the specific items or matters as provided immediately
following the term "including" (whether or not non-limiting language such as
"without limitation" or "but not limited to" or words of similar import are also
used), but rather will be deemed to refer to all of the items or matters that
could reasonably fall within the broadest scope of the general statement; (i)
any requirement that financial statements be Consolidated in form shall apply
only to such financial statements as relate to a period during any portion of
which the relevant Person has one or more Subsidiaries; (j) all accounting terms
not specifically defined in the Lease Documents shall be construed in accordance
with GAAP and (k) all exhibits annexed to any of the Lease Documents as
referenced therein shall be deemed incorporated in such Lease Document by such
annexation and/or reference.
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ARTICLE 3
RENT
3.1 RENT FOR LAND, LEASED IMPROVEMENTS, RELATED RIGHTS AND FIXTURES.
Lessee will pay to Lessor, in lawful money of the United States of America, at
Lessor's address set forth herein or at such other place or to such other Person
as Lessor from time to time may designate in writing, rent for the Leased
Property, as follows.
3.1.1 Base Rent: (a) PRE-CONVERSION BASE RENT: From and after
the Commencement Date and until the Conversion Date, Lessee shall pay,
commencing on May 1, 1996, and on the first day of each calendar month
thereafter and on the Conversion Date, a base rent (the "Pre-Conversion
Base Rent") in arrears which is equal to the product of (i) the Original
Meditrust Investment PLUS so much of the Project Funds as Lessor has
expended from time to time MULTIPLIED BY (ii) the Pre-Conversion Rent
Adjustment Rate in effect from time to time, calculated on a daily basis.
(b) POST-CONVERSION BASE RENT: From and after the conversion
Date, Lessee shall pay a base rent (the "Post-Conversion Base Rent") per
annum which is equal to the product of (i) the original Meditrust
Investment PLUS the aggregate amount of the Project Funds as Lessor has
expended as of the Conversion Date MULTIPLIED BY (ii) the Rent Adjustment
Rate which is in effect or calculated on the Conversion Date, payable in
advance in equal, consecutive monthly installments due on the first day of
each calendar month; PROVIDED, HOWEVER, that on each Rent Adjustment Date,
the Base Rent shall be adjusted to equal the greater of (i) the then
current Post-Conversion Base Rent or (ii) an amount equal to Original
Meditrust Investment PLUS the aggregate amount of the Project Funds as
Lessor has expended as of the Conversion Date plus the Subsequent Advances
multiplied by the Rent Adjustment Rate then in effect on such subsequent
Rent Adjustment Date and FURTHER, PROVIDED, HOWEVER, that on the Conversion
Date, Lessee shall pay to Lessor (x) the proportionate share of the
Post-Conversion Base Rent due for the period from (and including) such date
through the end of the calendar month during which such date occurred.
3.1.2 ADDITIONAL RENT: In addition to the Base Rent, Lessee shall
also pay to Lessor additional rent (the "Additional Rent") in an amount
equal to five percent (5%) of Excess Gross Revenues. Additional Rent shall
accrue commencing on the second anniversary of the Conversion Date
("Additional Rent Accrual Date") and shall be payable during the Term,
quarterly in arrears, commencing on the first day
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of the first fiscal quarter occurring following the Additional Rent Accrual
Date and there shall be an annual reconciliation as provided in Section 3.2
below.
3.2 CALCULATION AND PAYMENT OF ADDITIONAL RENT; ANNUAL RECONCILIATION.
3.2.1 OFFICER'S CERTIFICATE AND PRORATION. Each quarterly payment
of Additional Rent shall be delivered to Lessor, together with an Officer's
Certificate setting forth the calculation thereof, within thirty (30) days
after the end of the corresponding quarter. Additional Rent due for any
portion of any calendar year shall be prorated accordingly.
3.2.2 ANNUAL STATEMENT. In addition, on or before the first day
of April of each year following any calendar year for which Additional Rent
is payable hereunder, Lessee shall deliver to Lessor an Officer's
Certificate, reasonably acceptable to Lessor and certified by the chief
financial officer of Lessee, setting forth the Gross Revenues for the
immediately preceding calendar year.
3.2.3 DEFICITS. If the Additional Rent, as finally determined for
any calendar year (or portion thereof), exceeds the sum of the quarterly
payments of Additional Rent previously paid by Lessee with respect to said
calendar year, within thirty (30) days after such determination is required
to be made hereunder, Lessee shall pay such deficit to Lessor and, if the
deficit exceeds five percent (5%) of the Additional Rent which was
previously paid to Lessor with respect to said calendar year, then Lessee
shall also pay Lessor interest on such deficit at the Overdue Rate from the
date that such payment should have been made by Lessee to the date that
Lessor receives such payment.
3.2.4 OVERPAYMENTS. If the Additional Rent, as finally determined
for any calendar year (or portion thereof), is less than the amount
previously paid with respect thereto by Lessee, Lessee shall notify Lessor
either (a) to pay to Lessee an amount equal to such difference or (b) to
grant Lessee a credit against Additional Rent next coming due in the amount
of such difference.
3.2.5 FINAL DETERMINATION. The obligation to pay Additional Rent
shall survive the expiration or earlier termination of the Term (as to
Additional Rent payments that are due and payable prior to the expiration
or earlier termination of the Term and during any periods that Lessee
remains in possession of the Leased Property), and a final reconciliation,
taking into account, among other relevant
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adjustments, any contractual allowances which related to Gross Revenues
that accrued prior to the date of such expiration or earlier termination,
but which have been determined to be not payable and Lessee's good faith
best estimate of the amount of any unresolved contractual allowances, shall
be made not later than two (2) years after said expiration or termination
date. Within sixty (60) days after the expiration or earlier termination
of the Term, Lessee shall advise Lessor of Lessee's best estimate of the
approximate amount of such adjustments, which estimate shall not be binding
on Lessee or have any legal effect whatsoever.
3.2.6 BEST EFFORTS TO MAXIMIZE. Lessee further covenants that the
operation of the Facility shall be conducted in a manner consistent with
the prevailing standards and practices recognized in the assisted living
industry as those customarily utilized by reputable business operations.
Subject to any applicable Legal Requirements, the members of the Leasing
Group shall use their best efforts to maximize the Facility's Gross
Revenues.
3.3 CONFIRMATION AND AUDIT OF ADDITIONAL RENT.
3.3.1 MAINTAIN ACCOUNTING SYSTEMS. Lessee shall utilize, or cause
to be utilized, an accounting system for the Leased Property in accordance
with usual and customary practices in the assisted living industry and in
accordance with GAAP which will accurately record all Gross Revenues.
Lessee shall retain, for at least three (3) years after the expiration of
each calendar year (and in any event until the final reconciliation
described in Section 3.2 above has been made), adequate records conforming
to such accounting system showing all Gross Revenues for such calendar
year.
3.3.2 AUDIT BY LESSOR. Lessor, at its own expense except as provided
hereinbelow, shall have the right from time to time to have its accountants
or representatives audit the information set forth in the Officer's
Certificate referred to in Section 3.2 and in connection with such audits,
to examine Lessee's records with respect thereto (including supporting data
income tax and sales tax returns), subject to any prohibitions or
limitations on disclosure of any such data under applicable law or
regulations.
3.3.3 DEFICIENCIES AND OVERPAYMENTS. If any such audit discloses
a deficiency in the reporting of Gross Revenues, and either Lessee agrees
with the result of such audit or the matter is compromised, Lessee shall
forthwith pay to Lessor the amount of the deficiency in Additional
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Rent which would have been payable by it had such deficiency in reporting
Gross Revenues not occurred, as finally agreed or determined, together with
interest on the Additional Rent which should have been payable by it,
calculated at the Overdue Rate, from the date when said payment should have
been made by Lessee to the date that Lessor receives such payment.
Notwithstanding anything to the contrary herein, with respect to any audit
that is commenced more than two (2) years after the date Gross Revenues for
any calendar year are reported by Lessee to Lessor, the deficiency, if any,
with respect to Additional Rent shall bear interest as permitted herein
only from the date such determination of deficiency is made, unless such
deficiency is the result of gross negligence or willful misconduct on the
part of Lessee (or any Affiliate thereof). If any audit conducted for
Lessor pursuant to the provisions hereof discloses that (a) the Gross
Revenues actually received by Lessee for any calendar year exceed those
reported by Lessee by more than five percent (5%), Lessee shall pay the
reasonable cost of such audit and examination or (b) Lessee has overpaid
Additional Rent, Lessor shall so notify Lessee and Lessee shall direct
Lessor either (i) to refund the overpayment to Lessee or (ii) grant a
credit against Additional Rent next coming due in the amount of such
difference.
3.3.4 SURVIVAL. The obligations of Lessor and Lessee contained in
this Section shall survive the expiration or earlier termination of this
Lease.
3.4 ADDITIONAL CHARGES. Subject to the rights to contest as set forth in
Article 15, in addition to the Base Rent and Additional Rent, (a) Lessee will
also pay and discharge as and when due and payable all Impositions, all amounts,
liabilities and obligations under the Appurtenant Agreements and all other
amounts, liabilities and obligations which Lessee assumes or agrees to pay under
this Lease, and (b) in the event of any failure on the part of Lessee to pay any
of those items referred to in clause (a) above, Lessee will also promptly pay
and discharge every fine, penalty, interest and cost which may be added for non-
payment or late payment of such items (the items referred to in clauses (a) and
(b) above being referred to herein collectively as the "Additional Charges"),
and Lessor shall have all legal, equitable and contractual rights, powers and
remedies provided in this Lease, by statute or otherwise, in the case of
non-payment of the Additional Charges, as well as the Base Rent and Additional
Rent. To the extent that Lessee pays any Additional Charges to Lessor pursuant
to any requirement of this Lease, Lessee shall be relieved of its obligation to
pay such Additional Charges to any other Person to which such Additional Charges
would otherwise be due.
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3.5 NET LEASE. The Rent shall be paid absolutely net to Lessor, so that
this Lease shall yield to Lessor the full amount of the installments of Base
Rent, and the payments of Additional Rent and, if and to the extent payable to
Lessor, Additional Charges throughout the Term.
3.6 NO LESSEE TERMINATION OR OFFSET.
3.6.1 NO TERMINATION. Except as may be otherwise specifically and
expressly provided in this Lease, Lessee, to the extent not prohibited by
applicable law, shall remain bound by this Lease in accordance with its
terms and shall neither take any action without the consent of Lessor to
modify, surrender or terminate the same, nor seek nor be entitled to any
abatement, deduction, deferment or reduction of Rent, or set off against
the Rent, nor shall the respective obligations of Lessor and Lessee be
otherwise affected by reason of (a) any Casualty or any Taking of the
Leased Property, (b) the lawful or unlawful prohibition of, or restriction
upon, Lessee's use of the Leased Property or the interference with such use
by any Person (other than Lessor, except to the extent permitted hereunder)
or by reason of eviction by paramount title; (c) any claim that Lessee has
or might have against Lessor, (d) any default or breach of any warranty by
Lessor or any of the other Meditrust Entities under this Lease, any other
Lease Document or any Related Party Agreement, (e) any bankruptcy,
insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding up or other proceedings affecting Lessor or any
assignee or transferee of Lessor or (f) for any other cause whether similar
or dissimilar to any of the foregoing, other than a discharge of Lessee
from any of the Lease Obligations as a matter of law.
3.6.2 WAIVER. Lessee to the fullest extent not prohibited by
applicable law, hereby specifically waives all rights, arising from any
occurrence whatsoever, which may now or hereafter be conferred upon it by
law to (a) modify, surrender or terminate this Lease or quit or surrender
the Leased Property or (b) entitle Lessee to any abatement, reduction,
suspension or deferment of the Rent or other sums payable by Lessee
hereunder, except as otherwise specifically and expressly provided in this
Lease.
3.6.3 INDEPENDENT COVENANTS. The obligations of Lessor and Lessee
hereunder shall be separate and independent covenants and agreements and
the Rent and all other sums payable by Lessee hereunder shall continue to
be payable in all events unless the obligations to pay the same shall be
terminated pursuant to the express provisions of this Lease or (except in
those instances where the
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obligation to pay expressly survives the termination of this Lease) by
termination of this Lease other than by reason of an Event of Default.
3.7 ABATEMENT OF RENT LIMITED. There shall be no abatement of Rent on
account of any Casualty, Taking or other event, except that (a) in the event of
a partial Taking or a temporary Taking as described in Section 14.3, the Base
Rent shall be abated as follows: (i) in the case of such a partial Taking, the
Meditrust Investment shall be reduced for the purposes of calculating Base Rent
pursuant to Section 3.1 by subtracting therefrom, as applicable, the net amount
of the Award received by Lessor, and (ii) in the case of such a temporary
Taking, by reducing the Base Rent for the period of such a temporary Taking, by
the net amount of the Award received by Lessor and (b) in the event of a
Casualty, the Base Rent shall be abated as follows: the Meditrust Investment
shall be reduced for the purposes of calculating Base Rent pursuant to
Section 3.1 by subtracting therefrom, as applicable, the net amount of the
insurance proceeds.
For the purposes of this Section 3.7, the "net amount of the Award received
by Lessor" shall mean the Award paid to Lessor or Lessor's mortgagee on account
of such Taking, minus all costs and expenses incurred by Lessor in connection
therewith, and minus any amounts paid to or for the account of Lessee to
reimburse for the costs and expenses of reconstructing the Facility following
such Taking in order to create a viable and functional Facility under all of the
circumstances ("Net Award Amount") and the "net amount of the insurance
proceeds" shall mean the insurance proceeds paid to Lessor or Lessor's mortgagee
on account of such Casualty, minus all costs and expenses incurred by Lessor in
connection therewith and minus any amounts paid to or for the account of Lessee
to reimburse for the costs and expenses of reconstructing the Facility following
such Casualty in order to create a viable and functional Facility under all of
the circumstances ("Net Proceeds Amount").
ARTICLE 4
IMPOSITIONS; TAXES; UTILITIES:
INSURANCE PAYMENTS
4.1 PAYMENT OF IMPOSITIONS.
4.1.1 LESSEE TO PAY. Subject to the provisions of Article 15, Lessee
will pay or cause to be paid all Impositions before any fine, penalty,
interest or cost may be added for non-payment, such payments to be made
directly to the taxing authority where feasible, and Lessee will promptly
furnish Lessor copies of official receipts or other
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satisfactory proof evidencing payment not later than the last day on which
the same may be paid without penalty or interest. Subject to the
provisions of Article 15 and Section 4.1.2, Lessee's obligation to pay such
Impositions shall be deemed absolutely fixed upon the date such Impositions
become a lien upon the Leased Property or any part thereof.
4.1.2 INSTALLMENT ELECTIONS. If any such Imposition may, at the
option of the taxpayer, lawfully be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Lessee may
exercise the option to pay the same (and any accrued interest on the unpaid
balance of such Imposition) in installments and, in such event, shall pay
such installments during the Term hereof (subject to Lessee's right to
contest pursuant to the provisions of Section 4.1.5 below) as the same
respectively become due and before any fine, penalty, premium, further
interest or cost may be added thereto.
4.1.3 RETURNS AND REPORTS. Lessor, at its expense, shall, to the
extent permitted by applicable law, prepare and file all tax returns and
reports as may be required by Governmental Authorities in respect of
Lessor's net income, gross receipts, franchise taxes and taxes on its
capital stock, and Lessee, at its expense, shall, to the extent permitted
by applicable laws and regulations, prepare and file all other tax returns
and reports in respect of any imposition as may be required by Governmental
Authorities. Lessor and Lessee shall, upon request of the other, provide
such data as is maintained by the party to whom the request is made with
respect to the Leased Property as may be necessary to prepare any required
returns and reports. In the event that any Governmental Authority
classifies any property covered by this Lease as personal property, Lessee
shall file all personal property tax returns in such jurisdictions where it
may legally so file. Lessor, to the extent it possesses the same, and
Lessee, to the extent it possesses the same, will provide the other party,
upon request, with cost and depreciation records necessary for filing
returns for any portion of Leased Property so classified as personal
property. Where Lessor is legally required to file personal property tax
returns, if Lessee notifies Lessor of the obligation to do so in each year
at least thirty (30) days prior to the date any protest must be filed,
Lessee will be provided with copies of assessment notices so as to enable
Lessee to file a protest.
4.1.4 REFUNDS. If no Lease Default shall have occurred and be
continuing, Any refund due from any taxing authority in respect of any
Imposition paid by Lessee shall
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be paid over to or retained by Lessee. If a Lease Default shall have
occurred and be continuing, at Lessor's option, such funds shall be paid
over to Lessor and/or retained by Lessor and applied toward Lease
Obligations which relate to the Leased Property in accordance with the
Lease Documents.
4.1.5 PROTEST. Upon giving notice to Lessor, at Lessee's option
and sole cost and expense, and subject to compliance with the provisions of
Article 15, Lessee may contest, protest, appeal, or institute such other
proceedings as Lessee may deem appropriate to effect a reduction of any
Imposition and Lessor, at Lessee's cost and expense as aforesaid, shall
fully cooperate in a reasonable manner with Lessee in connection with such
protest, appeal or other action.
4.2 NOTICE OF IMPOSITIONS. Lessor shall give prompt notice to Lessee of
all Impositions payable by Lessee hereunder of which Lessor at any time has
knowledge, but Lessor's failure to give any such notice shall in no way diminish
Lessee's obligations hereunder to pay such Impositions.
4.3 ADJUSTMENT OF IMPOSITIONS. Impositions imposed in respect of the
period during which the expiration or earlier, termination of the Term occurs
shall be adjusted and prorated between Lessor and Lessee, whether or not such
Impositions are imposed before or after such expiration or termination, and
Lessee's obligation to pay its prorated share thereof shall survive such
expiration or termination.
4.4 UTILITY CHARGES. Lessee will pay or cause to be paid all charges for
electricity, power, gas, oil, water, telephone, cable television and other
utilities used in the Leased Property during the Term and thereafter until
Lessee surrenders the Leased Property in the manner required by this Lease.
4.5 INSURANCE PREMIUMS. Lessee will pay or cause to be paid all premiums
for the insurance coverage required to be maintained pursuant to Article 12
during the Term, and thereafter until Lessee yields up the Leased Property in
the manner required by this Lease. All such premiums shall be paid annually in
advance and Lessee shall furnish Lessor with evidence satisfactory to Lessor
that all such premiums have been so paid prior to the commencement of the Term
and thereafter at least thirty (30) days prior to the due date of each premium
which thereafter becomes due. Notwithstanding the foregoing, Lessee may pay
such insurance premiums to the insurer in monthly installments so long as the
applicable insurer is contractually obligated to give Lessor not less than a
sixty (60) days notice of non-payment and so long as no Lease Default has
occurred and is continuing. In the event of the failure of Lessee either to
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comply with the insurance requirements in Article 12, or to pay the premiums for
such insurance, or to deliver such policies or certificates thereof to Lessor at
the times required hereunder, Lessor shall be entitled but shall have no
obligation, to effect such insurance and pay the premiums therefor, which
premiums shall be a demand obligation of Lessee to Lessor.
4.6 DEPOSITS.
4.6.1 LESSOR'S OPTION. At the option of Lessor upon the occurrence
of an event or circumstance which, with the giving of notice and/or the
passage of time, would constitute a Lease Default, which may be exercised
at any time thereafter, Lessee shall, upon written request of Lessor, on
the first day on the calendar month immediately following such request, and
on the first day of each calendar month thereafter during the Term (each of
which dates is referred to as a "Monthly Deposit Date"), pay to and deposit
with Lessor a sum equal to one-twelfth (1/12th) of the Impositions to be
levied, charged, filed, assessed or imposed upon or against the Leased
Property within one (1) year after said Monthly Deposit Date and a sum
equal to one twelfth (1/12th) of the premiums for the insurance policies
required pursuant to Article 12 which are payable within one (1) year after
said Monthly Deposit Date. If the amount of the Impositions to be levied,
charged, assessed or imposed or insurance premiums to be paid within the
ensuing one (1) year period shall not be fixed upon any Monthly Deposit
Date, such amount for the purpose of computing the deposit to be made by
Lessee hereunder shall be estimated by Lessor based upon the most recent
available information concerning said Impositions with an appropriate
adjustment to be promptly made between Lessor and Lessee as soon as such
amount becomes determinable. In addition, Lessor may, at its option, from
time to time require that any particular deposit be greater than one-
twelfth (1/12th) of the estimated amount payable within one (1) year after
said Monthly Deposit Date, if such additional deposit is required in order
to provide to Lessor a sufficient fund from which to make payment of all
Impositions on or before the next due date of any installment thereof, or
to make payment of any required insurance premiums not later than the due
date thereof.
4.6.2 USE OF DEPOSITS. The sums deposited by Lessee under this
Section 4.6 shall be held by Lessor and shall be applied in payment of the
Impositions or insurance premiums, as the case may be, when due. Any such
deposits may be commingled with other assets of Lessor, and shall be
deposited by Lessor at such bank as Lessor may, from time to time select,
and, provided that Lessor has invested such
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deposits in one or more of the investment vehicles described on
SCHEDULE 4.6.2 attached hereto and incorporated by reference, Lessor shall
not be liable to Lessee or any other Person (a) based on Lessor's (or such
bank's) choice of investment vehicles, (b) for any consequent loss of
principal or interest or (a) for any unavailability of funds based on such
choice of investment. Furthermore, Lessor shall bear no responsibility for
the financial condition of, nor any act or omission by, Lessor's depository
bank. The income from such investment or interest on such deposit shall be
paid to Lessee on a semi-annual basis as long as no Lease Default has
occurred and is then continuing, and as long as no fact or circumstance
exists which, with the giving of notice and/or the passage of time, would
constitute a Lease Default. Lessee shall give not less than ten (10) days
prior written notice to Lessor in each instance when an Imposition or
insurance premium is due, specifying the Imposition or premium to be paid
and the amount thereof, the place of payment, and the last day on which the
same may be paid in order to comply with the requirements of this Lease.
If Lessor, in violation of its obligations under this Lease, does not pay
any Imposition or insurance premium when due, for which a sufficient
deposit exists, Lessee shall not be in default hereunder by virtue of the
failure of Lessor to pay such Imposition or such insurance premium and
Lessor shall pay any interest or fine assessed by virtue of Lessor's
failure to pay such Imposition or insurance premium.
4.6.3 DEFICITS. If for any reason any deposit held by Lessor under
this Section 4.6 shall not be sufficient to pay an Imposition or insurance
premium within the time specified therefor in this Lease, then, within ten
(10) days after demand by Lessor, Lessee shall deposit an additional amount
with Lessor, increasing the deposit held by Lessor so that Lessor holds
sufficient funds to pay such Imposition or premium in full (or in
installments as otherwise provided for herein), together with any penalty
or interest due thereon. Lessor may change its estimate of any Imposition
or insurance premium for any period on the basis of a change in an
assessment or tax rate or on the basis of a prior miscalculation or for any
other good faith reason; in which event, within ten (10) days after demand
by Lessor, Lessee shall deposit with Lessor the amount in excess of the
sums previously deposited with Lessor for the applicable period which would
theretofore have been payable under the revised estimate.
4.6.4 OTHER PROPERTIES. If any Imposition shall be levied, charged,
filed, assessed, or imposed upon or against the Leased Property, and if
such Imposition shall also be a
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levy, charge, assessment, or imposition upon or for any other real or
personal property that does not constitute a part of the Leased Property
but for which a lien exists or can exist upon the Leased Property, then, at
Lessor's reasonable discretion, the computation of the amounts to be
deposited under this Section 4.6 shall be based upon the entire amount of
such Imposition and Lessee shall not have the right to apportion any
deposit with respect to such Imposition.
4.6.5 TRANSFERS. In connection with any assignment of Lessor's
interest under this Lease, the original Lessor named herein and each
successor in interest shall transfer all amounts deposited pursuant to the
provisions of this Section 4.6 and still in its possession to such assignee
(as the subsequent holder of Lessor's interest in this Lease) and upon such
transfer, the original Lessor named herein or the applicable successor in
interest transferring the deposits shall thereupon be completely released
from all liability with respect to such deposits so transferred and Lessee
shall look solely to said assignee, as the subsequent holder of Lessor's
interest under this Lease, in reference thereto.
4.6.6 SECURITY. All amounts deposited with Lessor pursuant to the
provisions of this Section 4.6 shall be held by Lessor as additional
security for the payment and performance of the Obligations and, upon the
occurrence of any Lease Default, Lessor may, in its sole and absolute
discretion, apply said amounts towards payment or performance of such
Obligations.
4.6.7 RETURN. Upon the expiration or earlier termination of this
Lease, provided that all of the Lease Obligations relating to the Leased
Property have been fully paid and performed, any sums then held by Lessor
under this Section 4.6 shall be refunded to Lessee.
4.6.8 RECEIPTS. Lessee shall deliver to Lessor copies of all
notices, demands, claims, bills and receipts in relation to the Impositions
and insurance premiums upon the earlier to occur of (a) ten (10) days
following receipt thereof by Lessee and (b) in the case of an invoice,
demand or bill for the payment of an Imposition, prior to the date when
such Imposition is due and payable.
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ARTICLE 5
OWNERSHIP OF LEASED PROPERTY AND PERSONAL PROPERTY:
INSTALLATION, REMOVAL AND REPLACEMENT OF
PERSONAL PROPERTY:
5.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee acknowledges that the Leased
Property is the property of Lessor and that Lessee has only the right to the
exclusive possession and use of the Leased Property upon the terms and
conditions of this Lease.
5.2 PERSONAL PROPERTY; REMOVAL AND REPLACEMENT OF PERSONAL PROPERTY.
5.2.1 LESSEE TO EQUIP FACILITY. If and to the extent not included in
the Leased Property, Lessee, at its sole cost and expense, shall install,
affix or assemble or place on the Leased Property, sufficient items of
Tangible Personal Property, to enable the operation of the Facility in
accordance with the requirements of this Lease for the Primary Intended
Use, and such Tangible Personal Property and replacements thereof, shall be
at all times the property of Lessee.
5.2.2 SUFFICIENT PERSONAL PROPERTY. Lessee shall maintain, during
the entire Term, the Tangible Personal Property in good order and repair
and shall provide at its expense all necessary replacements thereof, as may
be necessary in order to operate the Facility in compliance with all
applicable Legal Requirements and Insurance Requirements and otherwise in
accordance with customary practice in the industry for the Primary Intended
Use and, if applicable, other Permitted Uses. In addition, Lessee shall
furnish all necessary replacements of such obsolete items of the Tangible
Personal Property during the Term as are necessary to enable the operation
of the Facility in accordance with the requirements of this Lease for the
Primary Intended Use.
5.2.3 REMOVAL AND REPLACEMENT; LESSOR'S OPTION TO PURCHASE. Lessee
shall not remove from the Leased Property any one or more items of Tangible
Personal Property (whether now owned or hereafter acquired), the fair
market value of which exceeds TWENTY-FIVE THOUSAND DOLLARS ($25,000),
individually or ONE HUNDRED THOUSAND DOLLARS ($100,000.00) collectively, if
such Tangible Personal Property is necessary to enable the operation of the
Facility in accordance with the requirements of this Lease for the Primary
Intended Use. At its sole cost and expense, Lessee shall restore the
Leased Property to the condition required by Article 8, including repair of
all damage to the Leased
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Property caused by the removal of the Tangible Personal Property, whether
effected by Lessee or Lessor. Upon the expiration or earlier termination
of this Lease, Lessor shall have the option, which may be exercised by
giving notice thereof within twenty (20) days prior to such expiration or
termination, of (a) acquiring the Tangible Personal Property (pursuant to a
bill of sale and assignments of any equipment leases, all in such forms as
are reasonably satisfactory to Lessor) upon payment of its fair market
value or (b) requiring Lessee to remove the Tangible Personal Property. If
Lessor exercises its option to purchase the Tangible Personal Property, the
price to be paid by Lessor shall be (i) reduced by the amount of all
payments due on any equipment leases or any other Permitted Prior Security
Interests assumed by Lessor and (ii) applied to the Lease Obligations
before any payment to Lessee. If Lessor requires the removal of the
Tangible Personal Property, then all of the Tangible Personal Property that
is not removed by Lessee within ten (10) days following such request shall
be considered abandoned by Lessee and may be appropriated, sold, destroyed
or otherwise disposed of by Lessor without first giving notice thereof to
Lessee, without any payment to Lessee and without any obligation to account
therefor.
ARTICLE 6
SECURITY FOR LEASE OBLIGATIONS
6.1 SECURITY FOR LESSEE'S OBLIGATIONS; PERMITTED PRIOR SECURITY INTERESTS.
6.1.1 SECURITY. In order to secure the payment and performance of
all of the Obligations, Lessee agrees to provide or cause there to be
provided the following security:
(a) a first lien and exclusive security interest in the
Collateral, as more particularly provided for in the Security
Agreement;
(b) the Cash Collateral.
(c) a first lien and exclusive pledge and assignment of, and
security interest in, all Permits and Contracts, as more particularly
provided for in the Collateral Assignment of Permits and Contracts;
and
(d) in the event that, at any time during the Term, Lessee holds
the fee title to or a leasehold
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interest in any real property and/or personal property which is used as an
integral part of the operation of the Leased Property (but is not subject
to this Lease), Lessee shall (i) provide Lessor with prior notice of such
acquisition and (ii) shall take such actions and enter into such agreements
as Lessor shall reasonably request in order to grant Lessor a first
priority mortgage or other security interest in such real property and
personal property, subject only to the Permitted Encumbrances and other
Liens reasonably acceptable to Lessor. Without limiting the foregoing, it
is acknowledged and agreed that all revenues generated from the operation
of such additional real property shall be included in the determination of
Gross Revenues (subject to such adjustments as agreed upon hereunder).
Notwithstanding the foregoing, Lessor shall subordinate its security
interest in Receivables to a prior security interest to secure a working
capital line as provided in Section 6.1.3.
6.1.2 PURCHASE-MONEY SECURITY INTERESTS AND EQUIPMENT LEASES.
Notwithstanding any other provision hereof regarding the creation of Liens,
Lessee may (a) grant priority purchase money security interests in items of
Tangible Personal Property, (b) lease Tangible Personal Property from
equipment lessors as long as: (i) the aggregate value of such Tangible
Personal Property shall not exceed TWO HUNDRED THOUSAND DOLLARS ($200,000)
or (ii) (A) the secured party or equipment lessor enters into an
intercreditor agreement with, and satisfactory to, Lessor, pursuant
to which, without limiting the foregoing, (1) Lessor shall be afforded the
option of curing defaults and the option of succeeding to the rights of
Lessee and (2) Lessor's security interest in Tangible Personal Property
shall be subordinated to the security interest granted to such secured
party, (B) all of the terms, conditions and provisions of the financing,
security interest or lease are reasonably acceptable to Lessor, (C) Lessee
provides a true and complete copy, as executed, of each such purchase money
security agreement, financing document and equipment lease and all
amendments thereto and (D) no such security interest, financing agreement
or lease is cross-defaulted or cross-collateralized with any other
obligation. Security interests granted by Lessee in full compliance with
the provisions of this Section 6.1.2 are referred to as "Permitted Prior
Security Interests".
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6.1.3 RECEIVABLES FINANCING. Notwithstanding any other provision
hereof regarding the creation of Liens, Lessee shall also be permitted to
grant a prior security interest in Receivables (with the Lessor retaining a
junior security interest therein) to an institutional lender which is
providing a working capital line of credit (a "Working Capital Loan") for
the exclusive use of Guarantor, Lessee and Affiliates of Lessee as long as
such Lender enters into an intercreditor agreement with, and satisfactory
to, Lessor pursuant to which, without limiting the foregoing, (1) Lessor
shall be provided with notice with respect to defaults under the Working
Capital Loan simultaneously with the delivery of such notice to Lessee and
shall be afforded the option of curing defaults thereunder, (2) such
lender's use of Instruments, Documents, General Intangibles and Chattel
Paper shall be limited to a license only for the purpose of collecting
Receivables and (3) the subordination of Lessor's interest in the
Receivables shall be of no force and effect and Lessor's first priority
security interest shall be reinstated from and after the occurrence of an
Event of Default if, upon or following such Event of Default, Lessor either
exercises any of its remedies set forth in Article 16 or Lessor notifies in
writing such lender of Lessor's intention to invoke its right to reinstate
its first priority security interest in the Receivables.
6.2 GUARANTY. All of the Lease Obligations shall be unconditionally and
irrevocably guaranteed by the Guarantor pursuant to the Guaranty of Lease
Obligations.
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTY:
MANAGEMENT AGREEMENTS
7.1 CONDITION OF THE LEASED PROPERTY. Lessee acknowledges that Lessee has
caused the Leased Property to be sold to Lessor and has concurrently entered
into this Lease. Lessee acknowledges receipt and delivery of possession of the
Leased Property and that Lessee has examined and otherwise has acquired
knowledge of the condition of the Leased Property prior to the execution and
delivery of this Lease and has found the same to be in good order and repair and
satisfactory for its purposes hereunder. Lessee is leasing the Leased Property
"AS-IS" in its present condition, provided, however, that nothing herein
contained in this Section 7.1 shall be deemed to modify the terms and provisions
of the Leasehold Improvement Agreement. Lessee
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waives any claim or action against Lessor in respect of the condition of the
Leased Property. LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, WITH RESPECT TO THE LEASED PROPERTY, EITHER AS TO ITS FITNESS FOR ANY
PARTICULAR PURPOSE OR USE, ITS DESIGN OR CONDITION OR OTHERWISE, OR AS TO
DEFECTS IN THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT;
IT BEING AGREED THAT ALL RISKS RELATING TO THE DESIGN, CONDITION AND/OR USE OF
THE LEASED PROPERTY ARE TO BE BORNE BY LESSEE. LESSEE HEREBY ASSUMES ALL RISK
OF THE PHYSICAL CONDITION OF THE LEASED PROPERTY, THE SUITABILITY OF THE LEASED
PROPERTY FOR LESSEE'S PURPOSES, AND THE COMPLIANCE OR NON-COMPLIANCE OF THE
LEASED PROPERTY WITH ALL APPLICABLE REQUIREMENTS OF LAW, INCLUDING BUT NOT
LIMITED TO ENVIRONMENTAL LAWS AND ZONING OR LAND USE LAWS.
Upon the request of Lessor, at any time and from time to time during the
Term, Lessee shall engage one (1) or more independent professional consultants,
engineers and inspectors, qualified to do business in the State and acceptable
to Lessor to perform any environmental and/or structural investigations and/or
other inspections of the Leased Property and the Facility as Lessor may
reasonably request in order to detect (a) any structural deficiencies in the
Leased Improvements or the utilities servicing the Leased Property or (b) the
presence of any condition that (i) may be harmful or present a health hazard to
the residents and other occupants of the Leased Property or (ii) constitutes a
breach or violation of any of the Lease Documents. In the event that Lessor
reasonably determines that the results of such testing or inspections are
unsatisfactory, within thirty (30) days of notice from Lessor, Lessee shall
commence such appropriate remedial actions as may be reasonably requested by
Lessor to correct such unsatisfactory conditions and, thereafter, shall
diligently and continuously prosecute such remedial actions to completion within
the time limits prescribed in this Lease or the other Lease Documents.
7.2 USE OF THE LEASED PROPERTY; COMPLIANCE; MANAGEMENT.
7.2.1 OBLIGATION TO OPERATE. Following completion of the Facility,
Lessee shall continuously operate the Leased Property in accordance with
the Primary Intended Use and the Other Permitted Uses and maintain its
qualifications for licensure and accreditation as required by all
applicable Legal Requirements.
7.2.2 PERMITTED USES. During the entire Term, Lessee shall use the
Leased Property, or permit the Leased Property to be used, only for the
Primary Intended Use and, if applicable, the Other Permitted Uses. Lessee
shall not use the Leased Property or permit the Leased Property to be used
for any other use without the prior written consent of
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Lessor, which consent may be withheld in Lessor's sole and absolute
discretion.
7.2.3 COMPLIANCE WITH INSURANCE REQUIREMENTS. No use shall be made
or permitted to be made of the Leased Property and no acts shall be done
which will cause the cancellation of any insurance policy covering the
Leased Property, nor shall Lessee, any Manager or any other Person sell or
otherwise provide to residents, other occupants or invitees therein, or
permit to be kept, used or sold in or about the Leased Property, any
article which may be prohibited by any of the Insurance Requirements.
Furthermore, Lessee shall, at its sole cost and expense, take whatever
other actions that may be necessary to comply with and to insure that the
Leased Property complies with all Insurance Requirements.
7.2.4 NO WASTE. Lessee shall not commit or suffer to be committed
any waste on, in or under the Leased Property, nor shall Lessee cause or
permit any nuisance thereon.
7.2.5 NO IMPAIRMENT. Lessee shall neither permit nor knowingly
suffer the Leased Property to be used in such a manner as (a) might
reasonably tend to impair Lessor's title thereto or (b) may reasonably make
possible a claim or claims of adverse usage or adverse possession by the
public or of implied dedication of the Leased Property.
7.2.6 NO LIENS. Except as permitted pursuant to Section 6.1.2,
Lessee shall not permit or suffer any Lien to exist on the Tangible
Personal Property and shall in no event cause, permit or suffer any Lien to
exist with respect to the Leased Property other than as set forth in
Section 11.5.2.
7.3 COMPLIANCE WITH LOCAL REQUIREMENTS. Lessee covenants and agrees that
the Leased Property shall not be used for any unlawful purpose and that Lessee,
at its sole cost and expense, will promptly (a) comply with, and shall cause
every other member of the Leasing Group to comply with, all applicable Legal
Requirements relating to the use, operation, maintenance, repair and restoration
of the Leased Property, whether or not compliance therewith shall require
structural change in any of the Leased Property or interfere with the use and
enjoyment of the Leased Property and (b) procure, maintain and comply with (in
all material respects), and shall cause every other member of the Leasing Group
to procure, maintain and comply with (in all material respects), all Contracts
and Permits necessary or desirable in order to operate the Leased Property for
the Primary Intended Use and/or, if applicable, Other Permitted Uses, and for
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compliance with all of the terms and conditions of this Lease. Unless a Lease
Default has occurred or any event has occurred which, with the passage of time
and/or the giving of notice would constitute a Lease Default, Lessee may, upon
prior written notice to Lessor, contest any Legal Requirement to the extent
permitted by, and in accordance with, Article 15 below.
7.4 MANAGEMENT AGREEMENTS. Throughout the Term, Lessee shall not enter
into any Management Agreement without the prior written approval of Lessor, in
each instance, which approval shall not be unreasonably withheld. Lessee shall
not, without the prior written approval of Lessor, in each instance, which
approval shall not be unreasonably withheld, agree to or allow: (a) any change
in the Manager or change in the ownership or control of the Manager, (b) the
termination of any Management Agreement (other than in connection with the
exercise by Lessee of any of its remedies under the Management Agreement as a
result of any default by the Manager thereunder), (c) any assignment by the
Manager of its interest under the Management Agreement or (d) any material
amendment of the Management Agreement. In addition, Lessee shall, at its sole
cost and expense, promptly and fully perform or cause to be performed every
covenant, condition, promise and obligation of the licensed operator of the
Leased Property under any Management Agreement.
Each Management Agreement shall provide that Lessor shall be provided
notice of any defaults thereunder and, at Lessor's option, an opportunity to
cure such default. Lessee shall furnish to Lessor, within three (3) days after
receipt thereof, or after the mailing or service thereof by Lessee, as the case
may be, a copy of each notice of default which Lessee shall give to, or receive
from any Person, based upon the occurrence, or alleged occurrence, of any
default in the performance of any covenant, condition, promise or obligation
under any Management Agreement.
Whenever and as often as Lessee shall fail to perform, promptly and fully,
at its sole cost and expense, any covenant, condition, promise or obligation on
the part of the licensed operator of the Leased Property under and pursuant to
any Management Agreement, Lessor, or a lawfully appointed receiver of the Leased
Property, may, at their respective options (and without any obligation to do
so), after five (5) days' prior notice to Lessee (except in the case of an
emergency) enter upon the Leased Property and perform, or cause to be performed,
such work, labor, services, acts or things, and take such other steps and do
such other acts as they may deem advisable, to cure such defaulted covenant,
condition, promise or obligation, and any amount so paid or advanced by Lessor
or such receiver and all costs and expenses reasonably incurred in connection
therewith (including, without limitation, attorneys' fees and expenses and
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court costs), shall be a demand obligation of Lessee to Lessor or such receiver,
and, Lessor shall have the same rights and remedies for failure to pay such
costs on demand as for Lessee's failure to pay any other sums due hereunder.
7.5 PARTICIPATION IN THIRD PARTY PAYOR PROGRAMS. No provision of this
Lease shall be deemed to require Lessee to commence participation in any Third
Party Payor Program or any Managed Care Plan.
ARTICLE 8
REPAIRS; RESTRICTIONS
8.1 MAINTENANCE AND REPAIR.
8.1.1 LESSEE'S RESPONSIBILITY. Lessee, at its sole cost and expense,
shall keep the Leased Property and all private roadways, sidewalks and
curbs appurtenant thereto which are under Lessee's control in good order
and repair to the extent consistent with the stage of construction of the
Project (whether or not the need for such repairs occurs as a result of
Lessee's use, any prior use, the elements or the age of the Leased Property
or such private roadways, sidewalks and curbs or any other cause whatsoever
other than Lessor's gross negligence or willful misconduct) and, subject to
Articles 9, 13 and 14, Lessee shall promptly, with the exercise of all
reasonable efforts, undertake and diligently complete all necessary and
appropriate repairs, replacements, renovations, restorations, alterations
and modifications thereof of every kind and nature, whether interior or
exterior, structural or non-structural, ordinary or extraordinary, foreseen
or unforeseen or arising by reason of a condition (concealed or otherwise)
existing prior to the commencement of, or during, the Term and thereafter
until Lessee surrenders the Leased Property in the manner required by this
Lease. In addition, Lessee, at its sole cost and expense, shall make all
repairs, modifications, replacements, renovations and alterations of the
Leased Property (and such private roadways, sidewalks and curbs) that are
necessary to comply with all applicable Legal Requirements and Insurance
Requirements so that the Leased Property can be legally operated for the
Primary Intended Use and, if applicable, the Other Permitted Uses. All
repairs, replacements, renovations, alterations, and modifications required
by the terms of this Section 8.1 shall be (a) performed in a good and
workmanlike manner in compliance with all applicable Legal Requirements,
Insurance Requirements and the requirements of Article 9 hereof, using new
materials well suited for their intended purpose and (b) consistent with
the operation of the Facility in a reputable
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manner. Lessee will not take or omit to take any action the taking or
omission of which might materially impair the value or the usefulness of
the Leased Property for the Primary Intended Use and, if applicable, the
Other Permitted Uses. To the extent that any of the repairs, replacements,
renovations, alterations or modifications required by the terms of this
Section 8.1 constitute Material Structural Work, Lessee shall obtain
Lessor's prior written approval (which approval shall not be unreasonably
withheld) of the specific repairs, replacements, renovations, alterations
and modifications to be performed by or on behalf of Lessee in connection
with such Material Structural Work. Notwithstanding the foregoing, in the
event of a bona fide emergency during which Lessee is unable to contact the
appropriate representatives of Lessor, Lessee may commence such Material
Structural Work as may be necessary in order to address such emergency
without Lessor's prior approval, PROVIDED, HOWEVER, that Lessee shall
immediately thereafter advise Lessor of such emergency and the nature and
scope of the Material Structural Work commenced and shall obtain Lessor's
approval of the remaining Material Structural Work to be completed.
8.1.2 NO LESSOR OBLIGATION. Lessor shall not, under any
circumstances, be required to build or rebuild any improvements on the
Leased Property (or any private roadways, sidewalks or curbs appurtenant
thereto), or to make any repairs, replacements, renovations, alterations,
restorations, modifications, or renewals of any nature or description to
the Leased Property (or any private roadways, sidewalks or curbs
appurtenant thereto), whether ordinary or extraordinary, structural or
non-structural, foreseen or unforeseen, or to make any expenditure
whatsoever with respect thereto in connection with this Lease, or to
maintain the Leased Property (or any private roadways, sidewalks or curbs
appurtenant thereto) in any way.
8.1.3 LESSEE MAY NOT OBLIGATE LESSOR. Nothing contained herein nor
any action or inaction by Lessor shall be construed as (a) constituting the
consent or request of Lessor, express or implied, to any contractor,
subcontractor, laborer, materialman or vendor to or for the performance of
any labor or services for any construction, alteration, addition, repair or
demolition of or to the Leased Property or (b) except as otherwise provided
in this Lease, giving Lessee any right, power or permission to contract for
or permit the performance of any labor or services or the furnishing of any
materials or other property in such fashion as would permit the making of
any claim against Lessor for the payment thereof or to make any agreement
that may create, or in any way be the basis for,
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any right, title or interest in, or Lien or claim against, the estate of
Lessor in the Leased Property. Without limiting the generality of the
foregoing and except as otherwise provided in this Lease, the right title
and interest of Lessor in and to the Leased Property shall not be subject
to liens or encumbrances for the performance of any labor or services or
the furnishing of any materials or other property furnished to the Leased
Property at or by the request of Lessee or any other Person other than
Lessor. Lessee shall notify any contractor, subcontractor, laborer,
materialman or vendor providing any labor, services or materials to the
Leased Property of this provision.
8.2 ENCROACHMENTS: TITLE RESTRICTIONS. If any of the Leased Improvements
shall, at any time, encroach upon any property, street or right-of-way adjacent
to the Leased Property, or shall violate the agreements or conditions contained
in any lawful restrictive covenant or other Lien now or hereafter affecting the
Leased Property, or shall impair the rights of others under any easement,
right-of-way or other Lien to which the Leased Property is now or hereafter
subject, then promptly upon the request of Lessor, Lessee shall, at its sole
cost and expense, subject to Lessee's right to contest the existence of any
encroachment, violation or impairment as set forth in Article 15, (a) obtain
valid and effective waivers or settlements of all claims, liabilities and
damages resulting from each such encroachment, violation or impairment or (b)
make such alterations to the Leased Improvements, and take such other actions,
as Lessee in the good faith exercise of its judgment deems reasonably
practicable, to remove such encroachment, or to end such violation or
impairment, including, if necessary, the alteration of any of the Leased
Improvements. Notwithstanding the foregoing, Lessee shall, in any event, take
all such actions as may be reasonably necessary in order to be able to continue
the operation of the Leased Improvements for the Primary Intended Use and, if
applicable, the Other Permitted Uses substantially in the manner and to the
extent that the Leased Improvements were operated prior to the assertion of such
encroachment, violation or impairment and nothing contained herein shall limit
Lessee's obligations to operate the Leased Property in accordance with its
Primary Intended Use. Any such alteration made pursuant to the terms of this
Section 8.2 shall be completed in conformity with the applicable requirements of
Section 8.1 and Article 9. Lessee's obligations under this Section 8.2 shall be
in addition to and shall in no way discharge or diminish any obligation of any
insurer under any policy of title or other insurance. If and to the extent any
obligation of an insurer under any policy of title or other insurance exists and
Lessee has incurred costs and expenses with respect to the subject matter of
such obligation and provided Lessor is reasonably satisfied with the resolution
of such subject matter, at the request of Lessee, Lessor, at
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Lessor's option, shall either assign to Lessee any right it may have to proceed
against such insurer or remit to Lessee any amount which Lessor recovers from
such insurer, minus any amounts needed to reimburse Lessor for its reasonable
costs and expenses for the costs and expenses incurred by Lessee in
reconstructing the Facility or taking such other action reasonably required in
order to create a viable and functional Facility under all of the circumstances.
ARTICLE 9
MATERIAL STRUCTURAL WORK AND
CAPITAL ADDITIONS
9.1 LESSOR'S APPROVAL. Without the prior written consent of Lessor, which
consent may be withheld by Lessor, in its sole and absolute discretion, Lessee
shall make no Capital Addition or Material Structural Work to the Leased
Property (including, without limitation, any change in the size or unit capacity
of the Facility), except as may be otherwise expressly required pursuant to
Article 8.
9.2 GENERAL PROVISIONS AS TO CAPITAL ADDITIONS AND CERTAIN MATERIAL
STRUCTURAL WORK. As to any Capital Addition or Material Structural Work (other
than such Material Structural Work that is required to be performed pursuant to
the terms of Section 8.1) for which Lessor has granted its prior written
approval, the following terms and conditions shall apply unless otherwise
expressly set forth in Lessor's written approval.
9.2.1 NO LIENS. Lessee shall not be permitted to create any Lien on
the Leased Property in connection with any Capital Addition or Material
Structural Work (including, without limitation, Liens relating to the
provision of financing for a Capital Addition) other than Liens expressly
permitted by the terms and provisions of this Lease Agreement.
9.2.2 LESSEE'S PROPOSAL REGARDING CAPITAL ADDITIONS AND MATERIAL
STRUCTURAL WORK. If Lessee desires to undertake any Capital Addition or
Material Structural Work, Lessee shall submit to Lessor in writing a
proposal setting forth in reasonable detail any proposed Capital Addition
or Material Structural Work and shall provide to Lessor copies of, or
information regarding, the applicable plans and specifications, Permits,
Contracts and any other materials concerning the proposed Capital Addition
or Material Structural Work, as the case may be, as Lessor may reasonably
request. Without limiting the generality of the foregoing, each such
proposal pertaining to any Capital
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Addition shall indicate the approximate projected cost of constructing such
Capital Addition, the use or uses to which it will be put and a good faith
estimate of the change, if any, in the Gross Revenues that Lessee
anticipates will result from the construction of such Capital Addition.
9.2.3 LESSOR'S OPTIONS REGARDING ADDITIONS AND MATERIAL STRUCTURAL
WORK. Lessor shall have the options of: (a) denying permission for the
construction of the applicable Capital Addition or Material Structural
Work, (b) offering to finance the construction of the Capital Addition
pursuant to Section 9.3 on such terms as may be specified by Lessor,
including the terms of any amendment to this Lease, including, without
limitation, an increase in Base Rent based on Lessor's then existing terms
and prevailing conditions to compensate Lessor for the additional funds
advanced by it, (c) allowing Lessee to separately pay for or finance the
construction of the Capital Addition, subject to compliance with the terms
and conditions of Section 9.2.1, Section 9.4, Section 13.1.3, all
applicable Legal Requirements, all other requirements of this Lease and to
such other terms and conditions as Lessor may in its discretion reasonably
impose or (d) any combination of the foregoing. Unless Lessor notifies
Lessee in writing of a contrary election within thirty (30) days of
Lessee's request or unless Lessor is required to consent thereto pursuant
to this Section 9.2.3, Lessor shall be deemed to have denied the request
for the Capital Addition or Material Structural Work. In the event and to
the extent Lessor has granted permission for the construction of the
applicable Capital Addition or Material Structural Work and (x) Lessor has
not offered to finance the construction of the same or (y) Lessee declines
to accept the financing offered by Lessor, Lessee may separately finance
such construction, subject to the limitation on Liens set forth in Section
9.2.1, or pay for such construction itself. In the event Lessee declines
to accept the financing offered by Lessor or if Lessor has not offered such
financing to Lessee and proposes to obtaining financing from another
Person, Lessee shall inform Lessor in writing of the terms and conditions
of such financing and shall provide Lessor with a copy of a commitment
letter evidencing the same and Lessor may, by giving notice thereof to
Lessee within twenty (20) days following being so informed, elect to
provide financing to Lessee at the effective rate of interest as such
financing. Lessor shall not unreasonably withhold its permission for the
construction of Material Structural Work which is necessary to protect the
safety or welfare of residents of the Facility.
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9.2.4 LESSOR MAY ELECT TO FINANCE CAPITAL ADDITIONS. If Lessor
elects to offer financing for the proposed Capital Addition and Lessee
accepts Lessor's financing proposal, the provisions of Section 9.3 shall
apply.
9.3 CAPITAL ADDITIONS FINANCED BY LESSOR.
9.3.1 ADVANCES. All advances of funds for any such financing shall
be made in accordance with Lessor's then standard construction loan
requirements and procedures, which may include, without limitation, the
requirements and procedures applicable to Work under Sections 13.1.3.
9.3.2 LESSOR'S GENERAL REQUIREMENTS. If Lessor agrees to finance the
proposed Capital Addition and Lessee accepts Lessor's proposal therefor, in
addition to all other items which Lessor or any applicable Financing Party
may reasonably require, Lessee shall provide to Lessor the following:
(a) prior to any advance of funds, (i) any information,
opinions, certificates, Permits or documents reasonably requested by
Lessor or any applicable Financing Party which are necessary to
confirm that Lessee is reasonably expected to be able to use the
Capital Addition upon completion thereof in accordance with the
Primary Intended Use and/or, if applicable, the Other Permitted Uses
and (ii) evidence satisfactory to Lessor and any applicable Financing
Party that all Permits required for the construction and use of the
Capital Addition have been received, are in full force and effect and
are not subject to appeal, except only for those Permits which cannot
in the normal course be obtained prior to commencement or completion
of the construction; PROVIDED, THAT Lessor and any applicable
Financing Party are furnished with reasonable evidence that the same
is reasonably expected to be available in the normal course of
business without unusual condition;
(b) prior to any advance of funds, an Officer's Certificate and,
if requested, a certificate from Lessees architect, setting forth in
reasonable detail the projected (or actual, if available) Capital
Addition Cost;
(c) bills of sale, instruments of transfer and other documents
required by Lessor so as to vest title to the Capital Addition in
Lessor free and clear of all Liens (except to the extent a Lien is
being duly
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contested in accordance with the terms and provisions of this Lease),
and amendments to this Lease and any recorded notice or memorandum
thereof, duly executed and acknowledged, in form and substance
reasonably satisfactory to Lessor, providing for any changes required
by Lessor including, without limitation, changes in the Base Rent and
the legal description of the Land;
(d) upon payment therefor, a deed conveying to Lessor title to
any land acquired for the purpose of constructing the Capital Addition
("Additional Land") free and clear of any Liens except those approved
by Lessor;
(e) upon completion of the Capital Addition, a final as-built
survey thereof reasonably satisfactory to Lessor, if required by
Lessor;
(f) during and following the advance of funds and the completion
of the Capital Addition, endorsements to any outstanding policy of
title insurance covering the Leased Property satisfactory in form and
substance to Lessor (i) updating the same without any additional
exception except as may be reasonably permitted by Lessor and (ii)
increasing the coverage thereof by an amount equal to the Fair Market
Value of the Capital Addition and/or increasing the coverage thereof
by an amount equal to the Fair Market Value of the Additional Land and
including the Additional Land in the premises covered by such title
insurance policy;
(g) simultaneous with the initial advance of funds, if
appropriate, (i) an owner's policy of title insurance insuring fee
simple title to any Additional Land conveyed to Lessor pursuant to
subparagraph (d) free and clear of all Liens except those approved by
Lessor and (ii) an owner's policy of title insurance reasonably
satisfactory in form and substance to Lessor and a lender's policy of
title insurance reasonably satisfactory in form and substance to any
applicable Financing Party;
(h) following the completion of the Capital Addition, if
reasonably deemed necessary by Lessor, an appraisal of the Leased
Property by an M.A.I. appraiser acceptable to Lessor, which states
that the Fair Market Value of the Leased Property upon completion of
the Capital Addition exceeds the Fair Market Value of the Leased
Property prior to the commencement of such Capital Addition by an
amount not less than one hundred
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twenty-five percent (125%) of the Capital Addition Cost; and
(i) during or following the advancement of funds, prints of
architectural and engineering drawings relating to the Capital
Addition and such other materials, including, without limitation, the
modifications to outstanding policies of title insurance contemplated
by subsection (f) above, opinions of counsel, appraisals, surveys,
certified copies of duly adopted resolutions of the board of directors
of Lessee authorizing the execution and delivery of the lease
amendment and any other documents and instruments as may be reasonably
required by Lessor and any applicable Financing Party.
9.3.3 PAYMENT OF COSTS. By virtue of making a request to finance a
Capital Addition, whether or not such financing is actually consummated,
Lessee shall be deemed to have agreed to pay, upon demand, all costs and
expenses reasonably incurred by Lessor and any Person participating with
Lessor in any way in the financing of the Capital Addition Cost, including,
but not limited to (a) fees and expenses of their respective attorneys, (b)
all photocopying expenses, if any, (a) the amount of any filing,
registration and recording taxes and fees, (d) documentary stamp taxes and
intangible taxes (e) title insurance charges and appraisal fees.
9.4 GENERAL LIMITATIONS. Without in any way limiting Lessor's options
with respect to proposed Capital Additions or Material Structural Work: (a) no
Capital Addition or Material Structural Work shall be completed that could, upon
completion, significantly alter the character or purpose or detract from the
value or operating efficiency of the Leased Property, or significantly impair
the revenue producing capability of the Leased Property, or adversely affect the
ability of Lessee to comply with the terms of this Lease; (b) no Capital
Addition or Material Structural Work shall be completed which would tie in or
connect any Leased Improvements on the Leased Property with any other
improvements on property adjacent to the Leased Property (and not part of the
Land covered by this Lease) including, without limitation, tie-ins of buildings
or other structures or utilities, unless Lessee shall have obtained the prior
written approval of Lessor, which approval may be withheld in Lessor's sole and
absolute discretion and (c) all proposed Capital Additions and Material
Structural Work shall be architecturally integrated and consistent with the
Leased Property.
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9.5 NON-CAPITAL ADDITIONS. Lessee shall have the obligation and right to
make repairs, replacements and alterations which are not Capital Additions as
required by the other Sections of this Lease, but in so doing, Lessee shall
always comply with and satisfy the conditions of Section 9.4. Lessee shall have
the right, from time to time, to make additions, modifications or improvements
to the Leased Property which do not constitute Capital Additions or Material
Structural Work as it may deem to be desirable or necessary for its uses and
purposes, subject to the same limits and conditions imposed under Section 9.4.
The cost of any such repair, replacement, alteration, addition, modification or
improvement shall be paid by Lessee and the results thereof shall be included
under the terms of this Lease and become a part of the Leased Property, without
payment therefor by Lessor at any time. Notwithstanding the foregoing, all such
additions, modifications and improvements which affect the structure of any of
the Leased Improvements, or which involve the expenditure of more than FIFTY
THOUSAND DOLLARS ($50,000.00), shall be undertaken only upon compliance with the
provisions of Section 13.1.3, all applicable Legal Requirements and all other
applicable requirements of this Lease; PROVIDED, HOWEVER, that in the event of a
bona fide emergency during which Lessee is unable to contact the appropriate
representatives of Lessor, Lessee may commence such additions, modifications and
improvements as may be necessary in order to address such emergency without
Lessor's prior approval, as long as Lessee immediately thereafter advises Lessor
of such emergency and the nature and scope of the additions, modifications and
improvements performed and obtains Lessor's approval of the remaining work to be
completed. Any such addition, modification and improvement which affects the
structure of any of the Leased Improvements which is not a Capital Addition or
Material Structural Work shall be exempt from the requirements of Section 9.2
hereof.
9.6 COMPENSATION TO LESSEE FOR CAPITAL ADDITIONS PAID FOR OR FINANCED BY
LESSEE. Upon the expiration or earlier termination of this Lease, except by
reason of the default by Lessee hereunder, Lessor shall compensate Lessee for
all Capital Additions paid for or financed by Lessee in any of the following
ways, determined in the sole discretion of Lessor:
(a) By purchasing all Capital Additions paid for or financed by Lessee
from Lessee for cash in the amount of the Fair Market Added Value (determined as
of the date of such purchase) of all such Capital Additions paid for or financed
by Lessee; or
(b) By purchasing such Capital Addition from Lessee by delivering to
Lessee Lessor's purchase money promissory note in the amount of said Fair Market
Added Value, due and payable no later than eighteen (18) months after the date
of expiration or other termination of this Lease, bearing interest at a rate
equal
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to one hundred ten percent (110%) of the applicable federal rate (determined at
the time of execution of such note pursuant to Section 1274 of the Code or any
successor section thereto), compounded semiannually, or, if no such rate exists,
or such rate is in excess of that permitted under applicable law, at the Prime
Rate, which interest shall be payable monthly, and which note shall be secured
by a mortgage on the Leased Property, subject to all Liens on the Leased
Property at the time of such purchase; or
(c) By Lessor assigning to Lessee under appropriate written instruments
the right to receive an amount equal to the Added Value Percentage (determined
as of the expiration of earlier termination of this Lease) from all rent and
other consideration receivable by Lessor under any re-letting or other
disposition of the Leased Property, after deducting all costs and expenses
incurred by Lessor in connection with such re-letting or other disposition of
the leased Property and all costs and expenses of operating and maintaining the
Leased Property during any such new lease which are not borne by the tenant
thereunder. The provisions of this Subparagraph (c) shall remain in effect
until the sale or other final disposition of the Leased Property in which event
Lessor shall pay to Lessee the outstanding balance of the Fair Market Added
Value in accordance with Subparagraph (a), (b), or (d) of this Section 9.6,
after deducting any amounts received by Lessee under this Subparagraph (c); or
(d) Such other arrangement regarding such compensation as shall be
mutually acceptable to Lessor and Lessee.
ARTICLE 10
WARRANTIES AND REPRESENTATIONS
10.1 REPRESENTATIONS AND WARRANTIES. Lessee hereby represents and warrants
to, and covenants and agrees with, Lessor that:
10.1.1 EXISTENCE: POWER: QUALIFICATION.
Lessee is a limited partnership duly organized, validly existing and
in good standing under the laws of the State of Washington. The General
Partner is a corporation duly organized, validly existing and in good
standing under the laws of the State of Washington. Lessee and the General
Partner each have all requisite power to own and operate their respective
properties and to carry on their respective businesses as presently
conducted and each is duly qualified to transact business and is in good
standing in each jurisdiction where such qualification is necessary or
desirable in order to carry out its business as presently
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conducted. As of the date of this Agreement, Lessee does not have any
Subsidiaries and Lessee is not a member of any partnership or joint venture
and the General Partner is not a member of any partnership or joint venture
other than as the sole general partner of Lessee. Attached hereto as
EXHIBIT C is a true and correct list of all of the Persons owning any
interest in Lessee and their respect ownership interest in Lessee and all
of the Persons owning any interest in the General Partner and their
respective ownership interest in the General Partner;
10.1.2 VALID AND BINDING. The General Partner is duly authorized to
make and enter into on behalf of Lessee all of the Lease Documents to which
Lessee is a party and to carry out the transactions contemplated therein.
All of the Lease Documents to which Lessee is a party have been duly
executed and delivered by the General Partner on behalf of Lessee and each
is a legal, valid and binding obligation of Lessee, enforceable in
accordance with its terms.
10.1.3 SINGLE PURPOSE. Lessee is, and during the entire time that
this Lease remains in force and effect shall be, engaged in no business,
trade or activity other than the operation and development of the Leased
Property for the Primary Intended Use and such other activities in which
Lessee may be permitted to engage by the provisions of Meditrust/Emeritus
Transaction Documents. The General Partner is, and during the entire time
that this Lease remains in force and effect shall be, engaged in no
business, trade or activity other than those specifically permitted by the
provisions of Meditrust/Emeritus Transaction Documents. The fiscal year of
the Lessee, the General Partner and the Guarantor is the Fiscal Year.
10.1.4 No VIOLATION. The execution, delivery and performance of the
Lease Documents by the members of the Leasing Group and the consummation by
the members of the Leasing Group of the transactions thereby contemplated
shall not result in any breach of, or constitute a default under, or result
in the acceleration of, or constitute an event which, with the giving of
notice or the passage of time, or both, could result in default or
acceleration of any obligation of any such member of the Leasing Group
under any of the Permits or Contracts or any other contract, mortgage,
lien, lease, agreement, instrument, franchise, arbitration award, judgment,
decree, bank loan or credit agreement, trust indenture or other instrument
to which any member of the Leasing Group is a party or by which any member
of the Leasing Group may be bound or affected and do not violate or
contravene any Legal Requirement.
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10.1.5 CONSENTS AND APPROVALS. Except as reasonably expected to be
obtained in the ordinary course of business prior to or upon the Completion
of the Project, as the case may be, no consent or approval or other
authorization of, or exemption by, or declaration or filing with, any
Person and no waiver of any right by any Person is required to authorize or
permit, or is otherwise required as a condition of the execution, delivery
and performance of its obligations under the Lease Documents by any member
of the Leasing Group or as a condition to the validity (assuming the due
authorization, execution and delivery by Lessor of the Lease Documents to
which it is a party) and the first priority of any Liens granted under the
Lease Documents, except the filing of the Financing Statements.
10.1.6 NO LIENS OR INSOLVENCY PROCEEDINGS. Each member of the
Leasing Group in existence as of the date hereof is financially solvent and
there are no actions, suits, investigations or proceedings including,
without limitation, outstanding federal or state tax liens, garnishments or
insolvency or bankruptcy proceedings, pending or, to the best of Lessee's
knowledge and belief, threatened:
(a) against or affecting any member of the Leasing Group, which
if adversely resolved to such member of the Leasing Group, would
materially adversely affect the ability of any of the foregoing to
perform their respective obligations under the Lease Documents;
(b) against or affecting the Leased Property or the ownership,
construction, development, maintenance, management, repair, use,
occupancy, possession or operation thereof; or
(c) which may involve or affect the validity, priority or
enforceability of any of the Lease Documents, at law or in equity, or
before or by any arbitrator or Governmental Authority.
10.1.7 Intentionally deleted.
10.1.8 COMMERCIAL ACTS. Lessee's performance of and compliance with
the obligations and conditions set forth herein and in the other Lease
Documents will constitute commercial acts done and performed for commercial
purposes.
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10.1.9 ADEQUATE CAPITAL, NOT INSOLVENT. After giving effect to the
consummation of the transactions contemplated by the Lease Documents, each
member of the Leasing Group:
(a) will be able to pay its debts as they become due;
(b) will have sufficient funds or available capital to carry on
its business as now conducted or as contemplated to be conducted (in
accordance with the terms of the Lease Documents); and
(c) will not be rendered insolvent as determined by applicable
law.
10.1.10 NOT DELINQUENT. Except as permitted under Section 11.3.8,
no member of the Leasing Group which exists as of the date hereof is
delinquent or claimed to be delinquent under any obligation for the payment
of borrowed money.
10.1.11 NO AFFILIATE DEBT. Lessee has not created, incurred,
guaranteed, endorsed, assumed or suffered to exist any liability (whether
direct or contingent) for borrowed money from the Guarantor (or any of its
Affiliates) or any Affiliate of Lessee which has not been fully
subordinated to the Lease Obligations.
10.1.12 TAXES CURRENT. Each member of the Leasing Group which
exists as of the date hereof has filed all federal, state and local tax
returns which are required to be filed as to which extensions are not
currently in effect and has paid all taxes, assessments, impositions, fees
and other governmental charges (including interest and penalties) which
have become due pursuant to such returns or pursuant to any assessment or
notice of tax claim or deficiency received by each such member of the
Leasing Group. No tax liability has been asserted by the Internal Revenue
Service against any member of the Leasing Group or any other federal, state
or local taxing authority for taxes, assessments, impositions, fees or
other governmental charges (including interest or penalties thereon) in
excess of those already paid.
10.1.13 FINANCIALS COMPLETE AND ACCURATE. The financial statements
of each member of the Leasing Group given to Lessor in connection with the
execution and delivery of the Lease Documents were true, complete and
accurate, in all material respects, and fairly presented the financial
condition of each such member of the Leasing Group
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as of the date thereof and for the periods covered thereby, having been
prepared in accordance with GAAP and such financial statements disclosed
all liabilities, including, without limitation, contingent liabilities,
of each such member of the Leasing Group as of the date thereof. There has
been no material adverse change since such date with respect to the Net
Worth of any such member of the Leasing Group or with respect to any other
matters contained in such financial statements, nor have any additional
material liabilities, including, without limitation, contingent
liabilities, of any such member of the Leasing Group arisen or been
incurred or asserted since such date except as otherwise disclosed to
Lessor. The projections heretofore delivered to Lessor continue to be
reasonable (with respect to the material assumptions upon which such
projections are based) and Lessee reasonably anticipates based on
information currently available to it after due inquiry the results
projected therein will be achieved, there having been (a) no material
adverse change in the business, assets or condition, financial or otherwise
of any such member of the Leasing Group or the Leased Property and (b) no
material depletion of the cash or decrease in working capital of any such
member of the Leasing Group.
10.1.14 PENDING ACTIONS, NOTICES AND REPORTS.
There is no action or investigation pending or, to the best knowledge
and belief of Lessee, threatened, anticipated or contemplated (nor, to the
knowledge of Lessee, is there any reasonable basis therefor) against or
affecting the Leased Property or any member of the Leasing Group (or any
Affiliate thereof) before any Governmental Authority which could prevent or
hinder the consummation of the transactions contemplated hereby or call
into question the validity of any of the Lease Documents or any action
taken or to be taken in connection with the transactions contemplated
thereunder or which in any single case or in the aggregate might result in
any material adverse change in the business, prospects, condition, affairs
of any member of the Leasing Group or the Leased Property (including,
without limitation, any action to revoke, withdraw or suspend any Permit
necessary or desirable for the operation of the Leased Property in
accordance with its Primary Intended Use and any action to transfer or
relocate any such Permit to a location other than the Leased Property) or
any material impairment of the right or ability of any member of the
Leasing Group to carry on its operations as proposed upon Completion of the
Project, to be conducted with respect to the Leased Property or with
respect to its obligations under the Lease Documents.
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10.1.15 COMPLIANCE WITH LEGAL AND OTHER REQUIREMENTS.
(a) To the extent consistent with the stage of construction of the
Project, Lessee and the Leased Property and the ownership, construction,
development, maintenance, management, repair, use occupancy, possession
and operation thereof comply with all applicable Legal Requirements and
there is no claim of any violation thereof known to Lessee. Without
limiting the foregoing, Lessee has obtained all Permits that are necessary
or desirable to operate the Leased Property in accordance with its Primary
Intended Use or reasonably expects to obtain such Permits prior to, or
upon, the Completion of the Project.
(b) Except as previously delivered to Lessor pursuant to Section
10.1.14(d) hereof, there are no outstanding notices of deficiencies,
notices of proposed action or orders of any kind relating to the Leased
Property, if any, issued by any Governmental Authority requiring conformity
to any of the applicable Legal Requirements.
10.1.16 NO ACTION BY GOVERNMENTAL AUTHORITY OR ACCREDITATION BODY.
There is no action pending or, to the best knowledge and belief of Lessee,
recommended, by any Governmental Authority to revoke, repeal, cancel,
modify, withdraw or suspend any Permit or Contract or to take any other
action of any other type which could have a material adverse effect on the
Leased Property.
10.1.17 PROPERTY MATTERS.
(a) The Leased Property is free and clear of agreements, covenants
and Liens, except those agreements, covenants and Liens to which this Lease
is expressly subject, whether presently existing, as are listed an
EXHIBIT B or were listed on the UCC lien search results delivered to Lessor
at or prior to the execution and delivery of this Lease (and were not
required to be terminated as a condition of the execution and delivery of
this Lease), or which may hereafter be created in accordance with the terms
hereof (collectively referred to herein as the "Permitted Encumbrances");
and Lessee shall warrant and defend Lessor's title to the Leased Property
against any and all claims and demands of every kind and nature whatsoever;
(b) There is no Condemnation or similar proceeding pending with
respect to or affecting the Leased Property, and Lessee is not aware, to
the best of Lessee's knowledge and belief, that any such proceeding is
contemplated;
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(c) No part of the Collateral or the Leased Property has been damaged
by any fire or other casualty;
(d) None of the Permitted Encumbrances has or is likely to have a
material adverse impact upon, nor interfere with or impede, in any material
respect, the operation of the Leased Property in accordance with the
Primary Intended Use;
(e) Upon the Conversion Date, all buildings, facilities and other
improvements necessary, both legally and practically, for the proper and
efficient operation of the Facility will be located upon the Leased
Property and all real property and personal property currently utilized by
Lessee will be included within the definition of the Leased Property or the
Collateral;
(f) Upon the Conversion Date the Leased Property shall abut on and
have direct vehicular access to a public road or access to a public road
via permanent, irrevocable, appurtenant easements;
(g) The Leased Property constitutes a parcel(s) for real estate tax
purposes separate from any real property that does not constitute a portion
of the Leased Property and no portion of any real property that does not
constitute a portion of the Leased Property is part of the same tax parcel
as any part of the Leased Property;
(h) All utilities necessary for the use and operation of the Facility
are available to the lot lines of the Leased Property:
(i) in sufficient supply and capacity;
(ii) through validly created and existing easements of record
appurtenant to or encumbering the Leased Property (which
easements shall not impede or restrict the operation of the
Facility); and
(iii) without need for any Permits and/or Contracts to be
issued by or entered into with any Governmental Authority, except
as already obtained or executed, as the case may be, or as
otherwise shown to the satisfaction of Lessor to be readily
obtainable.
10.1.18 THIRD PARTY PAYOR AGREEMENTS.
Neither Lessee nor the Facility is qualified as a provider of services
under or participates in any Third Party Payor Programs with respect to its
operations at the
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Facility and neither Lessee nor the Facility is accredited by any
Accreditation Body.
10.1.19 RATE LIMITATIONS. The State currently imposes no
restrictions or limitations on rates which may be charged to private pay
residents receiving services at the Facility.
10.1.20 FREE CARE. There are no Contracts, Permits or applicable
Legal Requirements which require that, a percentage of units in any program
at the Facility be reserved for Medicaid or Medicare eligible residents or
that the Facility provide a certain amount of welfare, free or charity care
or discounted or government assisted resident care.
10.1.21 NO PROPOSED CHANGES. Lessee has no actual knowledge of any
applicable Legal Requirements which have been enacted, promulgated or
issued within the eighteen (18) months preceding the date of this Lease
or any proposed applicable Legal Requirements currently pending in the
State which may materially adversely affect rates at the Facility (or any
program operated by a member of the Leasing Group in conjunction with the
Facility) or may result in the likelihood of increased competition at the
Facility or the imposition of Medicaid, Medicare, charity, free care,
welfare or other discounted or government assisted residents at the
Facility or require that Lessee or the Facility obtain a certificate of
need, Section 1122 approval or the equivalent, which Lessee or the Facility
does not currently possess.
10.1.22 ERISA. No employee pension benefit plan maintained by any
member of the Leasing Group has any accumulated funding deficiency within
the meaning of the ERISA, nor does any member of the Leasing Group have any
material liability to the PBGC established under ERISA (or any successor
thereto) in connection with any employee pension benefit plan or other
class of benefit which the PBGC has elected to insure), and there have been
no "reportable events" (not waived) or "prohibited transactions" with
respect to any such plan, as those terms are defined in Section 4043 of
ERISA and Section 4975 of the Internal Revenue Code of 1986, as now or
hereafter amended, respectively.
10.1.23 NO BROKER. No member of the Leasing Group nor any of their
respective Affiliates has dealt with any broker or agent in connection with
the transactions contemplated by the Lease Documents.
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10.1.24 NO IMPROPER PAYMENTS. No member of the Leasing Group nor
any of their respective Affiliates has:
(a) made any contributions, payments or gifts of its funds or
property to or for the private use of any government official,
employee, agent or other Person where either the payment or the
purpose of such contribution, payment or gifts is illegal under the
laws of the United States, any state thereof or any other jurisdiction
(foreign or domestic);
(b) knowingly established or maintained any unrecorded fund or
asset for any purpose or knowingly made any false or artificial
entries on any of its books or records for any reason;
(c) made any payments to any Person with the intention or
understanding that any part of such payment was to be used for any
other purpose other than that described in the documents supporting
the payment; or
(d) made any contribution, or reimbursed any political gift or
contribution made by any other Person, to candidates for public
office, whether federal, state or local, where such contribution would
be in violation of applicable law.
10.1.25 NOTHING OMITTED. Neither this Lease, nor any of the other
Lease Documents, nor any certificate, agreement, statement or other
document, including, without limitation, any financial statements
concerning the financial condition of any member of the Leasing Group,
furnished to or to be furnished to Lessor or its attorneys in connection
with the transactions contemplated by the Lease Documents, contains or will
contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to prevent all statements
contained herein and therein from being misleading. There is no fact
within the special knowledge of Lessee which has not been disclosed herein
or in writing to Lessor that materially adversely affects, or in the
future, insofar as Lessee can reasonably foresee based on the information
currently available to it after due inquiry, may materially adversely
affect the business, properties, assets or condition, financial or
otherwise, of any member of the Leasing Group or the Leased Property.
10.1.26 NO MARGIN SECURITY. Lessee is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning
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of Regulation U of the Board of Governors of the Federal Reserve System),
and no part of the proceeds of the Meditrust Investment will be used to
purchase or carry any margin security or to extend credit to others for the
purpose of purchasing or carrying any margin security or in any other
manner which would involve a violation of any of the regulations of the
Board of Governors of the Federal Reserve System. Lessee is not an
"investment company" within the meaning of the Investment Company Act of
1940, as amended.
10.1.27 NO DEFAULT. No event or state of facts which constitutes, or
which, with notice or lapse of time, or both, could constitute, a Lease
Default has occurred and is continuing.
10.1.28 PRINCIPAL PLACE OF BUSINESS. The principal place of business
and chief executive office of Lessee is located at Market Place One, 2003
Western Avenue, Suite 660, Seattle, Washington 98121-2162 (the "Principal
Place of Business").
10.1.29 INTENTIONALLY DELETED.
10.1.30 INTELLECTUAL PROPERTY. Lessee is duly licensed or
authorized to use all (if any) copyrights, rights of reproduction,
trademarks, trade names, trademark applications, service marks, patent
applications, patents and patent license rights, (all whether registered or
unregistered, U.S. or foreign), inventions, franchises, discoveries, ideas,
research, engineering, methods, practices, processes, systems, formulae,
designs, drawings, products, projects, improvements, developments, know-how
and trade secrets which are used in or necessary for the development and/or
operation of the Facility in accordance with its Primary Intended Use,
without conflict with or infringement of any, and subject to no
restriction, lien, encumbrance, right, title or interest in others.
10.1.31 MANAGEMENT AGREEMENTS. There is no Management Agreement in
force and effect as of the date hereof.
10.1.32 MINING ACTIVITY. There exists no mining activity on or
underneath the Leased Property as of the date hereof (other than that
activity described in Schedule 10.1.32) and to the best of Lessee's
knowledge, no right to engage in such activity exists other then as
described in the Permitted Encumbrances.
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10.2 CONTINUING EFFECT OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Lease and the other Lease
Documents shall constitute continuing representations and warranties which shall
remain true, correct and complete throughout the Term. Notwithstanding the
provisions of the foregoing sentence but without derogation from any other terms
and provisions of this Lease, including, without limitation, those terms and
provisions containing covenants to be performed or conditions to be satisfied on
the part of Lessee, the representations and warranties contained in Sections
10.1.6, 10.1.7, 10.1.10, 10.1.14, 10.1.15, 10.1.17(b), 10.1.17(c), 10.1.17(i),
10.1.18, 10.1.19, 10.1.20, 10.1.21, 10.1.22, 10.1.27, 10.1.29, in the second
sentence of Section 10.1.12, in the second and third sentences of Section
10.1.13 and in the second sentence of Section 10.1.25 shall not constitute
continuing representations and warranties throughout the Term provided, however,
that nothing contained in the first sentence of Section 10.1.25 shall be
construed as imposing any obligation on Lessee to update after the Commencement
Date the information furnished to Lessor prior to the execution and delivery of
this Lease but without derogation of any other obligation Lessee has under this
Lease to provide information to Lessor.
ARTICLE 11
FINANCIAL AND OTHER COVENANTS
11.1 STATUS CERTIFICATES. At any time, and from time to time, upon
request from the other, Lessee and Lessor shall furnish to the other,
within ten (10) Business Days' after receipt of such request, an Officer's
Certificate certifying that this Lease is unmodified and in full force and
effect (or that this Lease is in full force and effect as modified and
setting forth the modifications) and the dates to which the Rent has been
paid. Any Officer's Certificate furnished pursuant to this Section at
the request of Lessor shall be addressed to any prospective purchaser or
mortgagee of the Leased Property as Lessor may request and may be relied
upon by Lessor and any such prospective purchaser or mortgagee of the
Leased Property.
11.2 FINANCIAL STATEMENTS; REPORTS; NOTICE AND INFORMATION.
11.2.1 OBLIGATION TO FURNISH. Lessee will furnish and shall
cause to be furnished to Lessor the following statements, information and
other materials:
(a) ANNUAL STATEMENTS. Within ninety (90) days after the end
of each of their respective fiscal years, (i) a copy of the
Consolidated Financials for each of (x) Lessee, (y) the Guarantor and
(z) any Sublessee
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which is an Affiliate of Lessee for the preceding fiscal year,
certified and, in the case of Guarantor, audited by, and with the
unqualified opinion of, independent certified public accountants
acceptable to Lessor and certified as true and correct by Lessee, the
Guarantor or the applicable Sublessee, as the case may be (and,
without limiting anything else contained herein, the Consolidated
Financials for Lessee and for each such Sublessee shall include a
detailed balance sheet for Leased Property as of the last day of such
fiscal year and a statement of earnings from the Leased Property for
such fiscal year showing, among other things, all rents and other
income therefrom and all expenses paid or incurred in connection with
the operation of the Leased Property); (ii) separate statements,
certified as true and correct by Lessee, the Guarantor, any Manager
which is an Affiliate of Lessee and each such Sublessee which is an
Affiliate of Lessee, stating whether, to the best of the signer's
knowledge and belief after making due inquiry, Lessee, the Guarantor,
such Manager or any such Sublessee, as the case may be, is in default
in the performance or observance of any of the terms of this Lease or
any of the other Lease Documents and, if so, specifying all such
defaults, the nature thereof and the steps being taken to immediately
remedy the same; (iii) a copy of all letters from the independent
certified accountants engaged to perform the annual audits referred to
above, directed to the management of the Guarantor regarding the
existence of any reportable conditions or material weaknesses; (iv) a
statement certified as true and correct by Lessee setting forth all
Subleases as of the last day of such fiscal year, the respective areas
demised thereunder, the names of the Sublessees thereunder, the
respective expiration dates of the Subleases, the respective rentals
provided for therein, and such other information pertaining to the
Subleases as may be reasonably requested by Lessor; and (v) evidence
satisfactory to Lessor that Lessee has fulfilled its obligation to
make the Annual Facility Upgrade Expenditure, provided, however, that
no such evidence shall be required to be submitted until the fourth
Lease Year.
(b) MONTHLY STATEMENTS OF LESSEE. Commencing on the
Conversion Date, within thirty (30) days after the end of each
calendar month during the pendency of this Lease, (i) a statement
certified as true and correct by Lessee setting forth the Gross
Revenues of the Leased Property for the immediately preceding month,
(ii) an unaudited, detailed month and year to date income and
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expense statement for the Leased Property which shall include a
comparison to corresponding budget figures, occupancy statistics
(including the actual number of residents, the number of units
available and total resident days for such month) and resident mix
breakdowns (for each resident day during such month classifying
residents by the type of care required and source of payment) and
(iii) an express written calculation showing the compliance or non-
compliance, as the case may be, with the specific financial covenants
set forth in Section 11.3 for the applicable period, including, with
respect to the calculation of Lessee's Debt Coverage Ratio, a schedule
substantially in the form attached hereto as EXHIBIT D.
(c) QUARTERLY STATEMENTS. Commencing on the Conversion Date,
within thirty (30) days after the end of each respective fiscal
quarter, unaudited Consolidated Financials for each of (i) Lessee and
(ii) each Sublessee which is an Affiliate of Lessee certified as true
and correct by Lessee or such applicable Sublessee, as the case may be
and within thirty (30) days after each calendar quarter, Lessee shall
also provide Lessor with a calculation of the Additional Rent payable
for such quarter.
(d) QUARTERLY STATEMENTS OF THE GUARANTOR. Within forty-five
(45) days after the end of each fiscal quarter, unaudited Consolidated
Financials for the Guarantor certified as true and correct by the
Guarantor.
(e) PERMITS AND CONTRACTS. Within ten (10) days after the
issuance or the execution thereof, as the case may be, true and
complete copies of (i) all Permits which constitute operating licenses
for the Facility issued by any Governmental Authority having
jurisdiction over assisted living matters and (ii) Contracts
(involving payments in the aggregate in excess of $100,000 per annum),
including, without limitation, all Provider Agreements.
(f) CONTRACT NOTICES. Promptly but in no event more than ten
(10) days after the receipt thereof, true and complete copies of any
notices, consents, terminations or statements of any kind or nature
relating to any of the Contracts (involving payments in the aggregate
in excess of ONE HUNDRED THOUSAND DOLLARS ($100,000) per annum) other
than those issued in the ordinary course of business.
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(g) PERMIT OR CONTRACT DEFAULTS. Promptly but in no event
more than ten (10) days after the receipt thereof, true and complete
copies of all surveys, follow-up surveys, licensing surveys, complaint
surveys, examinations, compliance certificates, inspection reports,
statements (other than those statements that are issued in the
ordinary course of business), if any, terminations and notices of any
kind (other than those notices that are furnished in the ordinary
course of business) issued or provided to Lessee, the Manager or any
Sublessee by any Governmental Authority, Accreditation Body or any
Third Party Payor, including, without limitation, any notices
pertaining to any delinquency in, or proposed revision of, Lessee's,
the Manager's or any Sublessee's obligations under the terms and
conditions of any Permits or Contracts now or hereafter issued by or
entered into with any Governmental Authority, Accreditation Body or
Third Party Payor and the response(s) thereto made by or on behalf of
Lessee, the Manager or any Sublessee.
(h) OFFICIAL REPORTS. Upon completion or filing thereof,
complete copies of all applications (other than those that are
furnished in the ordinary course of business), notices (other than
those that are furnished in the ordinary course of business),
statements, annual reports, cost reports and other reports or filings
of any kind (other than those that are furnished in the ordinary
course of business) provided by Lessee, the Manager or any Sublessee
to any Governmental Authority, Accreditation Body or any Third Party
Payor with respect to the Leased Property.
(i) OTHER INFORMATION. With reasonable promptness, such other
information as Lessor may from time to time reasonably request
respecting (i) the financial condition and affairs of each member of
the Leasing Group and the Leased Property and (ii) the licensing and
operation of the Leased Property; including, without limitation,
financial statements, certificates and consents from accountants and
all other financial and licensing/operational information as may be
required or requested by any Governmental Authority.
(j) DEFAULT CONDITIONS. As soon as possible, and in any
event within five (5) days after the occurrence of any Lease Default,
or any event or circumstance which, with the giving of notice or the
passage of time, or both, would constitute a Lease Default, a
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written statement of Lessee setting forth the details of such Lease
Default, event or circumstance and the action which Lessee proposes to
take with respect thereto.
(k) OFFICIAL ACTIONS. Promptly but in no event more than ten
(10) days after the commencement thereof, notice of all actions, suits
and proceedings before any Governmental Authority or Accreditation
Body which could have a material adverse effect on any member of the
Leasing Group or the Leased Property.
(l) AUDIT REPORTS. Promptly but in no event more than ten
(10) days after receipt, a copy of all audits or reports submitted to
Lessee by any independent public accountant in connection with any
annual, special or interim audits of the books of Lessee and, if
requested by Lessor, any letter of comments directed by such
accountant to the management of Lessee.
(m) ADVERSE DEVELOPMENTS. Promptly but in no event more than
ten (10) days after Lessee acquires knowledge thereof, written notice
of:
(i) the potential termination of any Permit or
Provider Agreement necessary for the operation
of the Leased Property;
(ii) any loss, damage or destruction to or of the Leased
Property in excess of TWENTY-FIVE THOUSAND DOLLARS
($25,000) (regardless of whether the same is covered
by insurance);
(iii) any material controversy involving Lessee or any
Sublessee which is an Affiliate of Lessee and
(x) Facility administrator or Facility employee of
similar stature or(y) any labor organization or
(z) the Manager or any employee of the Manager which
has, or is reasonably likely to have, a materially
adverse effect on the financial condition and/or
operations of the Facility;
(iv) any controversy that calls into question the
eligibility of the Facility for the participation in
any Medicaid, Medicare or other Third Party Payor
Program in which the Facility is participating;
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(v) any refusal of reimbursement by any Third Party
Payor which, singularly or together with all
other such refusals by any Third Party Payors,
could reasonably be expected to have a material
adverse effect on the financial condition of
Lessee or any Sublessee which is an Affiliate
of Lessee; and
(vi) any fact within the special knowledge of any
member of the Leasing Group or any other
development in the business or affairs of any
member of the Leasing Group, which could
reasonably be expected to be materially adverse
to the business, properties, assets or
condition, financial or otherwise, of any
member of the Leasing Group or the Leased Property.
(n) RESPONSES TO INSPECTION REPORTS. Within thirty (30) days
after receipt of an inspection report relating to the Leased Property
from Lessor, a written response describing in detail prepared plans to
address concerns raised by the inspection report.
(o) PUBLIC INFORMATION. Upon the completion or filing,
mailing or other delivery thereof, complete copies of all financial
statements, reports, notices and proxy statements, if any, sent by any
member of the Leasing Group (which is a publicly held corporation) to
its shareholders and of all reports, if any, filed by any member of
the Leasing Group (which is a publicly held corporation) with any
securities exchange or with the Securities Exchange Commission.
(p) ANNUAL BUDGETS. Commencing on the Conversion Date, prior
to the end of each Fiscal Year, Lessee, any Sublessee which is an
Affiliate of Lessee and/or any Manager which is an Affiliate of Lessee
shall submit to Lessor a preliminary annual financial budget for the
Facility for the next Fiscal Year, a preliminary capital expenditures
budget for the Facility for the next Fiscal Year and a report
detailing the capital expenditures made in the then current Fiscal
Year and on or before the end of the first month of each Fiscal Year,
Lessee, any such Sublessee and/or any such Manager shall submit to
Lessor revised finalized versions of such budgets and report.
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(q) WORKING CAPITAL LOAN. Promptly after receipt thereof,
copies of any notices with respect to default from a lender of a
Working Capital Loan.
11.2.2 RESPONSIBLE OFFICER. Any certificate, instrument,
notice, or other document to be provided to Lessor hereunder by any member
of the Leasing Group shall be signed by an executive officer of such member
(in the event that any of the foregoing is not an individual), having a
position of Vice President or higher and with respect to financial matters,
any such certificate, instrument, notice or other document shall be signed
by the chief financial officer of such member.
11.2.3 NO MATERIAL OMISSION. No certificate, instrument, notice
or other document, including without limitation, any financial statements
furnished or to be furnished to Lessor pursuant to the terms hereof or of
any of the other Lease Documents shall contain any untrue statement of a
material fact or shall omit to state any material fact necessary in order
to prevent all statements contained therein from being misleading.
11.2.4 CONFIDENTIALITY. Lessor shall afford any information
received pursuant to the provisions of the Lease Documents the same degree
of confidentiality that Lessor affords similar information proprietary to
Lessor; PROVIDED, HOWEVER, that Lessor shall have the unconditional right
to (a) disclose any such information as Lessor deems necessary or
appropriate in connection with any sale, transfer, conveyance,
participation or assignment of the Leased Property or any of the Lease
Documents or any interest therein and (b) use such information in any
litigation or arbitration proceeding between Lessor and any member of the
Leasing Group. Without limiting the foregoing, Lessor may also utilize any
information furnished to it hereunder as and to the extent (i) counsel to
Lessor determines that such utilization is necessary pursuant to 15 U.S.C.
77a-77aa or 15 U.S.C. 78a-78jj and the rules and regulations promulgated
thereunder, (ii) Lessor is required or requested by any Governmental
Authority to disclose any such information and/or (iii) Lessor is requested
to disclose any such information by any of the Meditrust Entities' lenders
or potential lenders. Lessor shall not be liable in any way for any
subsequent disclosure of such information by any Person to which Lessor has
provided such information in accordance with the terms hereof.
Nevertheless, in connection with any such disclosure, Lessor shall inform
the recipient of any such information of the confidential nature thereof.
Lessor shall observe any prohibitions or limitations on the disclosure of
any such information under
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applicable confidentiality law or regulations, to the extent that the same
are applicable to such information.
11.3 FINANCIAL COVENANTS. Lessee covenants and agrees that, throughout
the Term and as long as Lessee is in possession of the Leased Property:
11.3.1 DEBT COVERAGE RATIO OF LESSEE. From and after the second
anniversary of the Conversion Date until the fourth anniversary thereof,
Lessee shall maintain with respect to the Facility and all other Group One
Development Facilities for each Fiscal Quarter an aggregate Debt Coverage
Ratio equal to or greater than 1.1 to 1 and from and after the fourth
anniversary thereof and for the remainder of the Term, Lessee shall
maintain with respect to the Facility and all other Group One Development
Facilities each Fiscal Quarter an aggregate Debt Coverage Ratio equal to or
greater than 1.2 to 1.
11.3.2 INTENTIONALLY DELETED.
11.3.3 INTENTIONALLY DELETED.
11.3.4 INTENTIONALLY DELETED.
11.3.5 CURRENT RATIO - GUARANTOR. From and after December 31,
1999 and for the remainder of the Term, the Guarantor shall maintain a ratio
of Consolidated Current Assets to Consolidated Current Liabilities equal to
or greater than 1 to 1 as of the end of each fiscal year.
11.3.6 INTENTIONALLY DELETED.
11.3.7 NET WORTH - GUARANTOR. The Guarantor shall maintain, at
all times, a Net Worth of not less than TWENTY MILLION DOLLARS
($20,000,000).
11.3.8 NO INDEBTEDNESS. Lessee shall not create, incur, assume
or suffer to exist any liability for borrowed money except (i) Indebtedness
to Lessor under the Lease Documents and, (ii) Impositions allowed pursuant
to the provisions of the Lease, (iii) unsecured normal trade debt incurred
upon customary terms in the ordinary course of business, (iv) Indebtedness
created in connection with any financing of any Capital Addition, PROVIDED,
THAT each such financing has been approved by Lessor in accordance with the
terms of Article 9 hereof, (v) Indebtedness to any Affiliate, PROVIDED,
THAT, such Indebtedness is fully subordinated to this Lease pursuant to the
Affiliated Party Subordination Agreement, (vi) other Indebtedness of Lessee
in the aggregate amount not to exceed TWO HUNDRED THOUSAND
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DOLLARS ($200,000) incurred, for the exclusive use of the Leased Property,
on account of purchase money indebtedness or finance lease arrangements,
each of which shall not exceed the fair market value of the assets or
property acquired or leased and shall not extend to any assets or property
other than those purchased or leased and purchase money security interests
in equipment and equipment leases which comply with the provisions of
Section 6.1.2 and (vii) Indebtedness specifically permitted by the
Meditrust/Emeritus Transaction Documents.
11.3.9 NO GUARANTIES. Lessee shall not assume, guarantee,
endorse, contingently agree to purchase or otherwise become directly or
contingently liable (including, without limitation, liable by way of
agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise to invest in any debtor or
otherwise to assure any creditor against loss) in connection with any
Indebtedness of any other Person, except by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business and except for a guaranty of the Indebtedness
of the Guarantor in connection with a Working Capital Loan which expressly
limits recourse under such guaranty to the Receivables.
11.4 AFFIRMATIVE COVENANTS. Lessee covenants and agrees that throughout
the Term and any periods thereafter that Lessee remains in possession of the
Leased Property:
11.4.1 MAINTENANCE OF EXISTENCE. If Lessee is a corporation,
trust or partnership, during the entire time that this Lease remains in
full force and effect, Lessee shall keep in effect its existence and rights
as a corporation, trust or partnership under the laws of the state of its
incorporation or formation and its right to own property and transact
business in the State.
11.4.2 MATERIALS. Except as provided in Section 6.1.2, Lessee
shall not suffer the use in connection with any renovations or other
construction relating to the Leased Property of any materials, fixtures or
equipment intended to become part of the Leased Property which are
purchased upon lease or conditional bill of sale or to which Lessee does
not have absolute and unencumbered title, and Lessee covenants to cause to
be paid punctually all sums becoming due for labor, materials, fixtures or
equipment used or purchased in connection with any such renovations or
construction, subject to Lessee's right to contest to the extent provided
for in Article 15.
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11.4.3 COMPLIANCE WITH LEGAL REQUIREMENTS AND APPLICABLE
AGREEMENTS. Lessee and the Leased Property and all uses thereof shall
comply with (i) all applicable Legal Requirements (except to the extent
being duly contested in accordance with the terms hereof), (ii) all Permits
and Contracts, (iii) all Insurance Requirements, (iv) the Lease Documents,
(v) the Permitted Encumbrances and (vi) the Appurtenant Agreement.
11.4.4 BOOKS AND RECORDS. Lessee shall cause to be kept and
maintained, and shall permit Lessor and its representatives to inspect at
all reasonable times and upon reasonable notice, accurate books of accounts
in which complete entries will be made in accordance with GAAP reflecting
all financial transactions of Lessee (showing, without limitation, all
materials ordered and received and all disbursements, accounts payable and
accounts receivable in connection with the operation of the Leased
Property).
11.4.5 PARTICIPATION IN THIRD PARTY PAYOR PROGRAMS. If Lessee or
a Sublessee which is an Affiliate of Lessee elects to participate in Third
Party Payor Programs, Lessee or such Sublessee shall remain eligible to
participate in such Third Party Payor Programs in accordance with all
requirements thereof (including, without limitation, all applicable
Provider Agreements), if and to the extent remaining eligible shall be
necessary for the prudent operation of the Facility in the good faith
exercise of commercially reasonable business judgment.
11.4.6 CONDUCT OF ITS BUSINESS. Lessee will maintain, and cause
any Sublessee and any Manager to maintain, experienced and competent
professional management with respect to its business and with respect to
the Leased Property. Lessee, any Sublessee and any Manager shall conduct,
in the ordinary course, the operation of the Facility, and Lessee and any
Sublessee which is an Affiliate of Lessee shall not enter into any other
business or venture during the Term or such time as Lessee or any such
Sublessee is in possession of the Leased Property other than activities in
which Lessee or such Sublessee are permitted to engage by the provisions of
the Meditrust/Emeritus Transaction Documents.
11.4.7 ADDRESS. Lessee shall provide Lessor thirty
(30) days' prior written notice of any change of its Principal Place of
Business from its current Principal Place of Business. Lessee shall
maintain the Collateral, including without limitation, all books and
records relating to its business, solely at its Principal Place of Business
and at the Leased Property. Lessee shall not (a) remove the
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Collateral, including, without limitation, any books or records relating to
Lessee's business from either the Leased Property or Lessee's Principal
Place of Business or (b) relocate its Principal Place of Business until
after receipt of a certificate from Lessor, signed by an officer thereof,
stating that Lessor has, to its satisfaction, obtained all documentation
that it deems necessary or desirable to obtain, maintain, perfect and
confirm the first priority security interests granted in the Lease
Documents.
11.4.8 SUBORDINATION OF AFFILIATE TRANSACTIONS. Without
limiting the provisions of any other Section of this Lease or the
Affiliated Party Subordination Agreement, any payments to be made by Lessee
to (a) any member of the Leasing Group (or any of its Affiliates) or (b)
any Affiliate of Lessee, in connection with any transaction between Lessee
and such Person, including, without limitation, the purchase, sale or
exchange of any property, the rendering of any service to or with any such
Person (including, without limitation, all allocations of any so-called
corporate or central office costs, expenses and charges of any kind or
nature) or the making of any loan or other extension of credit or the
making of any equity investment, shall be subordinate to the complete
payment and performance of the Lease Obligations; PROVIDED, HOWEVER, that
all such subordinated payments may be paid at any time unless: (x) after
giving effect to such payment, Lessee shall be unable to comply with any of
its obligations under any of the Lease Documents or (y) a Lease Default has
occurred and is continuing and has not been expressly waived in writing by
Lessor or an event or state of facts exists, which, with the giving of
notice or the passage of time, or both, would constitute a Lease Default.
11.4.9 INSPECTION. At reasonable times and upon reasonable
notice, Lessee shall permit Lessor and its authorized representatives
(including, without limitation, the Consultants) to inspect the Leased
Property as provided in Section 7.1 above, provided, however, that, in the
event results of any such testing or inspection reflect the same
satisfactory results as the results of a similar testing or inspection
initiated by Lessor within the prior twelve (12) months period, the costs
and expense of such testing or inspection shall be the responsibility of
Lessor.
11.4.10 SUBSIDENCE INSURANCE. If any mining activity shall occur
on the Leased Property, Lessee shall obtain subsidence insurance in form
and substance satisfactory to Lessor.
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11.5 ADDITIONAL NEGATIVE COVENANTS. Lessee covenants and agrees that,
throughout the Term and such time as Lessee remains in possession of the Leased
Property:
11.5.1 RESTRICTIONS RELATING TO LESSEE. Except as may otherwise
be expressly provided in Section 19.4 or in any of the other Lease
Documents, Lessee shall not, without the prior written consent of Lessor,
in each instance, which consent may be withheld in the sole and absolute
discretion of Lessor:
(a) convey, assign, hypothecate, transfer, dispose of or
encumber, or permit the conveyance, assignment, transfer,
hypothecation, disposal or encumbrance of all or any part of any legal
or beneficial interest in this Lease, its other assets or the Leased
Property except as expressly permitted by the terms of this Lease
Agreement; PROVIDED, HOWEVER, that this restriction shall not apply to
(i) the Permitted Encumbrances that may be created after the date
hereof pursuant to the Lease Documents; (ii) Liens created in
accordance with Section 6.1.2 against Tangible Personal Property
securing Indebtedness permitted under Section 11.3.8(v); (iii) the
sale, conveyance, assignment, hypothecation, lease or other transfer
of any material asset or assets (whether now owned or hereafter
acquired), the fair market value of which equals or is less than
TWENTY-FIVE THOUSAND DOLLARS ($25,000), individually, or ONE HUNDRED
THOUSAND DOLLARS ($100,000) collectively; (iv) without limitation as
to amount, the disposition in the ordinary course of business of any
obsolete, worn out or defective fixtures, furnishings or equipment
used in the operation of the Leased Property provided that the same
are replaced with fixtures, furnishings or equipment of equal or
greater utility or value or Lessee provides Lessor with an explanation
(reasonably satisfactory to Lessor) as to why such fixtures,
furnishings or equipment is no longer required in connection with the
operation of the Leased Property; (v) without limitation as to amount,
any sale of inventory by Lessee in the ordinary course of business;
and (vi) subject to the terms of the Negative Pledge Agreement and the
Affiliated Party Subordination Agreement, distributions to the
partners of Lessee;
(b) permit the use of the Facility for any purpose other than
the Primary Intended Use and the Other Permitted Uses; or
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(c) liquidate, dissolve or merge or consolidate with any
other Person except, subject to Lessor's prior written consent, which
consent shall not be unreasonably withheld, a Meditrust/Emeritus
Transaction Affiliate.
11.5.2 NO LIENS. Lessee will not directly or indirectly create
or allow to remain and will promptly discharge at its expense any Lien,
title retention agreement or claim upon or against the Leased Property
(including Lessee's interest therein) or Lessee's interest in this Lease or
any of the other Lease Documents, or in respect of the Rent, excluding (a)
this Lease and any permitted Subleases, (b) the Permitted Encumbrances, (c)
Liens which are consented to in writing by Lessor, (d) Liens for those
taxes of Lessor which Lessee is not required to pay hereunder, (e) Liens of
mechanics, laborers, materialmen, suppliers or vendors for sums either not
yet due or being contested in strict compliance with the terms and
conditions of Article 15, (f) any Liens which are the responsibility of
Lessor pursuant to the provisions of Article 20, (g) Liens for Impositions
which are either not yet due and payable or which are in the process of
being contested in strict compliance with the terms and conditions of
Article 15 (h) the Liens incurred pursuant to the provisions of Section
6.1.2 and (i) involuntary Liens caused by the actions or omissions of
Lessor.
11.5.3 LIMITS ON AFFILIATE TRANSACTIONS. Lessee shall not enter
into any transaction with any Affiliate, including, without limitation, the
purchase, sale or exchange of any property, the rendering of any service to
or with any Affiliate and the making of any loan or other extension of
credit, except in the ordinary course of, and pursuant to the reasonable
requirements of, Lessee's business and upon fair and reasonable terms no
less favorable to the Lessee than would be obtained in a comparable arms'-
length transaction with any Person that is not an Affiliate.
11.5.4 NON-COMPETITION. Lessee acknowledges that upon and after
any termination of this Lease, any competition by any member of the Leasing
Group with any subsequent owner or subsequent lessee of the Leased Property
(the "Purchaser") would cause irreparable harm to Lessor and any such
Purchaser. To induce Lessor to enter into this Lease, Lessee agrees that,
from and after the date hereof and thereafter until (a) in the case of the
expiration of the Initial Term or a termination of this Lease, the fifth
(5th) anniversary of the termination hereof or of the expiration of the
Initial Term, as applicable, and (b) in the case of
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an expiration of any of the Extended Terms, the second (2nd) anniversary of
the expiration of the applicable Extended Term, no member of the Leasing
Group nor any Person holding or controlling, directly or indirectly, any
interest in any member of the Leasing Group (collectively, the "Limited
Parties") shall be involved in any capacity in or lend any of their names
to or engage in any capacity in any assisted living facility, center, unit
or program (or in any Person engaged in any such activity or any related
activity competitive therewith) other than (a) those set forth on SCHEDULE
11.5.4 annexed hereto, (b) those activities in which a Meditrust/Emeritus
Transaction Affiliate is permitted to engage by the provisions of the
Meditrust/Emeritus Transaction Documents which relate to any such facility,
center, unit or program and (c) the acquisition of an ownership interest in
any such facility, center, unit or program which is part of a single
transaction in which an ownership interest in at least four (4) other
facilities, centers, units or programs (provided, however, that if such
acquisition occurs within the last twelve month period of the Initial Term
or any of the Extended Terms, Lessee shall have the benefit of this clause
(c) only if at the time such acquisition occurs Lessee has already (x)
exercised in that twelve month period its right under Section 1.3 hereof to
extend the Term for another Extended Term or (y) given a Purchase Option
Notice and has waived any right to rescind the same based upon the
determination of the Fair Market Value of the Leased Property), whether
such competitive activity shall be as an officer, director, owner,
employee, agent, advisor, independent contractor, developer, lender,
sponsor, venture capitalist, administrator, manager, investor, partner,
joint venturer, consultant or other participant in any capacity whatsoever
with respect to an assisted living facility, center, unit or program
located within a five (5) mile radius of the Leased Property.
Lessee hereby acknowledges and agrees that none of the time span,
scope or area covered by the foregoing restrictive covenants is or are
unreasonable and that it is the specific intent of Lessee that each and all
of the restrictive covenants set forth hereinabove shall be valid and
enforceable as specifically set forth herein. Lessee further agrees that
these restrictions are special, unique, extraordinary and reasonably
necessary for the protection of Lessor and any Purchaser and that the
violation of any such covenant by any of the Limited Parties would cause
irreparable damage to Lessor and any Purchaser for which a legal remedy
alone would not be sufficient to fully protect such parties.
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Therefore, in addition to and without limiting any other remedies
available at law or hereunder, in the event that any of the Limited Parties
breaches any of the restrictive covenants hereunder or shall threaten
breach of any of such covenants, then Lessor and any Purchaser shall be
entitled to obtain equitable remedies, including specific performance and
injunctive relief, to prevent or otherwise restrain a breach of this
Section 11.5.4 (without the necessity of posting a bond) and to recover any
and all costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses and court costs) incurred in enforcing the
provisions of this Section 11.5.4. The existence of any claim or cause of
action of any of the Limited Parties or any member of the Leasing Group
against Lessor or any Purchaser, whether predicated on this Lease or
otherwise, shall not constitute a defense to the enforcement by Lessor or
any Purchaser of the foregoing restrictive covenants and the Limited
Parties shall not defend on the basis that there is an adequate remedy at
law.
Without limiting any other provision of this Lease, the parties hereto
acknowledge that the foregoing restrictive covenants are severable and
separate. If at any time any of the foregoing restrictive covenants shall
be deemed invalid or unenforceable by a court having jurisdiction over this
Lease, by reason of being vague or unreasonable as to duration, or
geographic scope or scope of activities restricted, or for any other
reason, such covenants shall be considered divisible as to such portion and
such covenants shall be immediately amended and reformed to include only
such covenants as are deemed reasonable and enforceable by the court having
jurisdiction over this Lease to the full duration, geographic scope and
scope of restrictive activities deemed reasonable and thus enforceable by
said court; and the parties agree that such covenants as so amended and
reformed, shall be valid and binding as through the invalid or
unenforceable portion has not been included therein.
The provisions of this Section 11.5.4 shall survive the termination of
the Lease and any satisfaction of the Lease Obligations in connection
therewith or subsequent thereto. The parties hereto acknowledge and agree
that any Purchaser may enforce the provisions of this Section 11.5.4 as a
third party beneficiary.
11.5.5 Intentionally deleted.
11.5.6 Intentionally deleted.
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11.5.7 RESTRICTIONS RELATING TO THE GENERAL PARTNER. Except as
may otherwise be expressly provided herein or in any of the other Lease
Documents, the General Partner, if any, shall not own or acquire, directly
or indirectly, all or any part of any legal or beneficial interest in any
Person (other than Lessee) or any asset that is unrelated to the operation
of the Leased Property or specifically permitted under the
Meditrust/Emeritus Transaction Documents. In addition, the General Partner
shall not enter into any business or venture other than the operation of
the Leased Property in its capacity as the general partner of Lessee or as
permitted by the Meditrust/Emeritus Transaction Documents.
11.5.8 ERISA. Lessee shall not establish or permit any Sublessee
to establish any new pension or defined benefit plan or modify any such
existing plan for employees subject to ERISA, which plan provides any
benefits based on past service without the advance consent of Lessor (which
consent shall not be unreasonably withheld) to the amount of the aggregate
past service liability thereby created.
11.5.9 FORGIVENESS OF INDEBTEDNESS. Lessee will not waive, or
permit any Sublessee or Manager which is an Affiliate to waive any debt or
claim, except in the ordinary course of its business.
11.5.10 VALUE OF ASSETS. Except as disclosed in the financial
statements provided to Lessor as of the date hereof, Lessee will not write
up (by creating an appraisal surplus or otherwise) the value of any assets
of Lessee above their cost to Lessee, less the depreciation regularly
allowable thereon.
11.5.11 CHANGES IN FISCAL YEAR AND ACCOUNTING PROCEDURES. Upon
notice to Lessor, Lessee may (a) change its fiscal year or capital
structure or (b) change, alter, amend or in any manner modify in accordance
with GAAP any of its current accounting procedures related to the method of
revenue recognition, billing procedures or determinations of doubtful
accounts or bad debt expenses or permit any of its Subsidiaries to so
change its fiscal year, provided that, in the event of such change,
modification or alteration, Lessee and Lessor shall make such adjustments
to the calculation of Additional Rent and the financial covenants contained
herein as Lessor shall reasonably require to make the same consistent in
result with the calculation thereof immediately prior to such change,
modification or alteration.
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ARTICLE 12
INSURANCE AND INDEMNITY
12.1 GENERAL INSURANCE REQUIREMENTS. During the Term of this Lease and
thereafter until Lessee surrenders the Leased Property in the manner required by
this Lease, Lessee shall at its sole cost and expense keep the Leased Property,
the Tangible Personal Property located thereon and the business operations
conducted on the Leased Property insured as set forth below.
12.1.1 TYPES AND AMOUNTS OF INSURANCE. Lessee's insurance shall
include the following:
(a) property loss and physical damage insurance on an all-risk
basis (with only such exceptions as Lessor may in its reasonable
discretion approve) covering the Leased Property (exclusive of Land)
for its full replacement cost, which cost shall be reset once a year
at Lessor's option, with an agreed-amount endorsement and a deductible
not in excess of TWENTY FIVE THOUSAND DOLLARS ($25,000). Such
insurance shall include, without limitation, the following coverages:
(i) increased cost of construction, (ii) cost of demolition, (iii) the
value of the undamaged portion of the Facility and (iv) contingent
liability from the operation of building laws, less exclusions
provided in the normal "All Risk" insurance policy. During any period
of construction, such insurance shall be on a builder's-risk,
completed value, non-reporting form (including all risk and extended
coverage, collapse, cost of demolition, increased cost of construction
and value of undamaged portion of the improvements protection) with
permission to occupy;
(b) flood insurance (if the Leased Property or any portion
thereof is situated in an area which is considered a flood risk area
by the U.S. Department of Housing and Urban Development or any future
governmental authority charged with such flood risk analysis in the
future) in limits reasonably acceptable to Lessor and subject to the
availability of such flood insurance;
(c) boiler and machinery insurance (including related
electrical apparatus and components) under a standard comprehensive
form, providing coverage against loss or damage caused by explosion of
steam boilers, pressure vessels or similar vessels, now or hereafter
installed on the Leased Property, in limits acceptable to Lessor;
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(d) earthquake insurance (if reasonably deemed necessary by
Lessor) in limits and with deductibles acceptable to Lessor;
(e) environmental impairment liability insurance (if
available on commercially reasonable terms and deemed reasonably
necessary by Lessor) in limits and with deductibles acceptable to
Lessor;
(f) From and after the Conversion Date:] business
interruption insurance in an amount equal to the annual Base Rent due
hereunder plus the aggregate sum of the Impositions relating to the
Leased Property due and payable during one year;
(g) comprehensive general public liability insurance
including coverages commonly found in the Broad Form Commercial
Liability Endorsements with amounts not less than FIVE MILLION DOLLARS
($5,000,000) per occurrence with respect to bodily injury and death
and THREE MILLION DOLLARS ($3,000,000) for property damage and with
all limits based solely upon occurrences at the Leased Property
without any other impairment;
(h) From and after the Conversion Date, professional liability
insurance in an amount not less than TEN MILLION DOLLARS ($10,000,000)
for each medical incident;
(i) physical damage insurance on an all-risk basis (with only
such exceptions as Lessor in its reasonable discretion shall approve)
covering the Tangible Personal Property for the full replacement cost
thereof and with a deductible not in excess of one percent (1%) of the
full replacement cost thereof;
(J) From and after the Conversion Date and prior thereto with
respect to Persons employed on the Leased Property or any portion
thereof prior to the Conversion Date, "Workers' Compensation and
Employers' Liability Insurance providing protection against all claims
arising out of injuries to all employees of Lessee or of any Sublessee
(employed on the Leased Property or any portion thereof) in amounts
equal for Workers' Compensation, to the statutory benefits payable to
employees in the State and for Employers' Liability, to limits of not
less than ONE HUNDRED THOUSAND DOLLARS ($100,000) for injury by
accident, ONE HUNDRED THOUSAND DOLLARS ($100,000) per employee for
disease and FIVE
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HUNDRED THOUSAND DOLLARS ($500,000) disease policy limit;
(k) subsidence insurance (if deemed necessary by Lessor) in
limits acceptable to Lessor; and
(l) such other insurance as Lessor from time to time may
reasonably require and also, as may from time to time be required by
applicable Legal Requirements and/or by any Fee Mortgagee.
12.1.2 INSURANCE COMPANY REQUIREMENTS. All such insurance
required by this Lease or the other Lease Documents shall be issued and
underwritten by insurance companies licensed to do insurance business by,
and in good standing under the laws of, the State and which companies have
and maintain a rating of A:X or better by A.M. Best Co.
12.1.3 POLICY REQUIREMENTS. Every policy of insurance from time
to time required under this Lease or any of the other Lease Documents
(other than worker's compensation) shall name Lessor as owner, loss payee,
secured party (to the extent applicable) and additional named insured as
its interests may appear. If an insurance policy covers properties other
than the Leased Property, then Lessor shall be so named with respect only
to the Leased Property. Each such policy, where applicable or appropriate,
shall:
(a) include an agreed amount endorsement and loss payee,
additional named insured and secured party endorsements, in forms
acceptable to Lessor in its reasonable discretion;
(b) include mortgagee, secured party, loss payable and
additional named insured endorsements reasonably acceptable to each
Fee Mortgagee;
(c) provide that the coverages may not be cancelled or
materially modified except upon thirty (30) days' prior written notice
to Lessor and any Fee Mortgagee;
(d) be payable to Lessor and any Fee Mortgagee
notwithstanding any defense or claim that the insurer may have to the
payment of the same against any other Person holding any other
interest in the Leased Property;
(e) be endorsed with standard noncontributory clauses in
favor of and in form reasonably acceptable to Lessor and any Fee-
Mortgagee;
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(f) expressly waive any right of subrogation on the part of
the insurer against Lessor, any Fee Mortgagee or the Leasing Group;
and
(g) otherwise be in such forms as shall be reasonably
acceptable to Lessor.
12.1.4 NOTICES; CERTIFICATES AND POLICIES. Lessee shall
promptly provide to Lessor copies of any and all notices (including notice
of non-renewal), claims and demands which Lessee receives from insurers of
the Leased Property. At least ten (10) days prior to the expiration of any
insurance policy required hereunder, Lessee shall deliver to Lessor
certificates and evidence of insurance relating to all renewals and
replacements thereof, together with evidence, satisfactory to Lessor, of
payment of the premiums thereon. Lessee shall deliver to Lessor original
counterparts or copies certified by the insurance company to be true and
complete copies, of all insurance policies required hereunder not later
than ten (10) days after receipt thereof by Lessee. Lessee shall use its
best efforts to obtain such counterparts or copies within ninety (90)days
after the effective date of each such policy.
12.1.5 LESSOR'S RIGHT TO PLACE INSURANCE. If Lessee shall fail
to obtain any insurance policy required hereunder by Lessor, or shall fail
to deliver the certificate and evidence of insurance relating to any such
policy to Lessor, or if any insurance policy required hereunder (or any
part thereof) shall expire or be cancelled or become void or voidable by
reason of any breach of any condition thereof, or if Lessor reasonably
determines that such insurance coverage is unsatisfactory by reason of the
failure or impairment of the capital of any insurance company which wrote
any such policy, upon demand by Lessor, Lessee shall promptly but in any
event in not more than ten (10) days thereafter obtain new or additional
insurance coverage on the Leased Property, or for those risks required to
be insured by the provisions hereof, satisfactory to Lessor, and, in the
event Lessee fails to perform its obligations under this Section and at its
option, Lessor may obtain such insurance and pay the premium or premiums
therefor; in which event, any amount so paid or advanced by Lessor and all
costs and expenses incurred in connection therewith (including, without
limitation, reasonable attorneys' fees and expenses and court costs), shall
be a demand obligation of Lessee to Lessor, payable as an Additional
Charge.
12.1.6 PAYMENT OF PROCEEDS. All insurance policies required
hereunder (except for general public liability, professional liability and
workers' compensation and
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employers liability insurance) shall provide that in the event of loss,
injury or damage, subject to the rights of any Fee Mortgagee, all proceeds
shall be paid to Lessor alone (rather than jointly to Lessee and Lessor).
Lessor is hereby authorized to adjust and compromise any such loss with the
consent of Lessee or, following any Lease Default, whether or not cured,
without the consent of Lessee, and to collect and receive such proceeds in
the name of Lessor and Lessee, and Lessee appoints Lessor (or any agent
designated by Lessor) as Lessee's attorney-in-fact with full power of
substitution, to endorse Lessee's name upon any check in payment thereof.
Subject to the provisions of Article 13, such insurance proceeds shall be
applied first toward reimbursement of all costs and expenses reasonably
incurred by Lessor in collecting said insurance proceeds, then toward
payment of the Lease Obligations or any portion thereof, which have not
been paid when due and payable or within any applicable cure period, in
such order as Lessor determines, and then in whole or in part toward
restoration, repair or reconstruction of the Leased Property for which such
insurance proceeds shall have been paid.
12.1.7 IRREVOCABLE POWER OF ATTORNEY. The power of attorney
conferred on Lessor pursuant to the provisions of Section 12.1, being
coupled with an interest, shall be irrevocable for as long as this Lease is
in effect or any Lease obligations are outstanding, shall not be affected
by any disability or incapacity which Lessee may suffer and shall survive
the same. Such power of attorney, is provided solely to protect the
interests of Lessor and shall not impose any duty on Lessor to exercise any
such power, and neither Lessor nor such attorney-in-fact shall be liable
for any act, omission, error in judgment or mistake of law, except as the
same may result from its gross negligence or wilful misconduct.
12.1.8 BLANKET POLICIES. Notwithstanding anything to the
contrary contained herein, Lessee's obligations to carry the insurance
provided for herein may be brought within the coverage of a so-called
blanket policy or policies of insurance carried and maintained by Lessee
and its Affiliates; PROVIDED, HOWEVER, that the coverage afforded to Lessor
shall not be reduced or diminished or otherwise be different from that
which would exist under a separate policy meeting all other requirements of
this Lease by reason of the use of such blanket policy of insurance, and
PROVIDED, FURTHER that the requirements of Section 12.1 are otherwise
satisfied.
12.1.9 NO SEPARATE INSURANCE. Lessee shall not, on Lessee's own
initiative or pursuant to the request or
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requirement of any other Person, take out separate insurance concurrent in
form or contributing in the event of loss with the insurance required
hereunder to be furnished by Lessee, or increase the amounts of any then
existing insurance by securing an additional policy or additional policies,
unless (a) all parties having an insurable interest in the subject matter
of the insurance, including Lessor, are included therein as additional
insureds and (b) losses are payable under said insurance in the same manner
as losses are required to be payable under this Lease. Lessee shall
immediately notify Lessor of the taking out of any such separate insurance
or of the increasing of any of the amounts of the then existing insurance
by securing an additional insurance policy or policies.
12.1.10 ASSIGNMENT OF UNEARNED PREMIUMS. Lessee hereby assigns
to Lessor all rights of Lessee in and to any unearned premiums on any
insurance policy required hereunder to be furnished by Lessee which may
become payable or are refundable after the occurrence of an Event of
Default hereunder, which premium, upon receipt thereof, Lessor shall at
Lessor's option apply toward the Lease Obligations or hold as security
therefor. in the event that this Lease is terminated for any reason (other
than the purchase of the Leased Property by Lessee), the insurance policies
required to be maintained hereunder, including all right, title and
interest of Lessee thereunder, shall become the absolute property of Lessor
subject to any limitation on assignment provided for therein.
12.2 INDEMNITY.
12.2.1 INDEMNIFICATION. EXCEPT WITH RESPECT TO THE GROSS
NEGLIGENCE OR WILFUL MISCONDUCT OF LESSOR OR ANY OF THE OTHER INDEMNIFIED
PARTIES, AS TO WHICH NO INDEMNITY IS PROVIDED, LESSEE HEREBY AGREES TO
DEFEND WITH COUNSEL REASONABLY ACCEPTABLE TO LESSOR, AGAINST ALL CLAIMS
AND CAUSES OF ACTION AND TO INDEMNIFY AND HOLD HARMLESS LESSOR AND EACH OF
THE OTHER INDEMNIFIED PARTIES FROM AND AGAINST ALL DAMAGES, LOSSES
LIABILITIES, OBLIGATIONS, PENALTIES, COSTS AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS' FEES, COURT COSTS AND OTHER EXPENSES OF
LITIGATION) SUFFERED BY, OR CLAIMED OR ASSERTED AGAINST, LESSOR OR ANY OF
THE OTHER INDEMNIFIED PARTIES, DIRECTLY OR INDIRECTLY, BY ANY PERSON OTHER
THAN A MEMBER OF THE LEASING GROUP WHO PREVAILS IN SUCH CLAIM OR ACTION
BASED ON, ARISING OUT OF OR RESULTING FROM (A) THE USE AND OCCUPANCY OF THE
LEASED PROPERTY OR ANY BUSINESS CONDUCTED THEREIN, (B) ANY ACT, FAULT,
OMISSION TO ACT OR MISCONDUCT BY (I) ANY MEMBER OF THE LEASING GROUP, (II)
ANY AFFILIATE OF LESSEE OR (III) ANY EMPLOYEE, AGENT, LICENSEE, BUSINESS
INVITEE, GUEST,
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CUSTOMER, CONTRACTOR OR SUBLESSEE OF ANY OF THE FOREGOING PARTIES, RELATING
TO, DIRECTLY OR INDIRECTLY, THE LEASED PROPERTY, (C) ANY ACCIDENT, INJURY OR
DAMAGE WHATSOEVER CAUSED TO ANY PERSON, INCLUDING, WITHOUT LIMITATION, ANY
CLAIM OF MALPRACTICE, OR TO THE PROPERTY OF ANY PERSON IN OR ABOUT THE
LEASED PROPERTY OR OUTSIDE OF THE LEASED PROPERTY WHERE SUCH ACCIDENT,
INJURY OR DAMAGE RESULTS OR IS CLAIMED TO HAVE RESULTED FROM ANY ACT,
FAULT, OMISSION TO ACT OR MISCONDUCT BY ANY MEMBER OF THE LEASING GROUP OR
ANY AFFILIATE OF LESSEE OR ANY EMPLOYEE, AGENT, LICENSEE, CONTRACTOR OR
SUBLESSEE OF ANY OF THE FOREGOING PARTIES, (D) ANY LEASE DEFAULT, (E) ANY
CLAIM BROUGHT OR THREATENED AGAINST LESSOR BY ANY MEMBER OF THE LEASING
GROUP OR BY ANY OTHER PERSON ON ACCOUNT OF (I) LESSOR'S RELATIONSHIP WITH
ANY MEMBER OF THE LEASING GROUP PERTAINING IN ANY WAY TO THE LEASED
PROPERTY AND/OR THE TRANSACTION EVIDENCED BY THE LEASE DOCUMENTS AND/OR
(II) LESSOR'S NEGOTIATION OF, ENTERING INTO AND/OR PERFORMING ANY OF ITS
OBLIGATIONS AND/OR EXERCISING ANY OF ITS RIGHT AND REMEDIES UNDER ANY OF
THE LEASE DOCUMENTS, (F) ANY ATTEMPT BY ANY MEMBER OF THE LEASING GROUP OR
ANY AFFILIATE OF LESSEE TO TRANSFER OR RELOCATE ANY OF THE PERMITS TO ANY
LOCATION OTHER THAN THE LEASED PROPERTY AND/OR (G) THE ENFORCEMENT OF THIS
INDEMNITY. ANY AMOUNTS WHICH BECOME PAYABLE BY LESSEE UNDER THIS SECTION
12.2.1 SHALL BE A DEMAND OBLIGATION OF LESSEE TO LESSOR, PAYABLE AS AN
ADDITIONAL CHARGE. THE INDEMNITY PROVIDED FOR IN THIS SECTION 12.2.1 SHALL
SURVIVE ANY TERMINATION OF THIS LEASE.
12.2.2 INDEMNIFIED PARTIES. AS USED IN THIS LEASE THE TERM
"INDEMNIFIED PARTIES" SHALL MEAN THE MEDITRUST ENTITIES, ANY FEE MORTGAGEE
AND THEIR RESPECTIVE SUCCESSORS, ASSIGNS, EMPLOYEES, SERVANTS, AGENTS,
ATTORNEYS, OFFICERS, DIRECTORS, SHAREHOLDERS, PARTNERS AND OWNERS.
12.2.3 LIMITATION ON LESSOR LIABILITY. NEITHER LESSOR NOR ANY
AFFILIATE OF LESSOR SHALL BE LIABLE TO ANY MEMBER OF THE LEASING GROUP OR
ANY AFFILIATE OF ANY MEMBER OF THE LEASING GROUP, OR TO ANY OTHER PERSON
WHATSOEVER FOR ANY DAMAGE, INJURY, LOSS, COMPENSATION, OR CLAIM (INCLUDING,
BUT NOT LIMITED TO, ANY CLAIM FOR THE INTERRUPTION OF OR LOSS TO ANY
BUSINESS CONDUCTED ON THE LEASED PROPERTY) BASED ON, ARISING OUT OF OR
RESULTING FROM ANY CAUSE WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, THE
FOLLOWING: (A) REPAIRS TO THE LEASED PROPERTY, (B) INTERRUPTION IN USE OF
THE LEASED PROPERTY; (C) ANY ACCIDENT OR DAMAGE RESULTING FROM THE USE OR
OPERATION OF THE LEASED PROPERTY OR ANY BUSINESS CONDUCTED THEREON; (D) THE
TERMINATION OF THIS LEASE BY REASON OF CASUALTY OR CONDEMNATION, (E) ANY
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FIRE, THEFT OR OTHER CASUALTY OR CRIME, (F) THE ACTIONS, OMISSIONS OR
MISCONDUCT OF ANY OTHER PERSON, (G) DAMAGE TO ANY PROPERTY,
OR (H) ANY DAMAGE FROM THE FLOW OR LEAKING OF WATER, RAIN OR SNOW. ALL
TANGIBLE PERSONAL PROPERTY AND THE PERSONAL PROPERTY OF ANY OTHER PERSON ON
THE LEASED PROPERTY SHALL BE AT THE SOLE RISK OF LESSEE AND LESSOR SHALL
NOT IN ANY MANNER BE HELD RESPONSIBLE THEREFOR (EXCEPT IN THE EVENT OF LOSS
CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LESSOR).
NOTWITHSTANDING THE FOREGOING, LESSOR SHALL NOT BE RELEASED FROM LIABILITY
FOR ANY INJURY, LOSS, DAMAGE OR LIABILITY SUFFERED BY LESSEE TO THE EXTENT
CAUSED DIRECTLY BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LESSOR,
ITS SERVANTS, EMPLOYEES OR AGENTS ACTING WITHIN THE SCOPE OF THEIR
AUTHORITY ON OR ABOUT THE LEASED PROPERTY OR IN REGARDS TO THE LEASE;
PROVIDED, HOWEVER, THAT IN NO EVENT SHALL LESSOR, ITS SERVANTS, EMPLOYEES
OR AGENTS HAVE ANY LIABILITY BASED ON ANY LOSS FOR ANY INDIRECT OR
CONSEQUENTIAL DAMAGES.
12.2.4 RISK OF LOSS. DURING THE TERM OF THIS LEASE, THE RISK OF
LOSS OR OF DECREASE IN THE ENJOYMENT AND BENEFICIAL USE OF THE LEASED
PROPERTY IN CONSEQUENCE OF ANY DAMAGE OR DESTRUCTION THEREOF BY FIRE, THE
ELEMENTS, CASUALTIES, THEFTS, RIOTS, WARS OR OTHERWISE, OR IN CONSEQUENCE
OF FORECLOSURES, LEVIES OR EXECUTIONS OF LIENS (OTHER THAN THOSE CREATED BY
LESSOR IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 20) IS ASSUMED BY
LESSEE AND, IN THE ABSENCE OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS
SET FORTH IN SECTION 12.2.3, LESSOR SHALL IN NO EVENT BE ANSWERABLE OR
ACCOUNTABLE THEREFOR (EXCEPT FOR THE OBLIGATION TO ACCOUNT FOR INSURANCE
PROCEEDS AND AWARDS TO THE EXTENT PROVIDED FOR IN ARTICLES 13 AND 14) NOR
SHALL ANY OF THE EVENTS MENTIONED IN THIS SECTION ENTITLE LESSEE TO ANY
ABATEMENT OF RENT (EXCEPT FOR AN ABATEMENT, IF ANY, AS SPECIFICALLY
PROVIDED FOR IN SECTION 3.7).
ARTICLE 13
FIRE AND CASUALTY
13.1 RESTORATION FOLLOWING FIRE OR OTHER CASUALTY.
13.1.1 FOLLOWING FIRE OR CASUALTY. In the event of any damage
or destruction to the Leased Property by reason of fire or other hazard or
casualty (a "Casualty"), Lessee shall give immediate written notice thereof
to Lessor and, subject to the terms of this Article 13 and any applicable
Legal Requirements, Lessee shall proceed with reasonable diligence, in full
compliance with all applicable Legal Requirements, to perform such repairs,
replacement and reconstruction work (referred to herein as the "Work") to
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restore the Leased Property to the condition it was in
immediately prior to such damage or destruction and to a condition adequate
to operate the Facility for the Primary Intended Use and, if applicable,
the other Permitted Uses and in compliance with applicable Legal
Requirements. All Work shall be performed and completed in accordance with
all applicable Legal Requirements and the other requirements of this Lease
within one hundred and twenty (120) days following the occurrence of the
damage or destruction plus a reasonable time to compensate for Unavoidable
Delays (including for the purposes of this Section, delays in obtaining
Permits and in adjusting insurance losses), but in no event beyond two-
hundred and seventy (270) days following the occurrence of the Casualty.
13.1.2 PROCEDURES. In the event that any Casualty results in
non-structural damage to the Leased Property in excess of FIFTY THOUSAND
DOLLARS ($50,000) or in any structural damage to the Leased Property,
regardless of the extent of such structural damage, prior to commencing the
Work, Lessee shall comply with the following requirements:
(a) Lessee shall furnish to Lessor complete plans and
specifications for the Work (collectively and as the same may be
modified and amended from time to time pursuant to the terms hereof,
the "Plans and Specifications"), for Lessor's approval, in each
instance, which approval shall not be unreasonably withheld. The
Plans and Specifications shall bear the signed approval thereof by an
architect, licensed to do business in the State, reasonably
satisfactory to Lessor (in the event Lessor reasonably determines that
the Work is of a nature for which the involvement of an architect is
appropriate) and shall be accompanied by a written estimate from the
architect, bearing the architect's seal, of the entire cost of
completing the Work, and to the extent feasible, the Plans and
Specifications shall provide for Work of such nature, quality and
extent, that, upon the completion thereof, the Leased Property shall
be at least equal in value and general utility to its value and
general utility prior to the Casualty and shall be adequate to operate
the Leased Property for the Primary Intended Use and, if applicable,
the Other Permitted Uses;
(b) Lessee shall furnish to Lessor certified or photostatic
copies of all Permits and Contracts required by all applicable Legal
Requirements in connection with the commencement and conduct of the
Work to the extent the same can be secured in the ordinary course
prior to the commencement of construction;
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(c) Lessee shall furnish to Lessor a cash deposit or a
payment and performance bond sufficient to pay for completion of and
payment for the Work in an amount not less than the architect's
estimate of the entire cost of completing the Work, less the amount of
property insurance proceeds (net of costs and expenses incurred by
Lessor in collecting the same), if any, then held by Lessor and which
Lessor shall be required to apply toward restoration of the Leased
Property as provided in Section 13.2;
(d) Lessee shall furnish to Lessor such insurance with
respect to the Work (in addition to the insurance required under
Section 12.1 hereof) in such amounts and in such forms as is
reasonably required by Lessee; and
(e) Lessee shall not commence any of the Work until Lessee
shall have complied with the requirements set forth in clauses (a)
through (d) immediately above, as applicable, and, thereafter, Lessee
shall perform the Work diligently, in a good and workmanlike fashion
and in good faith in accordance with (i) the Plans and specifications
referred to in clause (a) immediately above, (ii) the Permits and
Contracts referred to in clause (b) immediately above and (iii) all
applicable Legal Requirements and other requirements of this Lease;
PROVIDED, HOWEVER, that in the event of a bona fide emergency during
which Lessee is unable to contact the appropriate representatives of
Lessor, Lessee may commence such work as may be necessary in order to
address such emergency without Lessor's prior approval, as long as
Lessee immediately thereafter advises Lessor of such emergency and the
nature and scope of the Work performed and obtains Lessor's approval
of the remaining Work to be completed.
13.1.3 DISBURSEMENT OF INSURANCE PROCEEDS. If, as provided in
Section 13.2, Lessor is required to apply any property insurance proceeds
toward repair or restoration of the Leased Property, then as long as the
Work is being diligently performed by Lessee in accordance with the terms
and conditions of this Lease, Lessor shall disburse such insurance proceeds
from time to time during the course of the Work in accordance with and
subject to satisfaction of the following provisions and conditions. Lessor
shall not be required to make disbursements more often than at thirty (30)
day intervals. Lessee shall submit a written request for each disbursement
at least ten (10) Business Days in advance and shall comply with the
following requirements in connection with each disbursement:
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(a) Prior to the commencement of any Work, Lessee shall have
received Lessor's written approval of the Plans and Specifications
(which approval shall not be unreasonably withheld) and the Work shall
be supervised by an experienced construction manager with the
consultation of an architect or engineer qualified and licensed to do
business in the State (in the event Lessor reasonably determines that
the Work is of a nature for which the involvement of such architect or
engineer is appropriate). Lessee shall not make any changes in, and
shall not permit any changes in, the quality of the materials to be
used in the Work, the Plans and Specifications or the Work, whether by
change order or otherwise, without the prior written consent of
Lessor, in each instance (which consent may be withheld in Lessor's
sole and absolute discretion); PROVIDED, HOWEVER, that such consent
shall not be required for any individual change which has been
approved by the architect, which does not materially affect the
structure or exterior of the Facility, and the cost of which does not
exceed TEN THOUSAND DOLLARS ($10,000) or which changes, in the
aggregate, do not exceed ONE HUNDRED THOUSAND DOLLARS ($100,000) in
cost. Notwithstanding the foregoing, prior to making any change in
Plans and Specifications, copies of all change orders shall be
submitted by Lessee to Lessor and Lessee shall also deliver to Lessor
evidence satisfactory to Lessor, in its reasonable discretion, that
all necessary Permits and/or Contracts required by any Governmental
Authority in connection therewith have been obtained or entered into,
as the case may be.
(b) Each request for payment shall be accompanied by (x) a
certificate of the architect or engineer, bearing the architect's or
engineer's seal, and (y) a certificate of the general contractor,
qualified and licensed to do business in the State, that is performing
the Work (collectively, the "Work Certificates"), each dated not more
than ten (10) days prior to the application for withdrawal of funds,
and each stating:
(i) that all of the Work performed as of the date of the certificates
has been completed in compliance with the approved Plans and
Specifications, applicable Contracts and all applicable Legal
Requirements;
(ii) that the sum then requested to be withdrawn has been paid by
Lessee or is justly due to contractors, subcontractors,
materialmen,
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engineers, architects or other Persons, whose names and addresses
shall be stated therein, who have rendered or furnished certain
services or materials for the Work, and the certificate shall
also include a brief description of such services and materials
and the principal subdivisions or categories thereof and the
respective amounts so paid or due to each of said Persons in
respect thereof and stating the progress of the Work up to the
date of said certificate;
(iii) that the sum then requested to be withdrawn, plus all
sums previously withdrawn, does not exceed the cost of
the Work insofar as actually accomplished up to the date
of such certificate;
(iv) that the remainder of the funds held by Lessor will be
sufficient to pay for the full completion of the Work in
accordance with the Plans and Specifications;
(v) that no part of the cost of the services and materials
described in the applicable Work Certificate has been or
is being made the basis of the withdrawal of any funds in
any previous or then pending application; and
(vi) that, except for the amounts, if any, specified in the
applicable Work Certificate to be due for services and
materials, there is no outstanding indebtedness known,
after due inquiry, which is then due and payable for
work, labor, services or materials in connection with the
Work which, if unpaid, might become the basis of a
vendor's, mechanic's, laborer's or materialman's
statutory or other similar Lien upon the Leased Property.
(c) Lessee shall deliver to Lessor satisfactory evidence that the
Leased Property and all materials and all property described in the Work
Certificates are free and clear of Liens, except (i) Liens, if any,
securing indebtedness due to Persons (whose names and addresses and the
several amounts due them shall be stated therein) specified in an
applicable Work Certificate, which Liens shall be discharged upon
disbursement of the funds then being requested or duly contested in
accordance with the terms of this Lease
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Agreement, (ii) any Fee Mortgage and (iii) the Permitted Encumbrances.
Lessor shall accept as satisfactory evidence of the foregoing lien waivers
in customary form from the general contractor and all subcontractors
performing the Work, together with an endorsement of its title insurance
policy (relating to the Leased Property) in form acceptable to Lessor,
dated as of the date of the making of the then current disbursement,
confirming the foregoing.
(d) If the Work involves alteration or restoration of the exterior of
any Leased Improvement that changes the footprint of any Leased
Improvement, Lessee shall deliver to Lessor, upon the request of Lessor, an
"as-built" survey of the Leased Property dated as of a date within ten (10)
days prior to the making of the first and final advances (or revised to a
date within ten (10) days prior to each such advance) showing no
encroachments other than such encroachments, if any, by the Leased
Improvements upon or over the Permitted Encumbrances as are in existence as
of the date hereof.
(e) Lessee shall deliver to Lessor (i) an opinion of counsel
(satisfactory to Lessor both as to counsel and as to the form of opinion)
prior to the first advance opining that all necessary Permits for the
repair, replacement and/or restoration of the Leased Property which can be
obtained in the ordinary course as of said date have been obtained and that
the Leased Property, if repaired, replaced or rebuilt in accordance, in all
material respects, with the approved Plans and Specifications and such
Permits, shall comply with all applicable Legal Requirements subject to
such limitations as may be imposed on such opinion under local law and (ii)
if applicable, an architect's certificate (satisfactory to Lessor both as to
the architect and as to the form of the certificate) prior to the final
advance, certifying that the Leased Property was repaired, replaced or
rebuilt in accordance, in all material respects, with the approved Plans
and Specifications and complies with all applicable Legal Requirements,
including, without limitation, all Permits referenced in the foregoing
clause (i).
(f) There shall be no Lease Default or any state of facts or
circumstance existing which, with the giving of notice and/or the passage
of time, would constitute any Lease Default.
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Lessor, at its option, may waive any of the foregoing requirements in whole
or in part in any instance. Upon compliance by Lessee with the foregoing
requirements (except for such requirements, if any, as Lessor may have
expressly elected to waive), and to the extent of (x) the insurance
proceeds, if any, which Lessor may be required to apply to restoration of
the Leased Property pursuant to the provisions of this Lease and (y) all
other cash deposits made by Lessee, Lessor shall make available for payment
to the Persons named in the Work Certificate the respective amounts stated
in said certificate(s) to be due, subject to a retention of ten percent
(10%) as to all hard costs of the Work (the "Retainage"). It is understood
that the Retainage is intended to provide a contingency fund to assure
Lessor that the Work shall be fully completed in accordance with the Plans
and Specifications and the requirements of Lessor. Upon the full and final
completion of all of the Work in accordance with the provisions hereof, the
Retainage shall be made available for payment to those Persons entitled
thereto.
Upon completion of the Work, and as a condition precedent to making any
further advance, in addition to the requirements set forth above, Lessee
shall promptly deliver to Lessor:
(i) if applicable, written certificates of the architect or
engineer, bearing the architect's or engineer's seal, and
the general contractor, certifying that the Work has been
fully completed in a good and workmanlike manner in
material compliance with the Plans and Specifications and
all applicable Legal Requirements;
(ii) an endorsement of its title insurance policy (relating to
the Leased Property) in form reasonably acceptable to
Lessor insuring the Leased Property against all
mechanic's and materialman's liens accompanied by the
final lien waivers from the general contractor and all
subcontractors;
(iii) a certificate by Lessee in form and substance reasonably
satisfactory to Lessor, listing all costs and expenses in
connection with the completion of the Work and the amount
paid by Lessee with respect to the Work; and
(iv) a temporary certificate of occupancy (if obtainable) and
all other applicable Permits and Contracts issued by or
entered into with any Governmental Authority with respect
to the Primary
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Intended Use not already delivered to Lessor and, to the extent
applicable, the Other Permitted Uses and by the appropriate Board
of Fire Underwriters or other similar bodies acting in and for
the locality in which the Leased Property is situated with
respect to the Facility; PROVIDED, THAT within thirty (30) days
after completion of the Work, Lessee shall obtain and deliver to
Lessor a permanent certificate of occupancy for the Leased
Property, subject to seasonal delays.
Upon completion of the Work and delivery of the documents required
pursuant to the provisions of this Section 13.1, Lessor shall pay the
Retainage to Lessee or to those Persons entitled thereto and if there shall
be insurance proceeds or cash deposits, other than the Retainage, held by
Lessor in excess of the amounts disbursed pursuant to the foregoing
provisions, then provided that no Lease Default has occurred and is
continuing, nor any state of facts or circumstances which, with the giving
of notice and/or the passage of time would constitute a Lease Default,
Lessor shall pay over such proceeds or cash deposits to Lessee.
No inspections or any approvals of the Work during or after
construction shall constitute a warranty or representation by Lessor, or
any of its agents or Consultants, as to the technical sufficiency, adequacy
or safety of any structure or any of its component parts, including,
without limitation, any fixtures, equipment or furnishings, or as to the
subsoil conditions or any other physical condition or feature pertaining to
the Leased Property. All acts, including any failure to act, relating to
Lessor are performed solely for the benefit of Lessor to assure the payment
and performance of the Lease Obligations and are not for the benefit of
Lessee or the benefit of any other Person.
13.2 DISPOSITION OF INSURANCE PROCEEDS.
13.2.1 PROCEEDS TO BE RELEASED TO PAY FOR WORK. In the event of
any Casualty, except as provided for in Section 13.2.2, Lessor shall release
proceeds of property insurance held by it to pay for the Work in accordance
with the provisions and procedures set forth in this Article 13, only if:
(a) all of the terms, conditions and provisions of Sections
13.1 and 13.2.1 are satisfied;
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(b) Lessee demonstrates to Lessor's satisfaction that Lessee
has the financial ability to satisfy the Lease Obligations during such
repair or restoration; and
(c) no Sublease material to the operation of the Facility
immediately prior to such damage or taking shall have been cancelled
or terminated, nor contain any still exercisable right to cancel or
terminate, due to such Casualty if and to the extent that the income
from such Sublease is necessary in order to avoid the violation of any
of the financial covenants set forth in this Lease or otherwise to
avoid the creation of an Event of Default.
If a Fee Mortgagee prevents Lessor from releasing proceeds of property
insurance notwithstanding the satisfaction of the foregoing requirements,
Lessee shall have no obligation to restore the Casualty to which such
proceeds pertain.
13.2.2 PROCEEDS NOT TO BE RELEASED. If, as the result
of any Casualty, the Leased Property is damaged to the extent it is
rendered Unsuitable For Its Primary Intended Use and if either: (a) Lessee,
after exercise of diligent efforts, cannot within a reasonable time (not in
excess of ninety (90) days) obtain all necessary Permits in order to be
able to perform all required Work and to again operate the Facility for its
Primary Intended Use and, if applicable, the other Permitted Uses within
two hundred and seventy (270) days from the occurrence of the damage or
destruction in substantially the manner as immediately prior to such damage
or destruction or (b) such Casualty occurs during the last twenty-four (24)
months of the Term and would reasonably require more than nine (9) months
to obtain all Permits and complete the Work, then Lessee may either (i)
acquire the Leased Property from Lessor for a purchase price equal to the
greater of (x) the Meditrust Investment or (y) the Fair Market Value of the
Leased Property MINUS the Fair Market Added Value, with the Fair Market
Value and the Fair Market Added Value to be determined as of the day
immediately prior to such Casualty and prior to any other Casualty which
has not been fully repaired, restored or replaced, in which event, Lessee
shall be entitled upon payment of the full purchase price to receive all
property insurance proceeds (less any costs and expenses incurred by Lessor
in collecting the same), or (ii) terminate this Lease, in which event
(subject to the provisions of the last sentence of this Section 13.2.2)
Lessor shall be entitled to receive and retain the insurance proceeds;
PROVIDED, HOWEVER, that Lessee shall only have such right of termination
effective upon payment to Lessor of all Rent and
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other sums due under this Lease and the other Lease Documents through the
date of termination plus an amount, which when added to the sum of (1) the
Fair Market Value of the Leased Property as affected by all unrepaired or
unrestored damage due to any Casualty (and giving due regard for delays,
costs and expenses incident to completing all repair or restoration
required to fully repair or restore the same) PLUS (2) the amount of
insurance proceeds actually received by Lessor (net of costs and expenses
incurred by Lessor in collecting the same) equals (3) the greater of the
Meditrust Investment or the Fair Market Value of the Leased Property MINUS
the Fair Market Added Value, with the Fair Market Value and the Fair Market
Added Value to be determined as of the day immediately prior to such
Casualty and prior to any other Casualty which has not been fully repaired.
Any acquisition of the Leased Property pursuant to the terms of this
Section 13.2.2 shall be consummated in accordance with the provisions of
Article 18, MUTATIS, MUTANDIS. If such termination becomes effective,
Lessor shall assign to Lessee any outstanding insurance claims and, at
Lessee's expense, shall cooperate in Lessee's efforts to secure the same.
In the event this Lease is terminated pursuant to the provisions of this
Section 13.2.2 and the insurance proceeds received by Lessor in connection
therewith (net of costs and expenses incurred in obtaining such proceeds)
exceeds one hundred fifteen percent (115%) of the Fair Market Value of the
Leased Premises at the time of such termination, Lessor shall pay to Lessee
fifty percent (50%) of the amount of such excess.
13.3 TANGIBLE PERSONAL PROPERTY. All insurance proceeds payable by
reason of any loss of or damage to any of the Tangible Personal Property shall
be paid to Lessor as secured party, subject to the rights of the holders of
any Permitted Prior Security Interests, and, thereafter, provided that no Lease
Default, nor any fact or circumstance which with the giving of notice and/or the
passage of time could constitute a Lease Default, has occurred and is
continuing, Lessor shall pay such insurance proceeds to Lessee to reimburse
Lessee for the cost of repairing or replacing the damaged Tangible Personal
Property, subject to the terms and conditions set forth in the other provisions
of this Article 13, MUTATIS MUTANDIS.
13.4 RESTORATION OF CERTAIN IMPROVEMENTS AND THE TANGIBLE PERSONAL
PROPERTY. If Lessee is required or elects to restore the Facility, Lessee shall
either (a) restore (i) all alterations and improvements to the Leased Property
made by Lessee and (ii) the Tangible Personal Property or (b) replace such
alterations and improvements and the Tangible Personal Property with
improvements or items of the same or better quality and utility in the operation
of the Leased Property provided,
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however, that Lessee shall be obligated to so restore or replace the Tangible
Personal Property only to the extent desirable for the prudent operation of the
Facility in the good faith exercise of commercially reasonable business
judgment.
13.5 NO ABATEMENT OF RENT. In no event shall any Rent abate as a
result of any Casualty except as expressly provided in Section 3.7.
13.6 TERMINATION OF CERTAIN RIGHTS. Any termination of this Lease
pursuant to this Article 13 shall cause any right of Lessee to extend the Term
of this Lease granted to Lessee herein and any right of Lessee to purchase the
Leased Property contained in this Lease to be terminated and to be without
further force or effect.
1 13.7 WAIVER. Lessee hereby waives any statutory rights of termination
which may arise by reason of any damage or destruction to the Leased Property
due to any Casualty which Lessee is obligated to restore or may restore under
any of the provisions of this Lease.
13.8 APPLICATION OF RENT LOSS AND/OR BUSINESS INTERRUPTION INSURANCE.
Lessor shall direct all proceeds of rent loss and/or business interruption
insurance (collectively, "Rent Insurance Proceeds") to be paid to Lessee,
provided no fact or circumstance exists which constitutes, or with notice, or
passage of time, or both, would constitute, a Lease Default pertaining to the
Facility or the Leased Property. If a Lease Default or such fact or
circumstance exists, Lessor may rescind such direction and apply all such
insurance proceeds towards the Lease obligations pertaining to the Facility or
the Leased Property or hold such proceeds as security therefor.
13.9 OBLIGATION TO ACCOUNT. Upon Lessee's written request, which may
not be made not more than once in any three (3) month period, Lessor shall
provide Lessee with a written accounting of the application of all insurance
proceeds received by Lessor.
ARTICLE 14
CONDEMNATION
14.1 PARTIES' RIGHTS AND OBLIGATIONS. If during the Term there is any
Taking of all or any part of the Leased Property or any interest in this Lease,
the rights and obligations of the parties shall be determined by this Article
14.
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14.2 TOTAL TAKING. If there is a permanent Taking of all or
substantially all of the Leased Property, this Lease shall terminate on the Date
of Taking. In the event this Lease is terminated pursuant to the provisions of
this Section 14.2 and the Award received by Lessor in connection therewith (net
of costs and expenses incurred in obtaining such Award) exceeds one hundred
fifteen percent (115%) of the Fair Market Value of the Leased Premises at the
time of such termination, Lessor shall pay to Lessee fifty percent (50%) of the
amount of such excess.
14.3 PARTIAL OR TEMPORARY TAKING. If there is a Permanent Taking of a
portion of the Leased Property, or if there is a temporary Taking of all or a
portion of the Leased Property, this Lease shall remain in effect so long as the
Leased Property is not thereby rendered permanently Unsuitable For Its Primary
Intended Use or temporarily Unsuitable For Its Primary Intended Use for a period
not likely to, or which does not, exceed two hundred and seventy (270) days.
If, however, the Leased Property is thereby so rendered permanently or
temporarily Unsuitable For Its Primary Intended Use: (a) if only rendered
temporarily Unsuitable For Its Primary Intended Use, Lessee shall have the right
to restore the Leased Property, at its own expense (subject to the right under
certain circumstances as provided for in Section 14.5 to receive the net
proceeds of an Award for reimbursement), to the extent possible, to
substantially the same condition as existed immediately before the partial or
temporary Taking or (b) Lessee shall have the right to acquire the Leased
Property from Lessor (i) upon payment of all Rent due through the date that the
purchase price is paid, for a purchase price equal to the greater of (x) the
Meditrust Investment or (y) the Fair Market Value of the Leased Property MINUS
the Fair Market Added Value, with the Fair Market Value of the Leased Property
and the Fair Market Added Value to be determined as of the day immediately prior
to such partial or temporary Taking and (ii) in accordance with the terms and
conditions set forth in Article 18; in which event, this Lease shall terminate
upon payment of such purchase price and the consummation of such acquisition.
Notwithstanding the foregoing, Lessor may overrule Lessee's election under
clause (a) or (b) and instead either (1) terminate this Lease (with no
obligation on the part of Lessee to acquire the Leased Property as a result
thereof) as of the date when Lessee is required to surrender possession of the
portion of the Leased Property so taken if (X) such portion comprises more than
thirty percent (30%) of the Leased Property or of the residential building(s)
located thereon or (Y) possession thereof is to be surrendered within two years
of the expiration of the Term or (2) compel Lessee to keep the Lease in full
force and effect and to restore the Leased Property as provided in clause (a)
above, but only if the Leased Property may be operated for at least eighty
percent (80%) of the licensed unit capacity of the Facility in effect prior to
the Taking. Lessee shall exercise its election
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under this Section 14.3 by giving Lessor notice thereof ("Lessee's Election
Notice") within sixty (60) days after Lessee receives notice of the Taking.
Lessor shall exercise its option to overrule Lessee's election under this
Section 14.3 by giving Lessee notice of Lessor's exercise of its rights
under Section 14.3 within thirty (30) days after Lessor receives Lessee's
Election Notice. If, as the result of any such partial or temporary
Taking, this Lease is not terminated as provided above, Lessee shall be
entitled to an abatement of Rent, but only to the extent, if any, provided
for in Section 3.7, effective as of the date upon which the Leased Property
is rendered Unsuitable For Its Primary Intended Use.
14.4 RESTORATION. If there is a partial or temporary Taking of the
Leased Property and this Lease remains in full force and effect pursuant to
Section 14.3, Lessee shall accomplish all necessary restoration and Lessor shall
release the net proceeds of such Award to reimburse Lessee for the actual
reasonable costs and expenses thereof, subject to all of the conditions and
provisions set forth in Article 13 as though the Taking was a Casualty and the
Award was insurance proceeds. If the cost of the restoration exceeds the amount
of the Award (net of costs and expenses incurred in obtaining the Award), Lessee
shall be obligated to contribute any excess amount needed to restore the
Facility or pay for such costs and expenses. To the extent that the cost of
restoration is less than the amount of the Award (net of cost and expenses
incurred in obtaining the Award), the remainder of the Award shall be retained
by Lessor and Rent shall be abated as set forth in Section 3.7.
14.5 AWARD DISTRIBUTION. In the event Lessee completes the purchase
of the Leased Property, as described in Section 14.3, the entire Award shall,
upon payment of the purchase price and all Rent and other sums due under this
Lease and the other Lease Documents, belong to Lessee and Lessor agrees to
assign to Lessee all of Lessor's rights thereto or, to the extent Lessor has
received payment of the Award, the amount of such payment shall be credited
against the purchase price. In any other event, the entire Award (except for
such portion thereof which the Condemner designates as allocable to Lessee's
loss of business or Tangible Personal Property) shall belong to and be paid to
Lessor.
14.6 CONTROL OF PROCEEDINGS. Subject to the rights of any Fee
Mortgagee, unless and until Lessee completes the purchase of the Leased Property
as provided in Section 14.3, all proceedings involving any Taking and the
prosecution of claims arising out of any Taking against the Condemnor shall be
conducted, prosecuted and settled by Lessor; PROVIDED, HOWEVER, that Lessor
shall keep Lessee apprised of the progress of all such proceedings and shall
solicit Lessee's advice with respect
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thereto and shall give due consideration to any such advice. In addition,
Lessee shall reimburse Lessor (as an Additional Charge) for all costs and
expenses, including reasonable attorneys' fees, appraisal fees, fees of expert
witnesses and costs of litigation or dispute resolution, in relation to any
Taking, whether or not this Lease is terminated; PROVIDED, HOWEVER, if this
Lease is terminated as a result of a Taking, Lessee's obligation to so reimburse
Lessor shall be diminished by the amount of the Award, if any, received by
Lessor which is in excess of the Meditrust Investment.
ARTICLE 1-5
PERMITTED CONTESTS
15.1 LESSEE'S RIGHT TO CONTEST. To the extent of the express
references made to this Article 15 in other Sections of this Lease, Lessee, any
Sublessee or any Manager on their own or on Lessor's behalf (or in Lessor's
name), but at their sole cost and expense, may contest, by appropriate legal
proceedings conducted in good faith and with due diligence (until the resolution
thereof), the amount, validity or application, in whole or in part, of
any Imposition, Legal Requirement, the decision of any Governmental Authority
related to the operation of the Leased Property for its Primary Intended Use
and/or, if applicable, any of the Other Permitted Uses or any Lien or claim
relating to the Leased Property not otherwise permitted by this Agreement;
PROVIDED, THAT (a) prior written notice of such contest is given to Lessor, (b)
in the case of an unpaid Imposition, Lien or claim, the commencement and
continuation of such proceedings shall suspend the collection thereof from
Lessor and/or compliance by any applicable member of the Leasing Group with the
contested Legal Requirement or other matter may be legally delayed pending the
prosecution of any such proceeding without the occurrence or creation of any
Lien, charge or liability of any kind against the Leased Property, (c) neither
the Leased Property nor any rent therefrom would be in any immediate danger of
being sold, forfeited, attached or lost as a result of such proceeding, (d) in
the case of a Legal Requirement, neither Lessor nor any member of the Leasing
Group would be in any immediate danger of civil or criminal liability for
failure to comply therewith pending the outcome of such proceedings, (e) in the
event that any such contest shall involve a sum of money or potential loss in
excess of TWENTY FIVE THOUSAND DOLLARS ($25,000), Lessee shall deliver to Lessor
an Officer's Certificate and opinion of counsel, if Lessor deems the delivery of
an opinion to be appropriate, certifying or opining, as the case may be, as to
the validity of the statements set forth to the effect set forth in clauses (b),
(c) and (d), to the extent applicable, (f) Lessee shall give such cash security
as
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may be demanded in good faith by Lessor to insure ultimate payment of any fine,
penalty, interest or cost and to prevent any sale or forfeiture of the affected
portion of the Leased Property by reason of such non-payment or non-compliance,
(g) if such contest is finally resolved against Lessor or any member of the
Leasing Group, Lessee shall promptly pay, as Additional Charges due hereunder,
the amount required to be paid, together with all interest and penalties accrued
thereon and/or comply (and cause any Sublessee and any Manager to comply) with
the applicable Legal Requirement, and (h) no state of facts or circumstance
exists which constitutes, or with the passage of time and/or the giving of
notice, could constitute a Lease Default; PROVIDED, HOWEVER, but without
limiting any other right Lessee may have under the Lease Documents to contest
the payment of Rent, the provisions of this Article 15 shall not be construed to
permit Lessee to contest the payment of Rent or any other sums payable by Lessee
to Lessor under any of the Lease Documents. If such contest is finally resolved
in favor of Lessee, Lessee shall be entitled to any refund resulting therefrom.
15.2 LESSOR'S COOPERATION. Lessor, at Lessee's sole cost and expense,
shall execute and deliver to Lessee such authorizations and other documents as
may reasonably be required in any such contest, so long as the same does not
expose Lessor to any civil or criminal liability, and, if reasonably requested
by Lessee or if Lessor so desires, Lessor shall join as a party therein.
15.3 LESSEE'S INDEMNITY. Lessee, as more particularly provided for in
Section 12.2, shall indemnify, defend (with counsel acceptable to Lessor) and
save Lessor harmless against any liability, cost or expense of any kind,
including, without limitation, attorneys' fees and expenses that may be imposed
upon Lessor in connection with any such contest and any loss resulting therefrom
and in the enforcement of this indemnification.
ARTICLE 16
DEFAULT
16.1 EVENTS OF DEFAULT. Each of the following shall constitute an
"Event of Default" hereunder and shall entitle Lessor to exercise its remedies
hereunder and under any of the other Lease Documents:
(a) any failure of Lessee to pay any amount due hereunder or under
any of the other Lease Documents within ten (10) days following the date
when such payment was due;
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(b) any failure in the observance or performance of any other
covenant, term, condition or warranty provided in this Lease or any of the
other Lease Documents, other than the payment of any monetary obligation
and other than as specified in subsections (c) through (v) below (a
"Failure to Perform"), continuing for thirty (30) days after the giving of
notice by Lessor to Lessee specifying the nature of the Failure to Perform;
except as to matters not susceptible to cure within thirty (30) days,
provided that with respect to such matters, (i) Lessee commences the cure
thereof within thirty (30) days after the giving of such notice by Lessor
to Lessee, (ii) Lessee continuously prosecutes such cure to completion,
(iii) such cure is completed within one hundred twenty (120) days after the
giving of such notice by Lessor to Lessee and (iv) such Failure to Perform
does not impair the value of, or Lessor's rights with respect to, the
Leased Property or otherwise impair the Collateral or Lessor's security
interest therein;
(a) the occurrence of any default or breach of condition continuing
beyond the expiration of the applicable notice and grace periods, if any,
under any of the other Lease Documents, including, without limitation, the
Agreement Regarding Related Transactions;
(d) if any representation, warranty or statement contained herein or
in any of the other Lease Documents proves to be untrue in any material
respect as of the date when made or at any time during the Term if such
representation or warranty is a continuing representation or warranty
pursuant to Section 10.2;
(e) if any member of the Leasing Group shall (i) voluntarily be
adjudicated a bankrupt or insolvent, (ii) seek or consent to the appointment
of a receiver or trustee for itself or for the Leased Property, (iii) file
a petition seeking relief under the bankruptcy or other similar laws of the
United States, any state or any jurisdiction, (iv) make a general
assignment for the benefit of creditors, (v) make or offer a composition of
its debts with its creditors or (vi) be unable to pay its debts as such
debts mature;
(f) if any court shall enter an order, judgment or decree appointing,
without the consent of any member of the Leasing Group, a receiver or
trustee for such member or for any of its property and such order, judgment
or decree shall remain in force, undischarged or unstayed, ninety (90) days
after it is entered;
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(g) if a petition is filed against any member of the Leasing Group
which seeks relief under the bankruptcy or other similar laws of the United
States, any state or any other jurisdiction, and such petition is not
dismissed within ninety (90) days after it is filed;
(h) in the event that:
i. all or any portion of the interest of any partner, shareholder,
member in any member of the Leasing Group (other than Guarantor)
shall be, on any one or more occasions, directly or indirectly,
sold, assigned, hypothecated or otherwise transferred (whether by
operation of law or otherwise), if such member of the Leasing
Group shall be a partnership, joint venture, syndicate or other
group, without the prior written consent of Lessor, in each
instance, which consent may be withheld by Lessor in its
reasonable discretion with respect to a sale, assignment,
hypothecation or other transfer to a Meditrust/Emeritus
Transaction Affiliate and in all other cases, in its sole and
absolute discretion;
ii. the shares of the issued and outstanding capital stock of any
member of the Leasing Group (other than Guarantor) shall be, on
any one or more occasions, directly or indirectly, sold,
assigned, hypothecated or otherwise transferred (whether by
operation of law or otherwise), if such member of the Leasing
Group shall be a corporation, without the prior written consent
of Lessor, in each instance, which consent may be withheld by
Lessor in its reasonable discretion with respect to a sale,
assignment, hypothecation or other transfer to a
Meditrust/Emeritus Transaction Affiliate and in all other cases,
in its sole and absolute discretion; or
iii. all or any portion of the beneficial interest in any member of
the Leasing Group (other than Guarantor) shall be, directly or
indirectly, sold or otherwise transferred (whether by operation
of law or otherwise), if such member of the Leasing Group shall
be a trust, without the prior written consent of Lessor, in each
instance, which consent may be withheld by Lessor in its
reasonable discretion with respect to a sale, assignment,
hypothecation or
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other transfer to a Meditrust/Emeritus Transaction Affiliate and
in all other cases, in its sole and absolute discretion;
Notwithstanding the foregoing, no consent of Lessor to a pledge by Lessee
of its stock to the lender of a Working Capital Loan satisfying the
requirements of Section 6.1.3 shall be required (a "Working Capital Stock
Pledge").
(i) the death, incapacity, liquidation, dissolution or termination
of existence of any member of the Leasing Group or the merger or
consolidation of any member of the Leasing Group with any other Person
except as expressly permitted by the terms of this Lease Agreement;
(j) except as provided in Section 19.1 hereof, if, without the prior
written consent of Lessor, in each instance, which consent may be withheld
by Lessor in its sole and absolute discretion, Lessee's or any interest of
a Sublessee which is an Affiliate of Lessee in the Leased Property shall
be, directly or indirectly, mortgaged, encumbered (by any voluntary or
involuntary Lien other than the Permitted Encumbrances), subleased, sold,
assigned, hypothecated or otherwise transferred (whether by operation of
law or otherwise);
(k) the occurrence of a default or breach of condition continuing
beyond the expiration of the applicable notice and grace periods, if any,
in connection with the payment or performance of any other material
obligation of Lessee or any Sublessee which is an Affiliate of Lessee, if
the applicable creditor or obligee elects to declare the obligations of
Lessee or the applicable Sublessee under the applicable agreement due and
payable or to exercise any other right or remedy available to such creditor
or obligee, or, whether or not such creditor or obligee has so elected or
exercised, such creditor's or obligee's rights and remedies, if exercised,
may involve or result in the taking of possession of, or the creation of a
Lien on, the Leased Property; PROVIDED, HOWEVER, that in any event, the
election by the applicable creditor or obligee to declare the obligations
of Lessee under the applicable agreement due and payable or to exercise any
other right or remedy available to such creditor or obligee shall be an
Event of Default hereunder only if such obligations, individually or in the
aggregate, are in excess of TWO HUNDRED FIFTY THOUSAND DOLLARS ($25O,000);
(1) the occurrence of a Related Party Default;
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(m) the occurrence of any default or breach of condition which is not
cured within any applicable cure period under a Working Capital Loan
secured by a Working Capital Stock Pledge (or any documents executed in
connection therewith) or the exercise of any ownership rights by the lender
of a Working Capital Loan secured by a Working Capital Stock Pledge;
(n) except as a result of Casualty or a partial or complete
Condemnation (including a temporary taking), if Lessee or any Sublessee
ceases operation of the Facility for a period in excess of thirty (30) days
(a "Failure to Operate");
(o) if one or more judgments against Lessee or any Sublessee which is
an Affiliate of Lessee or attachments against Lessee's interest or any such
Sublessee's interest in the Leased Property, which in the aggregate exceed
TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) or which may materially and
adversely interfere with the operation of the Facility, remain unpaid,
unstayed on appeal, undischarged, unbonded or undismissed for a period of
thirty (30) days;
(p) if any malpractice award or judgment exceeding any applicable
professional liability insurance coverage by more than FIVE HUNDRED
THOUSAND DOLLARS ($500,000) shall be rendered against any member of the
Leasing Group and either (i) enforcement proceedings shall have been
commenced by any creditor upon such award or judgment or (ii) such award or
judgment shall continue unsatisfied and in effect for a period of ten (10)
consecutive days without an insurance company satisfactory to Lessor (in
its sole and absolute discretion) having agreed to fund such award or
judgment in a manner satisfactory to Lessor (in its sole and absolute
discretion) and in either case such award or judgment shall, in the
reasonable opinion of Lessor, have a material adverse affect on the ability
of Lessee or any Sublessee to operate the Facility;
(q) if any Provider Agreement material to the operation or financial
condition of the Leased Property shall be terminated prior to the
expiration of the term thereof or, without the prior written consent of
Lessor, in each instance, which consent may be withheld in Lessor's
reasonable discretion, shall not be renewed or extended upon the expiration
of the stated term thereof;
(r) if, after Lessee or any Sublessee has obtained approval for
Medicare and/or Medicaid funding, a final unappealable determination is
made by the applicable Governmental Authority that Lessee or any Sublessee
shall
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have failed to comply with applicable Medicare and/or Medicaid regulations
in the operation of the Facility, as a result of which failure Lessee or
such Sublessee is declared ineligible to continue its participation in the
Medicare and/or Medicaid programs and such determination could reasonably
be expected to have a material adverse effect on the operation or financial
condition of the Leased Property;
(s) if any member of the Leasing Group receives notice of a final
unappealable determination by applicable Governmental Authorities of the
revocation of any Permit required for the lawful construction or operation
of the Facility in accordance with the Primary Intended Use and, if
applicable, the Other Permitted Uses or the loss of any Permit under any
other circumstances under which any member of the Leasing Group is required
to permanently cease the construction or operation of the Facility in
accordance with the Primary Intended Use and the Other Permitted Uses; and
(t) any failure to maintain the insurance required pursuant to
Section 13 of this Lease in force and effect at all times until the Lease
Obligations are fully paid and performed;
(u) the appointment of a temporary manager (or operator) for the
Leased Property by any Governmental Authority;
(v) the entry of an order by a court with jurisdiction over the
Leased Property to close the Facility, to transfer one or more residents
the Facility as a result of an allegation of abuse or neglect or to take
any action to eliminate an emergency situation then existing at the
Facility, if such order has not been stayed pending appeal within ten (10)
following such entry; or
(w) the occurrence of any default or breach of condition continuing
for more than thirty (30) days under any credit agreement, loan agreement
or other agreement establishing a major line of credit (including, without
limitation, a major line of credit or a Working Capital Loan which is not
secured by a Working Capital Stock Pledge)(or any documents executed in
connection with such lines of credit) on behalf of Guarantor without regard
to whether the applicable creditor has elected to declare the indebtedness
due and payable under such line of credit or to exercise any other right or
remedy available to it or the occurrence of any such default or breach of
condition if the applicable creditor has elected to declare the
indebtedness due and payable under such line of credit or to exercise any
other right or remedy available to it. For the purpose of this
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provision, a major line of credit shall mean and include any line of credit
established in an amount equal to or greater than ONE MILLION DOLLARS
($1,000,000) with respect to a line of credit for which Guarantor is an
obligor, endorser, surety or guarantor.
16.2 REMEDIES.
(a) If any Lease Default shall have occurred, Lessor may at its option
terminate this Lease by giving Lessee not less than ten (10) days' notice of
such termination, or exercise any one or more of its rights and remedies under
this Lease or any of the other Lease Documents, or as available at law or in
equity and upon the expiration of the time fixed in such notice, the Term shall
terminate (but only if Lessor shall have specifically elected by a written
notice to so terminate the Lease) and all rights of Lessee under this Lease
shall cease. Notwithstanding the foregoing, in the event of Lessee's failure to
pay Rent, if such Rent remains unpaid beyond ten (10) days from the due date
thereof, Lessor shall not be obligated to give ten (10) days notice of such
termination or exercise of any of its other rights and remedies under this
Lease, or the other Lease Documents, or otherwise available at law or in equity,
and Lessor shall be at liberty to pursue any one or more of such rights or
remedies without further notice. No taking of possession of the Leased Property
by or on behalf of Lessor, and no other act done by or on behalf of Lessor,
shall constitute an acceptance of surrender of the Leased Property by Lessee or
reduce Lessee's obligations under this Lease or the other Lease Documents,
unless otherwise expressly agreed to in a written document signed by an
authorized officer or agent of Lessor.
(b) To the extent permitted under applicable law, Lessee shall pay as
Additional Charges all costs and expenses (including, without limitation,
attorneys' fee and expenses) reasonably incurred by or on behalf of Lessor as a
result of any Lease Default.
(c) If any Lease Default shall have occurred, whether or not this Lease
has been terminated pursuant to Paragraph (a) of this Section, Lessee shall, to
the extent permitted under applicable law, if required by Lessor so to do, upon
not less than ten (10) days' prior notice from Lessor, immediately surrender to
Lessor the Leased Property pursuant to the provisions of Paragraph (a) of this
Section and quit the same, and Lessor may enter upon and repossess the Leased
Property by reasonable force, summary proceedings, ejectment or otherwise, and
may remove Lessee and all other Persons and any and all of the Tangible Personal
Property from the Leased Property, subject to the rights of any residents of the
Facility and any Sublessees who are not Affiliates of any member of the Leasing
Group and to
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any requirements of applicable law, or Lessor may claim ownership of the
Tangible Personal Property as set forth in Section 5.2.3 hereof or Lessor may
exercise its rights as secured party under the Security Agreement. Lessor shall
use reasonable, good faith efforts to relet the Leased Property or otherwise
mitigate damages suffered by Lessor as a result of Lessee's breach of this
Lease.
(d) In addition to all of the rights and remedies of Lessor set forth
in this Lease and the other Lease Documents, if Lessee shall fail to pay any
rental or other charge due hereunder (whether denominated as Base Rent,
Additional Rent, Additional Charges or otherwise) within ten (10) days after
same shall have become due and payable, then and in such event Lessee shall also
pay to Lessor (i) a late payment service charge (in order to partially defray
Lessor's administrative and other overhead expenses) equal to TWO HUNDRED FIFTY
DOLLARS ($250) and (ii) to the extent permitted by applicable law, interest on
such unpaid sum at the Overdue Rate; it being understood, however, that nothing
herein shall be deemed to extend the due date for payment of any sums required
to be paid by Lessee hereunder or to relieve Lessee of its obligation to pay
such sums at the time or times required by this Lease.
16.3 DAMAGES. None of (a) the termination of this Lease pursuant to
Section 16.2, (b) the eviction of Lessee or the repossession of the Leased
Property, (c) the inability after reasonable diligence of Lessor,
notwithstanding reasonable good faith efforts, to relet the Leased Property, (d)
the reletting of the Leased Property or (e) the failure of Lessor to collect or
receive any rentals due upon any such reletting, shall relieve Lessee of its
liability and obligations hereunder, all of which shall survive any such
termination, repossession or reletting. In any such event, Lessee shall
forthwith pay to Lessor all Rent due and payable with respect to the Leased
Property to and including the date of such termination, repossession or
eviction. Thereafter, Lessee shall forthwith pay to Lessor, at Lessor's option,
either:
(i) the sum of: (x) all Rent that is due and unpaid at later to occur
of termination, repossession or eviction, together with interest
thereon at the Overdue Rate to the date of payment, PLUS (y) the
worth (calculated in the manner stated below) of the amount by
which the unpaid Rent for the balance of the Term after the later
to occur of the termination, repossession or eviction exceeds the
fair market rental value of the Leased Property for the balance
of the Term, PLUS (z) any other amount necessary to compensate
Lessor for all damage proximately caused by Lessee's failure to
perform the Lease Obligations or which in
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the ordinary course would be likely to result therefrom and LESS
the amount of rent that has actually been received by Lessor
following the termination of this Lease from a Person other than
an Affiliate of Lessor (which for purposes hereof shall include
the net income received by Lessor or an Affiliate of Lessor from
its own operation of the Leased Property in the event it elects
to resume operation thereof in lieu of hiring a third party
manager or re-letting the Leased Property); or
(ii) each payment of Rent as the same would have become due and
payable if Lessee's right of possession or other rights under
this Lease had not been terminated or if Lessee had not been
evicted, or if the Leased Property had not been repossessed which
Rent, to the extent permitted by law, shall bear interest at the
Overdue Rate from the date when due until the date paid, and
Lessor may enforce, by action or otherwise, any other term or
covenant of this Lease. There shall be credited against Lessee's
obligation under this Clause (ii) amounts actually collected by
Lessor from another tenant to whom the Leased Property may have
actually been leased or, if Lessor is operating the Leased
Property for its own account, the actual Cash Flow of the Leased
Property.
In making the determinations described in subparagraph (i) above, the
"worth" of unpaid Rent shall be determined by a court having jurisdiction
thereof using the lowest rate of capitalization (highest present worth)
reasonably applicable at the time of such determination and allowed by
applicable law and the Additional Rent shall be deemed to be the same as the
average Additional Rent of the preceding five (5) full calendar years, or if
shorter, the average Additional Rent for the calendar years or portions thereof
since the date that Additional Rent commenced to accrue or such other amount as
either party shall prove reasonably could have been earned during the remainder
of the Term or any portion thereof.
16.4 LESSEE WAIVERS. If this Lease is terminated pursuant to Section
16.2, Lessee waives, to the extent not prohibited by applicable law, (a) any
right of redemption, re-entry or repossession, (b) any right to a trial by jury
in the event of summary proceedings to enforce the remedies set forth in this
Article 16, and (c) the benefit of any laws now or hereafter in force exempting
property from liability for rent or for debt.
16.5 APPLICATION OF FUNDS. Any payments otherwise payable to Lessee
which are received by Lessor under any of the provisions of this Lease during
the existence or continuance of
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any Lease Default shall be applied to the Lease Obligations in the order which
Lessor may reasonably determine or as may be required by the laws of the State.
16.6 FAILURE TO CONDUCT BUSINESS. For the purpose of determining
rental loss damages or Additional Rent, in the event Lessee fails to conduct
business upon the Leased Property, exact damages or the amount of Additional
Rent being unascertainable, it shall be deemed that the Additional Rent for such
period would be equal to the average annual Additional Rent during the five (5)
preceding calendar years or such shorter period of time as may have existed
between the date Additional Rent commenced to accrue and the date of
computation.
16.7 LESSOR'S RIGHT TO CURE. If Lessee shall fail to make any
payment, or to perform any act required to be made or performed under this Lease
and to cure the same within the relevant time periods provided in Section 16.1,
Lessor, after five (5) Business Days' prior notice to Lessee (except in an
emergency when such shorter notice shall be given as is reasonable under the
circumstances), and without waiving or releasing any obligation or Event of
Default, may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of Lessee,
and may, to the extent permitted by law, enter upon the Leased Property for such
purpose and take all such action thereon as, in Lessor's opinion, may be
necessary or appropriate therefor. No such entry shall be deemed an eviction of
Lessee. All sums so paid by Lessor and all costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses, in each case, to
the extent permitted by law) so incurred shall be paid by Lessee to Lessor on
demand as an Additional Charge. The obligations of Lessee and rights of Lessor
contained in this Article shall survive the expiration or earlier termination of
this Lease.
16.8 NO WAIVER BY LESSOR. Lessor shall not by any act, delay,
omission or otherwise (including, without limitation, the exercise of any right
or remedy hereunder) be deemed to have waived any of its rights or remedies
hereunder or under any of the other Lease Documents unless such waiver is in
writing and signed by Lessor, and then, only to the extent specifically set
forth therein. No waiver at any time of any of the terms, conditions,
covenants, representations or warranties set forth in any of the Lease Documents
(including, without limitation, any of the time periods set forth therein for
the performance of the Lease Obligations) shall be construed as a waiver of any
other term, condition, covenant, representation or warranty of any of the Lease
Documents, nor shall such a waiver in any one instance or circumstances be
construed as a waiver of the same term, condition, covenant, representation or
warranty in any subsequent
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instance or circumstance. No such failure, delay or waiver shall be construed
as creating a requirement that Lessor must thereafter, as a result of such
failure, delay or waiver, give notice to Lessee or any Guarantor, or any other
Person that Lessor does not intend to, or may not, give a further waiver or to
refrain from insisting upon the strict performance of the terms, conditions,
covenants, representations and warranties set forth in the Lease Documents
before Lessor can exercise any of its rights or remedies under any of the Lease
Documents or before any Lease Default can occur, or as establishing a course of
dealing for interpreting the conduct of and agreements between Lessor and
Lessee, the Guarantor or any other Person.
The acceptance by Lessor of any payment that is less than payment in full
of all amounts then due under any of the Lease Documents at the time of the
making of such payment shall not: (a) constitute a waiver of the right to
exercise any of Lessor's remedies at that time or at any subsequent time, (b)
constitute an accord and satisfaction or (c) nullify any prior exercise of any
remedy, without the express written consent of Lessor. Any failure by Lessor to
take any action under this Lease or any of the other Lease Documents by reason
of a default hereunder or thereunder, acceptance of a past due installment, or
indulgences granted from time to time shall not be construed as a novation of
this Lease or any of the other Lease Documents or as a waiver of such right or
of the right of Lessor thereafter to insist upon strict compliance with the
terms of this Lease or any of the other Lease Documents, or (d) prevent the
exercise of such right of acceleration or any other right granted hereunder or
under applicable law for purposes of obtaining the damages set forth in Section
16.3, specific performance or equitable remedies; and to the maximum extent not
prohibited by applicable law, Lessee hereby expressly waives the benefit of any
statute or rule of law or equity now provided, or which may hereafter be
provided, which would produce a result contrary to or in conflict with the
foregoing.
16.9 RIGHT OF FORBEARANCE. Whether or not for consideration paid or
payable to Lessor and, except as may be otherwise specifically agreed to by
Lessor in writing, no forbearance on the part of Lessor, no extension of the
time for the payment of the whole or any part of the Obligations, and no other
indulgence given by Lessor to Lessee or any other Person, shall operate to
release or in any manner affect the original liability of Lessee or such other
Persons, or to limit, prejudice or impair any right of Lessor, including,
without limitation, the right to realize upon any collateral, or any part
thereof, for any of the Obligations evidenced or secured by the Lease Documents;
notice of any such extension, forbearance or indulgence being hereby waived by
Lessee and all those claiming by, through or under Lessee.
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16.10 CUMULATIVE REMEDIES. The rights and remedies set forth under
this Lease are in addition to all other rights and remedies afforded to Lessor
under any of the other Lease Documents or at law or in equity, all of which are
hereby reserved by Lessor, and this Lease is made and accepted without prejudice
to any such rights and remedies. All of the rights and remedies of Lessor under
each of the Lease Documents shall be separate and cumulative and may be
exercised concurrently or successively in Lessor's sole and absolute discretion.
ARTICLE 17
SURRENDER OF LEASED PROPERTY OR LEASE; HOLDING OVER
17.1 SURRENDER. Lessee shall, upon the expiration or prior
termination of the Term (unless occasioned by Lessee's purchase of the Leased
Property pursuant to the terms of this Lease Agreement), vacate and surrender
the Leased Property to Lessor in good repair and condition, in compliance with
all applicable Legal Requirements, all Insurance Requirements, and in compliance
with the provisions of Article 8, except for: (a) ordinary wear and tear
(subject to the obligation of Lessee to maintain the Leased Property in good
order and repair during the entire Term of the Lease), (b) damage caused by the
gross negligence or willful acts of Lessor, and (c) any damage or destruction
resulting from a Casualty or Taking that Lessee is not required by the terms of
this Lease to repair or restore.
17.2 TRANSFER OF CONTRACTS AND PERMITS. In connection with the
expiration or any earlier termination of this Lease (unless occasioned by
Lessee's purchase of the Leased Property pursuant to the terms of this Lease
Agreement), upon any request made from time to time by Lessor, Lessee shall (a)
promptly and diligently use its best efforts to (i) transfer and assign all
Permits and Contracts necessary or desirable for the operation of the Leased
Property in accordance with its Primary Intended Use to Lessor or its designee
to the extent the same are assignable under applicable Legal Requirements and/or
(ii) arrange for the transfer or assignment of such Permits and Contracts to
Lessor or its designee and (b) cooperate in every respect (and to the fullest
extent possible) and assist Lessor or its designee in obtaining such Permits and
Contracts (whether by transfer, assignment or otherwise) provided, however, that
unless a termination is the result of a Lease Default, Casualty or Condemnation,
Lessee's efforts and cooperation shall not require Lessee to pay the costs and
expenses incurred by Lessor or Lessor's designated transferee of the Contracts
and Permits. Such efforts and cooperation on the part of Lessee shall include,
without limitation, the execution, delivery and filing with appropriate
Governmental Authorities and Third Party Payors of
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any applications, petitions, statements, notices, requests, assignments and
other documents or instruments requested by Lessor. Furthermore, Lessee shall
not take any action or refrain from taking any action which would defer, delay
or jeopardize the process of Lessor or its designee obtaining said Permits and
Contracts (whether by transfer, assignment or otherwise). Without limiting the
foregoing, Lessee shall not seek to transfer or relocate any of said Permits or
Contracts to any location other than the Leased Property. The provisions of
this Section 17.2 shall survive the expiration or earlier termination of this
Lease.
Lessee hereby appoints Lessor as its attorney-in-fact, with full power of
substitution to take such actions, in the event that Lessee fails to comply with
any request made by Lessor hereunder, as Lessor (in its sole absolute
discretion) may deem necessary or desirable to effectuate the intent of this
Section 17.2. The power of attorney conferred on Lessor by the provisions of
this Section 17.2, being coupled with an interest, shall be irrevocable until
the Obligations are fully paid and performed and shall not be affected by any
disability or incapacity which Lessee may suffer and shall survive the same.
Such power of attorney is provided solely to protect the interests of Lessor and
shall not impose any duty on the Lender to exercise any such power and neither
Lessor nor such attorney-in-fact shall be liable for any act, omission, error in
judgment or mistake of law, except as the same may result from its gross
negligence or willful misconduct.
17.3 NO ACCEPTANCE OF SURRENDER. Except at the expiration of the Term
in the ordinary course, no surrender to Lessor of this Lease or of the Leased
Property or any interest therein shall be valid or effective unless agreed to
and accepted in writing by Lessor and no act by Lessor or any representative or
agent of Lessor, other than such a written acceptance by Lessor, shall
constitute an acceptance of any such surrender.
17.4 HOLDING OVER. If, for any reason, Lessee shall remain in
possession of the Leased Property after the expiration or any earlier
termination of the Term, such possession shall be as a tenant at sufferance
during which time Lessee shall pay as rental each month, one and one-half times
the aggregate of (i) one-twelfth of the aggregate Base Rent, and Additional Rent
payable at the time of such expiration or earlier termination of the Term; (ii)
all Additional Charges accruing during the month and (iii) all other sums, if
any, payable by Lessee pursuant to the provisions of this Lease with respect to
the Leased Property. During such period of tenancy, Lessee shall be obligated to
perform and observe all of the terms, covenants and conditions of this Lease,
but shall have no rights hereunder other than the right, to the extent given by
law to tenants at sufferance, to
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continue its occupancy and use of the Leased Property. Nothing contained herein
shall constitute the consent, express or implied, of Lessor to the holding over
of Lessee after the expiration or earlier termination of this Lease.
ARTICLE I8
PURCHASE OF THE LEASED PROPERTY
18.1 PURCHASE OF THE LEASED PROPERTY. In the event Lessee purchases
the Leased Property from Lessor pursuant to any of the terms of this Lease,
Lessor shall, upon receipt from Lessee of the applicable purchase price,
together with full payment of any unpaid Rent due and payable with respect to
any period ending on or before the date of the purchase, deliver to Lessee a
deed with covenants only against acts of Lessor conveying the entire interest of
Lessor in and to the Leased Property to Lessee subject to all applicable Legal
Requirements, all of the matters described in clauses (a), (b), (e) and (g) of
Section 11.5.2, Impositions, any Liens created by Lessee, any Liens created in
accordance with the terms of this Lease (except to the extent specifically
excluded by the terms hereof) or consented to by Lessee, the claims of all
Persons claiming by, through or under Lessee, any other matters assented to by
Lessee and all matters for which Lessee has responsibility under any of the
Lease Documents, but otherwise not subject to any other Lien created by Lessor
from and after the Commencement Date (other than an Encumbrance permitted under
Article 20 which Lessee elects to assume). The applicable purchase price shall
be paid in cash to Lessor, or as Lessor may direct, in federal or other
immediately available funds except as otherwise mutually agreed by Lessor and
Lessee. All expenses of such conveyance, including, without limitation, the
cost of title examination or standard or extended coverage title insurance,
attorneys' fees incurred by Lessor in connection with such conveyance, recording
and transfer taxes and recording fees and similar charges and specifically
excluding any prepayment penalties, if any, due Lessor's mortgagee, shall be
paid by Lessee.
18.2 APPRAISAL.
18.2.1 DESIGNATION OF APPRAISERS. In the event that it becomes
necessary to determine the Fair Market Value of the Leased Property for any
purpose of this Lease, the party required or permitted to give notice of
such required determination shall include in the notice the name of a
Person selected to act as appraiser on its behalf. Within ten (10) days
after receipt of any such notice, Lessor (or Lessee, as the case may be)
shall by notice to Lessee (or Lessor, as the case may be) either accept
such Person to be
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the sole appraiser to determine the Fair Market Value of the Leased
Property or appoint a second Person as appraiser on its behalf.
18.2.2 APPRAISAL PROCESS. The appraisers thus appointed, each
of whom must be a member of the American Institute of Real Estate
Appraisers (or any successor organization thereto), shall, within forty-five
(45) days after the date of the notice appointing the first appraiser,
proceed to appraise the Leased Property to determine the Fair Market Value
of the Leased Property as of the relevant date (giving effect to the
impact, if any, of inflation from the date of their decision to the
relevant date); provided, however, that if only one appraiser shall have
been so appointed, or if two appraisers shall have been so appointed but
only one such appraiser shall have made such determination within fifty
(50) days after the making of Lessee's or Lessor's request, then the
determination of such appraiser shall be final and binding upon the
parties. If two appraisers shall have been appointed and shall have made
their determinations within the respective requisite periods set forth
above and if the difference between the amounts so determined shall not
exceed ten per cent (10%) of the lesser of such amounts, then the Fair
Market Value of the Leased Property shall be an amount equal to fifty
percent (50%) of the sum of the amounts so determined. If the difference
between the amounts so determined shall exceed ten percent (10%) of the
lesser of such amounts, then such two appraisers shall have twenty (20)
days to appoint a third appraiser, but if such appraisers fail to do so,
then either party may request the American Arbitration Association or any
successor organization thereto to appoint an appraiser within twenty (20)
days of such request, and both parties shall be bound by any appointment so
made within such twenty (20) day period. If no such appraiser shall have
been appointed within such twenty (20) days or within ninety (90) days of
the original request for a determination of Fair Market Value of the Leased
Property, whichever is earlier, either Lessor or Lessee may apply to any
court having jurisdiction to have such appointment made by such court. Any
appraiser appointed by the original appraisers, by the American Arbitration
Association or by such court shall be instructed to determine the Fair
Market Value of the Leased Property within thirty (30) days after
appointment of such Appraiser. The determination of the appraiser which
differs most in terms of dollar amount from the determinations of the other
two appraisers shall be excluded, and fifty percent (50%) of the sum of the
remaining two determinations shall be final and binding upon Lessor and
Lessee as the Fair Market Value of the Leased Property.
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18.2.3 SPECIFIC ENFORCEMENT AND COSTS. This provision for
determination by appraisal shall be specifically enforceable to the extent
such remedy is available under applicable law, and any determination
hereunder shall be final and binding upon the parties except as otherwise
provided by applicable law. Lessor and Lessee shall each pay the fees and
expenses of the appraiser appointed by it and each shall pay one-half of
the fees and expenses of the third appraiser and one-half of all other cost
and expenses incurred in connection with each appraisal.
18.3 LESSEE'S OPTION TO PURCHASE.
18.3.1 CONDITIONS TO OPTION. On the conditions (which conditions
Lessor may waive, at its sole option, by notice to Lessee at any time) that
(a) at the time of exercise of the Purchase Option and on the applicable
Purchase Option Date, there then exists no Lease Default, nor any state of
facts or circumstance which constitutes, or with the passage of time and/or
the giving of notice, would constitute a Lease Default and (b) Lessee
strictly complies with the provisions of this Section 18.3, then Lessee
shall have the option to purchase the Leased Property, at the price and
upon the terms hereinafter set forth (the "Purchase Option").
18.3.2 EXERCISE OF OPTION; DEPOSIT. Such Purchase Option shall
permit Lessee to purchase the Leased Property (a) on the last day of the
Initial Term or (b) on the last day of any Extended Term effectively
exercised by Lessee (each of such dates are referred to herein as a
"Purchase Option Date") and shall be exercised by notice given by Lessee to
Lessor (the "Lessee's Purchase Option Notice") at least one hundred eighty
(180) days (but not more than three hundred sixty (360) days) prior to the
relevant Purchase Option Date. Notwithstanding anything to the contrary
set forth in this Lease, Lessee's right to purchase the Leased Property is
subject to the further conditions that (i) concurrently with the exercise
of the option set forth under this Section 18.3, the Lessee shall have
exercised its right to purchase the premises demised under each of the
Related Leases in accordance with the provisions of Section 18.3 of each of
the Related Leases, (ii) the conveyance of the Leased Property pursuant to
the provisions of this Section 18.3 shall occur simultaneously with the
conveyance of the premises demised under each of the Related Leases
pursuant to Section 18.3 of each of the Related Leases and (iii) all
conditions contained in the Agreement Regarding Related Transactions
pertaining to the Purchase Option are satisfied. Lessee shall have no
right to rescind Lessee's
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Purchase Option Notice once given unless (a) a notice of such rescission is
given (i) within ten (10) days following receipt of the final determination
of the Fair Market Value of the Leased Property or (ii) within thirty (30)
days following an event of Casualty or Condemnation as to which Lessee has
waived any right of termination set forth in Section 13.2.2 hereof and (b)
simultaneously with such notice of rescission, Lessee, by notice given
pursuant to Section 1.3 hereof extends the Term.
18.3.3 CONVEYANCE. If the Purchase Option is exercised by
Lessee in accordance with the terms hereof, the Leased Property shall be
conveyed by a good and sufficient deed with covenants only against acts of
Lessor (the "Deed") running to Lessee or to such grantee as Lessee may
designate by notice to Lessor at least seven (7) days before the Time of
Closing.
18.3.4 CALCULATION OF PURCHASE PRICE. The price to be paid by
Lessee for the acquisition of the Leased Property pursuant to this Purchase
Option (the "Purchase Price") shall be equal to the greater of (a) the
Meditrust Investment or (b) an amount equal to the then Fair Market Value
of the Leased Property minus the Fair Market Added Value, subject to the
terms of the Agreement Regarding Related Transactions.
18.3.5 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be
paid by Lessee at the Time of Closing by certified, cashier's, treasurer's
or bank check(s) or wire transfer pursuant to instructions received from
Lessor in accordance with the terms of the Agreement Regarding Related
Transactions as reduced by the principal balance of any Fee Mortgage which
Lessee has elected to, and has the right to, assume in accordance with the
terms hereof.
18.3.6 PLACE AND TIME OF CLOSING. If this Purchase Option is
exercised, the closing shall occur and the Deed shall be delivered (the
"Closing") at the office of Lessor at 12:00 o'clock noon (E.S.T.) on the
applicable Purchase Option Date (such time, as the same may be extended by
mutual written agreement of Lessor and Lessee, being hereinafter referred
to as the "Time of Closing") in accordance with the terms of the Agreement
Regarding Related Transactions. It is agreed that time is of the essence
of this Purchase Option.
18.3.7 CONDITION OF LEASED PROPERTY. The Leased Property is to
be purchased "AS IS" and "WHERE IS" as of the Time of Closing.
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18.3.8 QUALITY OF TITLE. If Lessor shall be unable to give
title or to make conveyance, as stipulated in this Section 18.3, then, at
Lessor's option, Lessor shall use reasonable efforts to remove all defects
in title and the applicable Purchase Option Date and Time of Closing shall
be extended for period of thirty (30) days other than with respect to any
Encumbrances which Lessor has caused to exist. Lessor shall not be
required to expend more than FIFTY THOUSAND DOLLARS ($50,000) (inclusive of
attorney's fees) in order to have used "reasonable efforts."
18.3.9 LESSOR'S INABILITY TO PERFORM. If at the expiration of
the extended time Lessor shall have failed so to remove any such defects in
title, then all other obligations of all parties hereto under Section 18.3
shall cease and Section 18.3 shall be void and without recourse to the
parties hereto. Notwithstanding the foregoing, Lessee shall have the
election, at either the original or extended Purchase Option Date and Time
of Closing, to accept such title as Lessor can deliver to the Leased
Property in its then condition and to pay therefor the Purchase Price
without reduction, in which case Lessor shall convey such title; PROVIDED,
THAT, in the event of such conveyance, if any portion of the Leased
Property shall have been taken by Condemnation prior to the applicable
Purchase Option Date and Time of Closing, Lessor shall pay over or assign
to Lessee at the Time of Closing, all Awards recovered on account of such
Taking, less any amounts reasonably expended by Lessor in obtaining such
Award and less any amounts expended for restoration pursuant to the
provisions of Article 14 hereof, or, to the extent such Awards have not
been recovered as of the applicable Purchase Option Date and Time of
Closing, Lessor shall assign to Lessee all its rights with respect to any
claim therefor and FURTHER PROVIDED, THAT, in the event of such conveyance,
if any portion of the Leased Property shall have suffered a Casualty prior
to the applicable Purchase Option Date and Time of Closing, Lessor shall
pay over or assign to Lessee at the Time of Closing, all insurance proceeds
recovered on account of such Casualty, less any amounts reasonably expended
by Lessor in obtaining such proceeds and less any amounts expended for
restoration pursuant to the provisions of Article 13 hereof, or, to the
extent such proceeds have not been recovered as of the applicable Purchase
Option Date and Time of Closing, Lessor shall assign to Lessee all its
rights with respect to any claim therefor.
18.3.10 MERGER BY DEED. The acceptance of the Deed by Lessee or
the grantee designated by Lessee, as the case may be, shall be deemed to be
a full performance and
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discharge of every agreement and obligation to be performed by Lessor
contained or expressed in this Lease.
18.3.11 USE OF PURCHASE PRICE TO CLEAR TITLE. To enable Lessor
to make conveyance as provided in this Section, Lessor may, at the Time of
Closing, use the Purchase Price or any portion thereof to clear the title
of any Lien, provided that all instruments so procured are recorded
contemporaneously with the Closing or reasonable arrangements are made for
a recording subsequent to the Time of Closing in accordance with customary
conveyancing practices.
18.3.12 LESSEE'S DEFAULT. If Lessee delivers Lessee's Purchase
Option Notice and fails to consummate the purchase of the Leased Property
in accordance with the terms hereof for any reason other than Lessor's
willful and unexcused refusal to deliver the Deed or exercise of the right
of rescission in Section 18.3.2 hereof, (a) Lessee shall thereafter have no
further right to purchase the Leased Property pursuant to this Section,
although this Lease shall otherwise continue in full force and effect and
(b) Lessor shall have the right to sue for specific performance of Lessee's
obligations to purchase the Leased Property provided such suit for specific
performance is commenced within one (1) year after the applicable Purchase
Option Date on which such sale was supposed to occur.
ARTICLE 19
SUBLETTING AND ASSIGNMENT
19.1 SUBLETTING AND ASSIGNMENT. Lessee may not, without the prior
written consent of Lessor, which consent may be withheld in Lessor's sole and
absolute discretion, assign or pledge all or any portion of its interest in this
Lease or any of the other Lease Documents (whether by operation of law or
otherwise) or sublet all or any part of the Leased Property. For purposes of
this Section 19.1, the term "assign" shall be deemed to include, but not be
limited to, any one or more sales, pledges, hypothecations or other transfers
(including, without limitation, any transfer by operation of law) of any of the
capital stock of or partnership interest in Lessee or sales, pledges,
hypothecations or other transfers (including, without limitation, any transfer
by operation of law) of the capital or the assets of Lessee. Any such
assignment, pledge, sale, hypothecation or other transfer made without Lessor's
consent shall be void and of no force and effect. Notwithstanding the
foregoing, Lessors consent shall not be unreasonably withheld with respect to an
assignment or pledge of an interest of Lessee
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in this Lease or a sublet of all or a part of the Leased Property to a
Meditrust/Emeritus Transaction Affiliate.
19.2 ATTORNMENT. Lessee shall insert in each Sublease approved by
Lessor, provisions to the effect that (a) such Sublease is subject and
subordinate to all of the terms and provisions of this Lease and to the rights
of Lessor hereunder, (b) in the event this Lease shall terminate before the
expiration of such Sublease, the Sublessee thereunder will, at Lessor's option,
attorn to Lessor and waive any right the Sublessee may have to terminate the
Sublease or to surrender possession thereunder, as a result of the termination
of this Lease and (c) in the event the Sublessee receives a written notice from
Lessor stating that Lessee is in default under this Lease, the Sublessee shall
thereafter be obligated to pay all rentals accruing under said Sublease directly
to Lessor or as Lessor may direct. All rentals received from the Sublessee by
Lessor shall be credited against the amounts owing by Lessee under this Lease.
ARTICLE 20
TITLE TRANSFERS AND LIENS GRANTED BY LESSOR
20.1 NO MERGER OF TITLE. Except as otherwise provided in Section
18.3.10, there shall be no merger of this Lease or of the leasehold estate
created hereby with the fee estate in the Leased Property by reason of the fact
that the same Person may acquire, own or hold, directly or indirectly (a) this
Lease or the leasehold estate created hereby or any interest in this Lease or
such leasehold estate and (b) the fee estate in the Leased Property.
20.2 TRANSFERS BY LESSOR. If the original Lessor named herein or any
successor in interest shall convey the Leased Property in accordance with the
terms hereof, other than as security for a debt, and the grantee or transferee
of the Leased Property shall expressly assume all obligations of Lessor
hereunder arising or accruing from and after the date of such conveyance or
transfer, the original Lessor named herein or the applicable successor in
interest so conveying the Leased Property shall thereupon be released from all
future liabilities and obligations of Lessor under this Lease arising or
accruing from and after the date of such conveyance or other transfer as to the
Leased Property and all such future liabilities and obligations shall thereupon
be binding upon the new owner.
20.3 LESSOR MAY GRANT LIENS. Without the consent of Lessee, but
subject to the terms and conditions set forth below in this Section 20.3, Lessor
may, from time to time, directly or indirectly, create or otherwise cause to
exist any lien,
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encumbrance or title retention agreement upon the Leased Property or any
interest therein ("Encumbrance"), whether to secure any borrowing or other means
of financing or refinancing, provided that Lessee shall have no obligation to
make payments under such Encumbrances. Lessee shall subordinate this Lease to
the lien of any such Encumbrance, on the condition that the beneficiary or
holder of such Encumbrance executes a non-disturbance agreement in conformity
with the provisions of Section 20.4. To the extent that any such Encumbrance
consists of a mortgage or deed of trust on Lessor's interest in the Leased
Property the same shall be referred to herein as a "Fee Mortgage" and the holder
thereof shall be referred to herein as a "Fee Mortgagee".
20.4 SUBORDINATION AND NON-DISTURBANCE. Concurrently with the
execution and delivery of any Fee Mortgage entered into after the date hereof,
provided that the Lessee executes and delivers an agreement of the type
described in the following paragraph, Lessor shall obtain and deliver to Lessee
an agreement by the holder of such Fee Mortgage, pursuant to which, (a) the
applicable Fee Mortgagee consents to this Lease and (b) agrees that,
notwithstanding the terms of the applicable Fee Mortgage held by such Fee
Mortgagee, or any default, expiration, termination, foreclosure, sale, entry or
other act or omission under or pursuant to such Fee Mortgage or a transfer in
lieu of foreclosure, (i) Lessee shall not be disturbed in peaceful enjoyment of
the Leased Property nor shall this Lease be terminated or cancelled at any time,
except in the event that Lessor shall have the right to terminate this Lease
under the terms and provisions expressly set forth herein, (ii) Lessee's option
to purchase the Leased Property shall remain in force and effect pursuant to the
terms hereof and (iii) in the event that Lessee elects its option to purchase
the Leased Property and performs all of its obligations hereunder in connection
with any such election, the holder of the Fee Mortgage shall release its Fee
Mortgage upon payment by Lessee of the purchase price required hereunder,
PROVIDED, THAT (1) such purchase price is paid to the holder of the Fee
Mortgage, in the event that the Indebtedness secured by the applicable Fee
Mortgage is equal to or greater than the purchase price or (2) in the event that
the purchase price is greater than the Indebtedness secured by the Fee Mortgage,
a portion of the purchase price equal to the Indebtedness secured by the Fee
Mortgage is paid to the Fee Mortgagee and the remainder of the purchase price is
paid to Lessor.
At the request from time to time by any Fee Mortgagee, Lessee shall (a)
subordinate this Lease and all of Lessee's rights and estate hereunder to the
Fee Mortgage held by such Fee Mortgagee and (b) agree that Lessee will attorn to
and recognize such Fee Mortgagee or the purchaser at any foreclosure sale or any
sale under a power of sale contained in any such Fee Mortgage
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as Lessor under this Lease for the balance of the Term then remaining. To
effect the intent and purpose of the immediately preceding sentence, Lessee
agrees to execute and deliver such instruments in recordable from as are
reasonably requested by Lessor or the applicable Fee Mortgagee; PROVIDED,
HOWEVER, that such Fee Mortgagee simultaneously executes, delivers and records a
written agreement of the type described in the preceding paragraph.
ARTICLE 21
LESSOR OBLIGATIONS
21.1 QUIET ENJOYMENT. As long as Lessee shall pay all Rent and all
other sums due under any of the Lease Documents as the same become due and shall
fully comply with all of the terms of this Lease and the other Lease Documents
and fully perform its obligations thereunder, Lessee shall peaceably and quietly
have, hold and enjoy the Leased Property throughout the Term, free of any claim
or other action by Lessor or anyone claiming by, through or under Lessor, but
subject to all the Permitted Encumbrances and such Liens as may hereafter be
consented to by Lessee. No failure by Lessor to comply with the foregoing
covenant shall give Lessee any right to cancel or terminate this Lease, or to
fail to perform any other sum payable under this Lease, or to fail to perform
any other obligation of Lessee hereunder. Notwithstanding the foregoing, Lessee
shall have the right by separate and independent action to pursue any claim it
may have against Lessor as a result of a breach by Lessor of the covenant of
quiet enjoyment contained in this Article 21.
21.2 MEMORANDUM OF LEASE. Lessor and Lessee shall, promptly upon the
request of either, enter into a short form memorandum of this Lease, in form
suitable for recording under the laws of the State, in which reference to this
Lease and all options contained herein shall be made. Lessee shall pay all
recording costs and taxes associated therewith.
21.3 DEFAULT BY LESSOR. Lessor shall be in default of its obligations
under this Lease only if Lessor shall fail to observe or perform any term,
covenant or condition of this Lease on its part to be performed and such failure
shall continue for a period of thirty (30) days after notice thereof from Lessee
(or such shorter time as may be necessary in order to protect the health or
welfare of any residents of the Facility or to ensure the continuing compliance
of the Facility with applicable Legal Requirements), unless such failure cannot
with due diligence be cured within a period of thirty (30) days, in which case
such failure shall not be deemed to continue if Lessor, within said
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thirty (30) day period, proceeds promptly and with due diligence to cure the
failure and diligently completes the curing thereof within one hundred twenty
(120) days after notice thereof.
ARTICLE 22
NOTICES
Any notice, request, demand, statement or consent made hereunder or under
any of the other Lease Documents shall be in writing and shall be deemed duly
given if personally delivered, sent by certified mail, return receipt requested,
or sent by a nationally recognized commercial overnight delivery service with
provision for a receipt, postage or delivery charges prepaid, and shall be
deemed given when so personally delivered, three (3) business days following the
date postmarked or the next business day when placed in the possession of such
mail delivery service and addressed as follows:
If to Lessee: c/o Emeritus Corporation
Market Place One
2003 Western Avenue, Suite 660
Seattle, WA 98121-2162
Attention: Daniel R. Baty, Chief
Executive Officer
With a copy to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, WA 98101
Attn: Randi S. Nathanson, Esquire
If to the Guarantor: Emeritus Corporation
Market Place One
2003 Western Avenue, Suite 660
Seattle, WA 98121-2162
Attention: Daniel R. Baty, Chief
Executive Officer
With a copy to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, WA 98101
Attn: Randi S. Nathanson, Esquire
If to Lessor: Meditrust Acquisition Corporation I
197 First Avenue
Needham Heights, Massachusetts 02194
Attn: President
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With copies to: Meditrust Acquisition Corporation I
197 First Avenue
Needham Heights, Massachusetts 02194
Attn: General Counsel
and Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: Joshua Davis, Esquire
or such other address as Lessor, Lessee or the Guarantor shall hereinafter from
time to time designate by a written notice to the others given in such manner.
Any notice given to Lessee or the Guarantor by Lessor at any time shall not
imply that such notice or any further or similar notice was or is required.
ARTICLE 23
LIMITATION OF MEDITRUST LIABILITY
The Declaration of Trust establishing the sole shareholder of Lessor,
Meditrust, a Massachusetts business trust ("Meditrust"), dated August 6, 1985
(the "Declaration"), as amended, a copy of which is duly filed in the office of
the Secretary of State of the Commonwealth of Massachusetts, provides that the
name "Meditrust" refers to the trustees under the Declaration collectively as
trustees, but not individually or personally; and that no trustee, officer,
shareholder, employee or agent of Meditrust or any of its Subsidiaries shall be
held to any personal liability, jointly, or severally, for any obligation of, or
claim against Meditrust or any of its Subsidiaries. All Persons dealing with
Meditrust or Lessor, in any way, shall look only to the assets of Meditrust or
Lessor, as applicable, for the payment of any sum or the performance of any
obligation. Furthermore, in no event shall Meditrust or Lessor ever be liable
to Lessee or any other Person for any indirect or consequential damages incurred
by Lessee or such other Person resulting from any cause whatsoever.
Notwithstanding the foregoing, Lessee hereby acknowledges and agrees that
Meditrust is not a party to this Lease and that Lessee shall look only to the
assets of Lessor for the payment of any sum or performance of any obligation due
by or from Lessor pursuant to the terms and provisions of the Lease Documents.
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ARTICLE 24.
MISCELLANEOUS PROVISIONS
24.1 BROKER'S FEE INDEMNIFICATION. Lessee and Lessor each shall and
hereby agrees to indemnify, defend (with counsel acceptable to the other) and
hold the other harmless from and against any and all claims for premiums or
other charges, finder's fees, taxes, brokerage fees or commissions and other
similar compensation due to a broker or finder allegedly employed or retained by
it in connection with any of the transactions contemplated by the Lease
Documents. Notwithstanding the foregoing, the indemnified party shall have the
option of conducting its own defense against any such claims with counsel of
such party's choice, but at the expense of the indemnifying party, as aforesaid.
This indemnification shall include all reasonable attorneys' fees and expenses
and court costs reasonably incurred by the indemnified party in connection with
the defense against any such claims and the enforcement of this indemnification
agreement and shall survive the termination of this Lease.
24.2 NO JOINT VENTURE OR PARTNERSHIP. Neither anything contained in
any of the Lease Documents, nor the acts of the parties hereto, shall create, or
be construed to create, a partnership or joint venture between Lessor and
Lessee. Lessee is not the agent or representative of Lessor and nothing
contained herein or in any of the other Lease Documents shall make, or be
construed to make, Lessor liable to any Person for goods delivered to Lessee,
services performed with respect to the Leased Property at the direction of
Lessee or for debts or claims accruing against Lessee.
24.3 AMENDMENTS, WAIVERS AND MODIFICATIONS. None of the terms,
covenants, conditions, warranties or representations contained in this Lease or
in any of the other Lease Documents may be renewed, replaced, amended, modified,
extended, substituted, revised, waived, consolidated or terminated except by an
agreement in writing signed by all parties to this Lease or the other Lease
Documents, as the case may be, in the case of any renewal, replacement,
amendment, modification, extension, substitution, revisions, consolidation or
termination and by the Person against whom enforcement is sought in the case of
a waiver or except as otherwise expressly provided for herein or in any other
Lease Document. The provisions of this Lease and the other Lease Documents
shall extend and be applicable to all renewals, replacements, amendments,
extensions, substitutions, revisions, consolidations and modifications of any of
the Lease Documents, the Management Agreements, the Related Party Agreements,
the Permits and/or the Contracts. References herein and in the other Lease
Documents to any of the Lease Documents, the Management
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Agreements, the Related Party Agreements, the Permits and/or the Contracts shall
be deemed to include any renewals, replacements, amendments, extensions,
substitutions, revisions, consolidations or modifications thereof.
Notwithstanding the foregoing, any reference contained in any of the Lease
Documents, whether express or implied, to any renewal, replacement, amendment,
extension, substitution, revisions, consolidation or modification of any of the
Lease Documents or any Management Agreement, Related Party Agreement, Permit
and/or the Contract is not intended to constitute an agreement or consent by
Lessor to any such renewal, replacement, amendment, substitution, revision,
consolidation or modification; but, rather as a reference only to those
instances where Lessor may give, agree or consent to any such renewal,
replacement, amendment, extension, substitution, revision, consolidation or
modification as the same may be required pursuant to the terms, covenants and
conditions of any of the Lease Documents.
24.4 CAPTIONS AND HEADINGS. The captions and headings set forth in
this Lease and each of the other Lease Documents are included for convenience
and reference only, and the words contained therein shall in no way be held or
deemed to define, limit, describe, explain, modify, amplify or add to the
interpretation, construction or meaning of, or the scope or intent of, this
Lease, any of the other Lease Documents or any parts hereof or thereof.
24.5 TIME IS OF THE ESSENCE. Time is of essence of each and every
term, condition, covenant and warranty set forth herein and in the other Lease
Documents.
24.6 COUNTERPARTS. This Lease and the other Lease Documents may be
executed in one or more counterparts, each of which taken together shall
constitute an original and all of which shall constitute one in the same
instrument.
24.7 ENTIRE AGREEMENT. This Lease and the other Lease Documents set
forth the entire agreement of the parties with respect to the subject matter and
shall supersede in all respect the letter of intent, dated January 31, 1996 (and
all prior iterations thereof), from Meditrust to Lessee.
24.8 WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, LESSOR AND LESSEE HEREBY MUTUALLY, KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT WHICH ANY PARTY HERETO MAY NOW OR HEREAFTER HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THE LEASE OR ANY OF THE LEASE DOCUMENTS. Lessee hereby certifies
that neither Lessor nor any of Lessor's representatives, agents or counsel has
represented expressly or
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otherwise that Lessor would not, in the event of any such suit, action or
proceeding seek to enforce this waiver to the right of trial by jury and
acknowledges that Lessor has been induced by this waiver (among other things) to
enter into the transactions evidenced by this Lease and the other Lease
Documents and further acknowledges that Lessee (a) has read the provisions of
this Lease, and in particular, the paragraph containing this waiver, (b) has
consulted legal counsel, (c) understands the rights that it is granting in this
Lease and the rights that it waiving in this paragraph in particular and (d)
makes the waivers set forth herein knowingly, voluntarily and intentionally.
24.9 SUCCESSORS AND ASSIGNS. This Lease and the other Lease Documents
shall be binding upon and inure to the benefit of (a) Lessee and Lessee's legal
representatives and permitted successors and assigns and (b) Lessor and any
other Person who may now or hereafter hold the interest of Lessor under this
Lease and their respective successors and assigns.
24.10 NO THIRD PARTY BENEFICIARIES. This Lease and the other Lease
Documents are solely for the benefit of Lessor, its successors, assigns and
participants (if any), the Meditrust Entities, Lessee, the Guarantor, the other
members of the Leasing Group and their respective permitted successors and
assigns, and, except as otherwise expressly set forth in any of the Lease
Documents, nothing contained therein shall confer upon any Person other than
such parties any right to insist upon or to enforce the performance or
observance of any of the obligations contained therein. All conditions to the
obligations of Lessor to advance or make available proceeds of insurance or
Awards, or to release any deposits held for Impositions or insurance premiums
are imposed solely and exclusively for the benefit of Lessor, its successors and
assigns. No other Person shall have standing to require satisfaction of such
conditions in accordance with their terms, and no other Person shall, under any
circumstances, be a beneficiary of such conditions, any or all of which may be
freely waived in whole or in part by Lessor at any time, if, in Lessor's sole
and absolute discretion, Lessor deems it advisable or desirable to do so.
24.11 GOVERNING LAW. This Lease shall be construed and the rights and
obligations of Lessor and Lessee shall be determined in accordance with the laws
of the State.
Lessee hereby consents to personal jurisdiction in the courts of the State
and the United States District Court for the District in which the Leased
Property is situated as well as to the jurisdiction of all courts from which an
appeal may be taken from the aforesaid courts, for the purpose of any suit,
action or other proceeding arising out of or with respect to any of the Lease
Documents, the negotiation and/or consummation of the
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transactions evidenced by the Lease Documents, the Lessor's relationship of any
member of the Leasing Group in connection with the transactions evidenced by the
Lease Documents and/or the performance of any obligation or the exercise of any
remedy under any of the Lease Documents and expressly waives any and all
objections Lessee may have as to venue in any of such courts.
24.12 GENERAL. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease or any of the other
Lease Documents shall survive such termination.
If any provision of this Lease or any of the other Lease Documents or any
application thereof shall be invalid or unenforceable, the remainder of this
Lease or the other applicable Lease Document, as the case may be, and any other
application of such term or provision shall not be affected thereby.
Notwithstanding the foregoing, it is the intention of the parties hereto that if
any provision of any of this Lease is capable of two (2) constructions, one of
which would render the provision void and the other of which would render the
provision valid, then such provision shall be construed in accordance with the
construction which renders such provision valid.
If any late charges provided for in any provision of this Lease or any of
the other Lease Documents are based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges shall be fixed
at the maximum permissible rate.
Lessee waives all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and notices
of acceptance and waives all notices of the existence, creation, or incurring of
new or additional obligations, except as to all of the foregoing as expressly
provided for herein.
ARTICLE 25
SUBSTITUTION OF PROPERTY
25.1 SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY. Provided that
no Event of Default has occurred under this Lease (excluding any Event of
Default which has been waived, in writing, by the Lessor), nor any event which,
with the giving of notice or the passage of time or both, would constitute such
an Event of Default, Lessee shall have the right from time to time (referred to
herein as the "Substitution Right"), exercisable upon not less than ninety (90)
days' prior written
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notice to Lessor (referred to herein as a "Substitution Notice") to substitute,
on a date specified in such Substitution Notice (such date, as the same may be
extended by express written agreement of lessor, shall be referred to herein as
a "Substitution Date"), the Leased Property with a Comparable Facility. As used
herein, the term "Comparable Facility" shall be defined as a health care
facility or facilities which Lessor determines (a) has an appraised Fair Market
Value greater than or equal to the greater of (i) the appraised Fair Market
Value of the Leased Property as of the Conversion Date or (ii) the appraised
Fair Market Value of the Leased Property at the time that the applicable
Substitution Notice is furnished to Lessor (based on appraisal criteria then in
effect), (b) has a Facility Debt Coverage Ratio greater than or equal to the
greater of (i) the Facility Debt Coverage Ratio of the Leased Property as of the
second anniversary of the Conversion Date (ii) the Facility Debt Coverage Ratio
of the Leased Property at the time that the applicable Substitution Notice is
furnished to Lessor, (c) provides a mix of services similar to the Leased
Property and (d) is otherwise reasonably acceptable, in all respects, to Lessor
(based on Lessor's usual and customary property evaluation criteria then in
effect). Lessee may not exercise its Substitution Right more than once in any
calendar year.
25.2 CONDITIONS TO SUBSTITUTION. Without limiting the foregoing, as
conditions precedent to the consummation of any proposed substitution:
(a) as of the applicable Substitution Date, no Event of Default shall have
occurred under the Lease (excluding any Event of Default which has been waived,
in writing, by Lessor), nor any event which with the giving of notice or the
passage of time or both would constitute such an Event of Default;
(b Lessor shall have received engineering and inspection reports relating
to the assisted living facility identified by Lessee in the applicable
Substitution Notice (referred to herein as a "Proposed Facility"), reasonably
satisfactory in all respects to Lessor;
(c) Lessee shall have delivered to Lessor (i) an MAI appraisal of the
Proposed Facility (prepared by an appraiser selected by Lessee and approved by
Lessor), in form and substance reasonably satisfactory to Lessor and (ii) an
instrument survey of the premises upon which the Proposed Facility is located
acceptable to Lessor and the title insurance company providing insurance with
respect to the Proposed Facility;
(d) Lessor shall be satisfied as to compliance of Lessee, the Proposed
Facility, the owner of the Proposed Facility (to the extent such owner is not
Lessee as provided in subsection (1)
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below) and/or the proposed substitution, as the case may be, with (i) all
applicable land use, zoning, subdivision and environmental laws and regulations,
(ii) all applicable assisted living licensure laws and regulations and (iii)
such other matters as Lessor reasonably deems relevant (including, without
limitation, whether the conveyance of the property to Lessor in connection with
the proposed substitution may be avoided under the Bankruptcy Code);
(e) Lessee shall have delivered to Lessor a valid and binding owner's or
lessee's (as applicable) title insurance commitment issued by a title insurer
reasonably acceptable to Lessor (the "Title Company"), in an amount equal to the
Fair Market Value of the Proposed Facility, with such endorsements and
affirmative coverages, and in such form, as Lessor may reasonably require
insuring Lessor's fee title or leasehold title to the Proposed Facility, subject
to no Liens except those approved or assumed by Lessor and arrangements
satisfactory to Lessor shall have been made for the issuance of a title
insurance policy on the Substitution Date in accordance with such title
insurance commitment;
(f) Lessee shall have delivered an environmental site assessment report
relating to the Proposed Facility, in form and substance reasonably acceptable
to Lessor and prepared by an environmental consultant reasonably acceptable to
Lessor;
(g) Lessor shall have obtained, at Lessee's cost, an opinion of Lessor's
counsel, in form and substance acceptable to Lessor, confirming that (i) the
substitution of the Proposed Facility for the Leased Property will qualify as an
exchange solely of property of a like-kind under Section 1031 of the Code, in
which, generally, except for "boot" such as cash needed to equalize exchange
values or discharge indebtedness, no gain or loss is recognized to Lessor, (ii)
the substitution or sale will not result in ordinary recapture income to Lessor
pursuant to Code Section 1250(d)(4) or any other Code provision, (iii) the
substitution or sale will result in income, if any, to Lessor of a type
described in Code Section 856(c)(2) or (3) and will not result in income of the
types described in Code Section 856(c)(4) or result in the tax imposed under
Code Section 857(b)(6) and (iv) the substitution or sale, together with all
other substitutions and sales made or requested by Lessee or any Affiliate of
Lessee or of any Guarantor pursuant to any other leases with Lessor (or any of
its Affiliates) or any other transfers of the Leased Property or the properties
leased under other such leases, during the relevant time period, will not
jeopardize the qualification of Lessor as a real estate investment trust under
Code Sections 856-860;
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(h) Lessor shall have received opinions of Lessee's counsel as to (i) the
compliance of the Proposed Facility with land use, zoning, subdivision and
environmental laws and regulations, (ii) the compliance of Lessee, the owner of
the Proposed Facility (to the extent such owner is not Lessee as provided in
subsection (1) below), the proposed substitution and the Proposed Facility with
applicable assisted living laws and regulations, (iii) the due authorization,
execution and enforceability of the Substitution Documents and (iv) such other
matters as are reasonably requested; in form and substance reasonably acceptable
to Lessor;
(i) Lessee and each Guarantor shall have executed and delivered, or caused
to be executed and delivered, such documents as are reasonably required by
Lessor to effectuate the substitution (collectively, the "Substitution
Documents"), including, without limitation, (i) a deed with full warranties or
assignment of a leasehold estate with full warranties (as applicable) conveying
to Lessor title to the Proposed Facility free and clear of all Liens, except
those approved or assumed by Lessor, (ii) a facility lease (the "Substitution
Lease") duly executed, acknowledged and delivered by Lessee, containing the same
terms and conditions as are contained herein except that (1) the legal
description of the land shall refer to the Proposed Facility, (2) the Minimum
Repurchase Price of the Proposed Facility shall be an amount equal to the
Minimum Repurchase Price of the Leased Property increased by any Cash Adjustment
paid by Lessor, (3) the Rent under the Substitution Lease in all respects shall
provide Lessor with a substantially equivalent yield at the time of the
substitution (i.e., annual return on its equity in such Proposed Facility) to
that received (and reasonably expected to be received thereafter) from the
Leased Property, taking into account the Cash Adjustment, if any, paid by Lessor
and any other relevant factors and (4) such other changes therein as may be
necessary or appropriate under the circumstances shall be made; (iii) a
collateral assignment of permits, licenses, approvals and contracts relating to
the Proposed Facility, substantially in the form of the Permits Assignment; (iv)
UCC financing statements; (v) a guaranty substantially in the form of the
Guaranty of Lease Obligations shall be executed by Guarantor, (vi) an affiliated
party subordination agreement, substantially in the form of the Affiliated Party
Subordination Agreement, shall be executed by the Lessee, and such other
Affiliates of the Lessee as are deemed necessary or appropriate by the Lessor
and (vii) the Agreement Regarding Related Transactions shall be amended to
reflect the substitution of the Proposed Facility. The Substitution Documents
shall be based upon and contain the same terms and conditions as are set forth
in Lessee Documents in effect prior to the substitution, except that such
changes shall be made as may be necessary or reasonably appropriate under the
circumstances to effectuate the substitution and secure the
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protection and priority of the property and security interests conveyed and/or
granted to Lessor;
(j) without limiting any other provision contained herein, Lessee shall
have delivered to Lessor such other information and materials relating to
Lessee, the owner of the Proposed Facility (to the extent that such owner is not
Lessee as provided in subsection (1) below) and the Proposed Facility as Lessor
may reasonably request, including, without limitation, leases, receipted bills,
management agreements and other Contracts, Provider Agreements, cost reports,
Permits, evidence of legal and actual access to the Proposed Facility, evidence
of the availability and sufficiency of utilities servicing the Proposed
Facility, historical and current operating statements, detailed budgets and
financial statements and Lessor shall have found the same to be satisfactory in
all respects;
(k) Lessee or an Affiliate of Lessee shall be the licensed operator of the
Proposed Facility as of the date of the consummation of the substitution;
(l) the Proposed Facility shall be owned or leased by Lessee or an
Affiliate of Lessee; PROVIDED, HOWEVER that in the event that the Proposed
Facility is owned by any such Affiliate, (i) said Affiliate shall execute and
deliver to Lessor such Substitution Documents as may be reasonably required by
Lessor and (ii) Lessor shall be provided with such evidence as it may require to
determine that the conveyance of the Proposed Facility (or a leasehold interest
therein) to Lessor does not constitute a fraudulent conveyance (under applicable
federal or state law);
(m) Lessee shall have delivered to Lessor an insurance certificate
evidencing compliance with all of the insurance requirements set forth in the
Substitution Documents;
(n) Lessee shall have delivered to Lessor an Officer's Certificate
certifying as of the Substitution Date that (i) the Proposed Facility has been
accepted by Lessee for all purposes of the Substitution Lease and there has been
no material damage to the improvements located on the Proposed Facility, nor is
any condemnation or eminent domain proceeding pending with respect thereto; (ii)
all Permits (including, but not limited to, a permanent, unconditional
certificate of occupancy and all certificates of need, licenses and Provider
Agreements) which are necessary to permit the use of the Proposed Facility in
accordance with the provisions of the Substitution Lease have been obtained and
are in full force and effect; (iii) under applicable zoning and use laws,
ordinances, rules and regulations, the Proposed Facility may be used for the
purposes contemplated by Substitution Documents and all necessary subdivision
approvals have been obtained; (iv) to the best
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knowledge of Lessee, there exists no Event of Default under this Lease, and no
defense, offset or claim exists with respect to any sums to be paid by Lessee
hereunder, and (v) any exceptions to Lessor's title to the Proposed Facility do
not materially interfere with the intended use of the Proposed Facility by
Lessee;
(o) Lessor shall have determined that the Proposed Facility constitutes a
Comparable Facility, and
(p) Lessor shall have received all Rent due and payable hereunder through
the Substitution Date.
In the event that the equity value of the Proposed Facility (i.e., the Fair
Market Value of the Proposed Facility minus the Liens to which Lessor will take
the Proposed Facility subject) as of the Substitution Date is greater than the
equity value of the Leased Property (i.e., the Fair Market Value of the Leased
Property MINUS the Liens to which Lessee will take the Leased Property subject
other than those Liens which Lessee is obligated to pay or discharge pursuant to
the terms of this Lease) as of the Substitution Date, subject to the limitation
set forth below, Lessor shall pay an amount equal to the difference to Lessee;
PROVIDED, HOWEVER, that Lessor shall not be obligated to consummate such
substitution if Lessor would be required to make a payment to Lessee of an
amount equal to or in excess of fifteen percent (15%) of said Fair Market Value
of the Leased Property (the amount of cash paid by Lessor to Lessee being
referred to herein as the "Cash Adjustment"). Without limiting the generality
or effect of the preceding sentence, in the event that, on the Substitution
Date, Lessor is obligated to pay a Cash Adjustment to Lessee and Lessor does not
have sufficient funds available, or elects not to make such payment in cash,
Lessor shall provide Lessee with (and Lessee shall accept) a purchase money note
and mortgage for a term not to exceed eighteen (18) months from the Substitution
Date and bearing interest, payable monthly, at the rate described in Section
10.2.
25.3 CONVEYANCE TO LESSEE. If the Lessor shall have determined that
the Proposed Facility constitutes a Comparable Facility, on the Substitution
Date, after the consummation of a substitution in accordance with the terms
hereof, Lessor will convey the Leased Property to Lessee in accordance with the
provisions of Article 18 (except as to payment of any expenses in connection
therewith which shall be governed by Section 22.4 below) and this Lease shall
thereupon terminate as to the Leased Property. Upon completion of the purchase
of the Leased Property, no Rent shall thereafter accrue with respect thereto.
25.4 EXPENSES. Whether or not any proposed substitution is
consummated, Lessee shall pay all of the out-of-
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pocket expenses and other costs incurred or expended by Lessor in connection
with any proposed substitution (collectively referred to herein as "Substitution
Closing Costs"), including, without limitation, reasonable attorneys' fees and
expenses, engineering costs, consultants' fees, appraisal costs, audit and tax
review costs, out-of-pocket travel expenses, inspection fees, title insurance
premiums and other title fees, survey expenses, mortgage taxes, transfer,
documentary stamp and other taxes, search charges of any nature, recording,
registration and filing costs, broker's fees and commissions, if any, escrow
fees, fees and expenses, if any, incurred in qualifying Lessor and maintaining
its right to do business in the state where the Proposed Facility is located,
the cost of obtaining, preparing and recording a release of the Leased Property
from the lien of any Fee Mortgage on the Facility (other than the amount
necessary to payoff such Fee Mortgage) and any other costs expended or incurred
by Lessor in connection with the preparation for and the documentation and/or
the closing of the proposed substitution. The Substitution Closing Costs shall
be a demand obligation of Lessee to Lessor and, if not paid within ten (10) days
after demand, shall thereafter (to the extent permitted by applicable law) bear
interest at the Overdue Rate until the date of payment.
25.5 LIMITATION. No Substitution Right may be exercised earlier than the
fifth anniversary of the Conversion Date.
[Intentionally left blank]
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IN WITNESS WHEREOF, the parties have caused this Lease to be executed and
attested by their respective officers thereunto duly authorized.
WITNESS: LESSEE:
- -------- -------
ESC I, L.P., a Washington limited
partnership
By: ESC G.P.I, INC., a Washington
corporation
/s/ Melissa L. Day By: /s/ Raymond R. Brandstrom
- -------------------- ----------------------------
Name: Melissa L. Day Name: Raymond R. Brandstrom
Title: President
WITNESS: LESSOR:
- -------- -------
MEDITRUST ACQUISITION CORPORATION I, a
Massachusetts corporation
/s/ Lila Brazao By: /s/ Michael F. Bushee
- ----------------- ------------------------------
Name: Lila Brazao Name: MICHAEL F BUSHEE
Title: CHIEF OPERATING OFFICER
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THE FOLLOWING AGREEMENT IS SUBSTANTIALLY THE SAME FOR THE FOLLOWING PROPERTIES
EXCEPT FOR THE FOLLOWING:
Midland: The maximum amount to be funded $5,760,000
Lubbock: The maximum amount to be funded $5,582,195
Beaumont: The maximum amount to be funded $5,885,201
Amarillo: The maximum amount to be funded $3,700,000
Clarksville: The maximum amount to be funded $3,700,000
Wichita Falls: The maximum amount to be funded $5,678,825
San Angelo: The maximum amount to be funded $80,094
<PAGE>
LEASEHOLD IMPROVEMENT AGREEMENT
AMONG
MEDITRUST ACQUISITION CORPORATION I
AND
ESC I, L.P.
AND
EMERITUS CORPORATION
<PAGE>
LEASEHOLD IMPROVEMENT AGREEMENT
THIS LEASEHOLD IMPROVEMENT AGREEMENT is made as of April 15, 1996 by and
among ESC I, L.P., a Washington limited partnership, the general partner of
which is ESC G.P. I, Inc., a Washington corporation (the "Lessee"), and
MEDITRUST ACQUISITION CORPORATION a Massachusetts corporation (the "Lessor").
1. BACKGROUND
1.1 LESSEE.
Lessee is a partnership whose general partner is a corporation which is a
wholly-owned Subsidiary of the Guarantor (as hereinafter defined). The
Guarantor is a corporation the stock of which is publicly traded on the American
Stock Exchange.
1.2 THE LAND AND EXISTING IMPROVEMENTS.
Lessor is the owner of a certain parcel of land located in Midland, Midland
County, Texas and more particularly described on EXHIBIT A (the "Land").
1.3 THE FACILITY LEASE.
Lessor and Lessee have entered into that certain Facility Lease Agreement
of even date herewith, relating to the Land (the "Facility Lease"), a Memorandum
of which is to be recorded with the Midland County, Texas real estate records.
1.4 PROJECT.
Lessee proposes to construct a 80 unit 90 bed assisted living facility and
other improvements, including, without limitation, accessory parking and
landscaping on the Land (collectively, the "Improvements"). The Land and the
Improvements are collectively referred to herein as the "Project".
1.5 LESSOR'S AGREEMENT TO FUND THE PROJECT AND LESSEE'S AGREEMENT TO
SUPERVISE THE PROJECT.
Lessee and Lessor have agreed that the Project will be a benefit to
the premises demised under the Facility Lease and to Lessee's and Lessor's
respective interests therein. Lessor and Lessee have further agreed that,
pursuant to, and in accordance
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with, the terms and conditions of this Agreement, Lessor shall fund an amount
not to exceed FIVE MILLION SEVEN HUNDRED SIXTY THOUSAND DOLLARS ($5,760,000.00)
of the cost of the Project (the "Project Funds"). Lessee has agreed to
supervise and manage the construction of the Project and Lessor has agreed to
advance the Project Funds to pay for the cost of the construction of the
Project; all pursuant to the terms and conditions of this Agreement.
1.6 PLANS; THE ARCHITECT AND ARCHITECT'S CONTRACT.
The Improvements are to be constructed and equipped in accordance with
the plans and specifications to be delivered as provided herein
(collectively, the "Project Plans"), prepared by ______________________ (the
"Architect") pursuant to the contract dated _______________, 19__ by and
between Lessee and the Architect (the "Architect's Contract"). Development
management services are being provided by South Bay Partners (the
"Development Managers") pursuant to a contract dated ____ by and between the
Development Manager and Lessee (the "Development Agreement").
1.7 CONSTRUCTION CONTRACTS.
ALL of the Improvements are to be constructed pursuant to a guaranteed
maximum contract (the "Construction Contract") to be delivered as provided
herein by and between Lessee and _____________ (the "General Contractor").
1.8 SCHEDULE OF WORK AND COMPLETION DATE; SCHEDULE OF DRAWS.
<PAGE>
The work necessary to complete and fully equip the Project is to be (a)
undertaken and completed in accordance with the schedule of work and schedule
of values ("Schedules") to be delivered as provided herein; and (b)
substantially completed by the first anniversary of the date hereof (the
"Completion Date") in accordance with the terms hereof.
1.9 PROJECT BUDGET.
Lessee has submitted, or shall submit (in accordance with the terms
hereof prior to the making of the first advance which includes amounts to be
expended on the construction or equipping of the Improvements), to Lessor a
line item budget (the "Project Budget"), for the design and construction of
the Project, including (a) a breakdown of construction costs (itemized as to
trade category, subdivision of the work to be performed and the names of each
contractor), (b) a breakdown of all soft costs in connection with the
construction of the Project, including, without limitation, costs for such
items as real estate taxes, legal and accounting fees, survey costs, permits
and inspection
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fees, insurance premiums, architect's and engineer's fees, marketing,
management, leasing and advertising expenses, and all amounts due in connection
with the Advance of Project Funds pursuant to this Agreement, (c) a projected
draw schedule and (d) a projected progress schedule for the construction of the
Project.
1.10 USE OF PROJECT FUNDS.
The Project Funds are to be used, to the extent sufficient therefore,
solely for the payment of Project costs set forth in the Project Budget.
1.11 PROJECT FUNDS.
Subject to all of the terms, conditions and provisions of this Agreement,
and of the agreements and instruments referred to herein, Lessor agrees to
advance the Project Funds and Lessee agrees to supervise and manage the
construction of the Project and to pay the Rent (as hereinafter defined) due
under the Facility Lease (as the same may from time to time be adjusted pursuant
to the terms and conditions set forth therein); it being understood that Lessee
shall be liable for the payment of Rent regarding such sums as shall have been
advanced from time to time under this Agreement to Lessee.
1.12 GUARANTIES AND INDEMNITIES.
As an inducement to Lessor to enter into this Agreement, advance the
Project Funds and enter into the Facility Lease, the Guarantor has agreed to
furnish certain guaranties as hereinafter described.
2. DEFINITIONS
In this Agreement, except as otherwise expressly provided in the text of
this Agreement or unless the context otherwise requires, all capitalized terms
shall have the meaning ascribed to them in EXHIBIT E.
3. LEASEHOLD IMPROVEMENT FEE.
Lessee shall pay the Leasehold Improvement Fee to Lessor simultaneously
with the execution of this Agreement; PROVIDED, HOWEVER, that, at Lessor's
option, the Leasehold Improvement Fee shall be held in an escrow account
established with a Person designated by Lessor pursuant to an escrow arrangement
satisfactory to Lessor, with interest thereon benefiting Lessor. If Lessor
exercises its option to require that the Leasehold Improvement Fee be held in
such an escrow account (a) the Leasehold Improvement Fee shall be disbursed from
said escrow account only upon the joint instructions of Lessee and Lessor
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(which instructions from Lessee shall be immediately given upon the request
of Lessor) and in no event shall the Leasehold Improvement Fee be disbursed
therefrom, in whole or in part, unless and until so requested by Lessor and
(b) Lessor shall bear the risk of loss of or misappropriation of the
Leasehold Improvement Fee by such escrow agent.
4. LEASE DOCUMENTS; COLLATERAL SECURITY
4.1 LEASE DOCUMENTS.
The Project Funds shall be advanced, evidenced, administered and governed
by all of the terms, conditions and provisions of each of the following:
A. an Agreement Regarding Related Transactions of even date herewith by and
among Lessee, Lessor and ESC G.P. I Inc., as the same may be amended from
time to time;
B. this Agreement;
C. the Facility Lease;
D. a Collateral Assignment of Permits, Approvals, Licenses, and Contracts
of even date granted by Lessee to Lessor (the "Permits Assignment") and
related UCC Financing Statements;
E. a Security Agreement of even date by and between Lessee and Lessor (the
"Security Agreement")
F. a Completion Guaranty of even date executed by the Guarantor for the
benefit of Lessor guarantying the completion of the Project and the
satisfaction of the other Guarantied Obligations (the "Completion
Guaranty");
G. a Guaranty of Lease Obligations of even date executed by the Guarantor
for the benefit of Lessor guarantying the payment and performance of
the Lease Obligations (the "Guaranty of Lease Obligations");
H. an Environmental Indemnity Agreement of even date by and among Lessee,
the Guarantor and Lessor (the "Environmental Indemnity Agreement");
I. a Deposit Pledge Agreement of even date by and between Lessee and Lessor
(the "Deposit Pledge Agreement");
J. a Group One Negative Pledge Agreement (Development) of even date by and
among Lessee, Lessor and Guarantor (the "Negative Pledge Agreement");
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<PAGE>
K. an Assignment of Construction Contract granted by Lessee to Lessor and
containing the consent of the General Contractor (the "Construction
Assignment");
L. an Assignment of Architect's Contract of even date granted by Lessee to
Lessor and containing the consent of the Architect (the "Architect's
Assignment");
M. an Affiliated Party Subordination Agreement of even date by and among
Lessee, the Guarantor, various Affiliates of Lessee and Lessor (the
"Affiliated Party Subordination Agreement");
N. an Assignment of Development Agreement granted by Lessee to Lessor and
containing the consent of the Development Manager (the "Development
Assignment"); and
O. all other documents, instruments, or agreements now or hereafter
evidencing or securing the obligations under this Agreement and
the Facility Lease.
Items (A) through (L) above, as the same from time to time may be hereinafter
amended, modified or supplemented, are referred to herein as the "Lease
Documents".
4.2 LEASE OBLIGATIONS.
Lessee agrees to pay and perform all indebtedness, covenants, liabilities,
obligations, agreements and undertakings (other than Lessor's obligations) under
this Agreement and all of the other Lease Documents (collectively, the "Lease
Obligations").
4.3 COLLATERAL SECURITY.
The Lease Obligations shall be secured by the following:
A. a perfected first priority security interest in all Permits and
Contracts pursuant to the Permits Assignment;
B. a security interest in Tangible Personal Property, and certain other
Collateral and a security interest in Receivables, all pursuant to the
Security Agreement;
C. the Completion Guaranty;
D. the Guaranty of Lease Obligations;
E. the Environmental Indemnity;
5
<PAGE>
F. a perfected first priority interest in the Cash Collateral pursuant to
the Deposit Pledge Agreement;
G. all other security interests in such other property for which provision
is made in the Lease Documents or at law or in equity; and
H. certain other Related Party Agreements.
All of the property in which security interests are granted as described in
items (A) through (H) above are referred to herein as the "Collateral".
5. REPRESENTATIONS AND WARRANTIES
In order to induce Lessor to advance the Project Funds pursuant to the
terms and conditions of this Agreement, Lessee represents and warrants to Lessor
that:
5.1 ARCHITECT'S CONTRACT AND CONSTRUCTION CONTRACT.
The Architect's Contract, the Development Agreement and the Construction
Contract have been validly executed by, and are binding upon Lessee and the
Architect's Contract, the Development Agreement and the Construction Contract
are in full force and effect in accordance with the terms thereof as of the date
hereof. All of the parties to the Architect's Contract have faithfully
performed all of their respective obligations thereunder to the extent accrued
as of the date hereof, and none of the parties to the foregoing instruments have
asserted any claim of default thereunder and Lessee has no reason to believe
that such agreements have not been validly executed by and binding upon the
other parties thereto;
5.2 PROJECT PLANS.
The two (2) copies of the Project Plans delivered to Lessor by Lessee
(a) are true and correct and satisfactory to Lessee and (b) have been filed
with and approved by all appropriate Governmental Authorities. All necessary
Permits relating to the Project Plans to be issued or granted by any
applicable Governmental Authority having or claiming jurisdiction over the
Leased Property which can be obtained in the ordinary course as of the date
hereof have been obtained and all such Permits are in full force and effect,
are not subject to any unexpired appeal periods or any appeals or challenges
which have not been fully resolved in favor of Lessee, and do not contain any
conditions or terms relating to the Leased Property which have not been fully
satisfied or which will not be fully satisfied by the completion of the
construction of the Project (in accordance with the Project Plans and the
terms and provisions of this Agreement). Furthermore, the Project Plans are
the plans and specifications
6
<PAGE>
which have been approved in writing by Lessor, any construction heretofore
performed on the Project has been performed in accordance with the Project Plans
and all future construction on the Project shall be performed in accordance with
the Project Plans, as the same may be amended or modified from time in
accordance with Section 6.3.2 hereof, and the terms and conditions of this
Agreement. There are no structural defects in the Project of which Lessee has
been advised or of which Lessee has notice or knowledge except as otherwise
described in writing to Lessor or actually known by Lessor. Lessee has not
received any notice claiming that, and Lessee has no knowledge that, the Project
Plans violate any Legal Requirement;
5.3 PRIOR CONSTRUCTION WORK.
No Person has performed any construction work or furnished any services in
connection with any construction carried on or to be carried on at the Leased
Property who or which remains unpaid at the time of execution of this Agreement,
except as indicated in the requisition submitted simultaneously herewith or
otherwise expressly approved by Lessor and, if applicable, the Other Permitted
Uses;
5.4 SUITABILITY OF PROJECT PLANS.
The Project Plans provide for the construction and renovation of all
buildings and related improvements necessary, both legally and practically, for
the construction of the Project in accordance with the terms of this Agreement
and, after the completion of the construction thereof, for the operation of the
Project for its Primary Intended Use;
5.5 COMPLIANCE WITH LEGAL REQUIREMENTS AND APPLICABLE AGREEMENTS.
Upon the completion of construction of the Project, which shall be
constructed in accordance with the Project Plans and the terms and provisions of
this Agreement, the Project shall be in compliance with (a) all Legal
Requirements; (b) all Permits and Contracts and (c) all applicable by-laws,
codes, rules, regulations and restrictions of the Board of Fire Underwriters or
other insurance underwriters or similar bodies.
5.6 PERMITS AND CONTRACTS.
All Permits and Contracts required by or entered into with any Governmental
Authority or quasi-governmental authority or agency for, or in connection with,
the construction of the Project which can be obtained in the ordinary course as
of the date hereof have been obtained or executed, as the case may be. All such
Permits and Contracts are in full force and effect, are not subject to any
unexpired appeal periods or any appeals or
7
<PAGE>
challenges which have not been conclusively resolved in favor of any member of
the Leasing Group, and do not contain any conditions or terms which have not
been fully satisfied or which will not be fully satisfied by the completion of
the construction of the Project (if constructed in accordance with the Project
Plans and the terms and provisions of this Agreement). There is no action
pending, or, to the best knowledge and belief of Lessee, recommended by the
applicable Governmental Authority having jurisdiction thereof, either to revoke,
repeal, cancel, modify, withdraw or suspend any such Permit or Contract relating
to the construction of the Project, or any other action of any other type which
would have a material adverse effect on the Project. All other Permits and
Contracts required for the completion of the construction of the Project and the
operation of the Facility are described on SCHEDULE 5.6 annexed hereto and
Lessee has no reason to believe such Permits and Contracts shall not be
obtainable as and when needed.
5.7 FIRST ADVANCE.
As of the date of the first advance of Project Funds to Lessee
pursuant to this Agreement, the amount of the money expended by Lessee on
account of the construction of the Project in accordance with the Project Plans
and the items listed on Project Budget will not be less than the amount of such
first advance.
5.8 VALID AND BINDING.
Lessee is duly authorized to make and enter into all of the Lease Documents
to which Lessee is a party and to carry out the transactions contemplated
therein. All of the Lease Documents to which Lessee is a party have been duly
executed and delivered by Lessee, and each is a legal, valid and binding
obligation of Lessee, enforceable in accordance with its terms.
The General Partner is duly authorized to make and enter into all of the
Lease Documents on behalf of the Lessee to which the General Partner is on
behalf of the Lessee a party and to carry out the transactions contemplated
therein. All of the Lease Documents to which the General Partner is a party on
behalf of the Lessee have been duly executed and delivered by the General
Partner on behalf of the Lessee and each is a legal, valid and binding
obligation of Lessee, enforceable in accordance with its terms.
5.9 NO VIOLATION.
The execution, delivery and performance of the Lease Documents and the
consummation of the transactions thereby contemplated shall not result in any
breach of, or constitute a default under, or result in the acceleration of, or
constitute an
8
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event which, with the giving of notice or the passage of time, or both, would
result in default or acceleration of any obligation of any member of the Leasing
Group under any of the Permits or Contracts or any other contract, mortgage,
lien, lease, agreement, instrument, franchise, arbitration award, judgment,
decree, bank loan or credit agreement, trust indenture or other instrument to
which any member of the Leasing Group is a party or by which any member of the
Leasing Group may be bound or affected and do not violate or contravene any
Legal Requirement.
5.10 CONSENTS AND APPROVALS.
Except as already obtained or filed or as reasonably expected to be
obtained in the ordinary course of business prior to or upon the Completion
of the Project, as the case may be, no consent or approval or other
authorization of, or exemption by, or declaration or filing with, any Person
and no waiver of any right by any Person is required to authorize or permit,
or is otherwise required as a condition of the execution, delivery and
performance of its obligations under the Lease Documents, the Construction
Contract, the Development Agreement or the Architect's Agreement by any
member of the Leasing Group or as a condition to the validity (assuming the
due authorization, execution and delivery by Lessor of the Lease Documents to
which it is a party) and the priority of any Liens granted to Lessor under
the Lease Documents, except the filing of the Financing Statements.
5.11 PENDING ACTIONS, NOTICES AND REPORTS.
(a) There is no action or investigation pending or, to the best knowledge
and belief of Lessee, threatened, anticipated or contemplated (nor, to the
knowledge of Lessee, is there any reasonable basis therefor) against or
affecting the Leased Property or any member of the Leasing Group (or any
Affiliate thereof) before any Governmental Authority, which could prevent or
hinder the consummation of the transactions contemplated hereby or call into
question the validity of any of the Lease Documents or any action taken or to
be taken in connection with the transactions contemplated thereunder or which
in any single case or in the aggregate might result in any material adverse
change in the business, prospects, condition, affairs or operations of any
member of the Leasing Group or the Leased Property (including, without
limitation, any action to revoke, withdraw or suspend any Permit necessary or
desirable for the construction of the Project for its Primary Intended Use.
(b) No member of the Leasing Group has received any notice of any claim,
requirement or demand of any Governmental Authority, to take action so as to
make the Project or the Leased Property conform to or comply with any applicable
Legal Requirement.
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6. COVENANTS
6.1 COLLECTION AND ENFORCEMENT COSTS.
Upon demand, Lessee shall reimburse Lessor for all costs and expenses,
including, without limitation, attorneys' fees and expenses and court costs,
paid or reasonably incurred by Lessor in connection with the collection of
any sum due hereunder, or in connection with the enforcement of any of
Lessor's rights or any member of the Leasing Group's obligations under this
Agreement or any of the other Lease Documents. Any amount due and payable to
Lessor pursuant to the provisions of this Section shall be a demand
obligation and, to the extent permitted by law, shall be added to the Lease
Obligations and shall be secured by the Liens created by the Lease Documents
as fully and effectively and with the same priority as every other obligation
of Lessee secured thereby and, if not paid within ten (10) days after demand,
shall thereafter, to the extent permitted by applicable law, bear interest at
the Overdue Rate until the date of payment. The obligation of Lessee to pay
all costs, charges and sums due hereunder or under any of the other Lease
Documents shall continue in full force and effect and in no way shall be
impaired, until the actual payment thereof to Lessor. In the event of (a) a
sale, conveyance, transfer or other disposition of the Leased Property, (b)
any further agreement given to secure the payment of the obligations set
forth herein or (c) any agreement or stipulation extending the time or
modifying the terms of payment set forth herein, Lessee shall nevertheless
remain obligated to pay the indebtedness evidenced by this Agreement, as
extended or modified by any such agreement or stipulation, unless Lessee is
released and discharged from such obligation by a written agreement executed
by Lessor.
6.2 CONTINUING EFFECT OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties contained in this Leasehold Improvement
Agreement shall constitute continuing representations and warranties which shall
remain true, correct and complete throughout the Term.
6.3 CONSTRUCTION COVENANTS.
6.3.1 COMMENCEMENT OF CONSTRUCTION.
If construction of the Project has not already begun, Lessee shall
commence construction of the Project within thirty (30) days from the
later of the date hereof or of issuance of a building permit for the
Project. Lessee shall diligently and continuously cause the Project to
be constructed and completed and made ready for occupancy and use in
accordance with the Project Plans all in a manner satisfactory to Lessor
on or before the Completion Date.
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Notwithstanding anything to the contrary contained herein, Lessee shall be and
shall remain unconditionally liable to Lessor for (a) the complete construction
of the Project in accordance with the Project Plans on or before the Completion
Date and whether or not proceeds of the Project Funds remaining to be disbursed
hereunder, if any, are sufficient to cover all costs of construction and (b) the
complete performance of all other obligations, covenants, agreements and
liabilities of Lessee hereunder.
6.3.2 QUALITY OF MATERIALS AND WORKMANSHIP.
The materials used in the Project shall be of the quality called for by the
Project Plans, and the workmanship shall be in conformity with the Construction
Contract and this Agreement, and both the quality of such materials and such
workmanship shall be satisfactory to Lessor. Lessee shall not make any changes
in, and shall not permit the General Contractor or the Architect to make any
changes in, the quality of such materials, the Project Plans or the Project
Budget, whether by change order or otherwise, without the prior written consent
of Lessor, in each instance (which consent may be withheld in Lessor's
reasonable discretion); PROVIDED, HOWEVER, that such consent shall not be
required for any individual change which has been approved by the Architect,
which does not materially affect the structure or exterior of the Project, and
the cost of which does not exceed TEN THOUSAND DOLLARS ($10,000) or which
changes, in the aggregate, do not exceed ONE HUNDRED THOUSAND DOLLARS ($100,000)
in cost. Notwithstanding the foregoing, prior to making any change in Project
Plans, copies of all change orders shall be submitted by Lessee to Lessor and
Lessee shall also deliver to Lessor evidence satisfactory to Lessor, in its
reasonable discretion, that all necessary Permits and/or Contracts required by
any Governmental Authority in connection therewith have been obtained or entered
into, as the case may be.
6.3.3 PROJECT BUDGET.
Upon the request of Lessor, Lessee shall furnish Lessor with revisions for
the Project Budget to reflect (a) any changes approved by Lessor to the Project
Budget, (b) the total cost of the construction of the Project completed through
any specific date and (c) the remaining cost to complete the construction of the
Project in accordance with the Project Plans and the terms and provisions of
this Agreement.
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6.3.4 ARCHITECT CERTIFICATES.
Lessee agrees to cause the Architect to furnish such statements as to
progress and certificates of completion as Lessor may reasonably require from
time to time during such period as this Agreement may be in effect, all without
expense to Lessor; provided, however, that to the extent the delivery of such
certificates will require a visit to the Project, Lessee shall have no
obligation to deliver the same more frequently than with every other advance
request hereunder. Lessee agrees to cause the Architect to make the Project
Plans available to Lessor without expense to Lessor, and to agree that, in the
event that Lessor shall take over the Project by reason of an occurrence of a
Lease Default, Lessor shall be entitled to use said Project Plans without any
additional compensation to the Architect above what is required (and was not
previously paid) under the Architect's Contract.
6.3.5 INTENTIONALLY DELETED.
6.3.6 LESSOR'S CONSULTANTS.
Lessee agrees to pay the costs and expenses reasonably incurred by Lessor
to retain the Consultants to perform various services to Lessor in connection
with the construction of the Project and the advances of Project Funds
contemplated hereunder, including, without limitation, the following:
A. to review and analyze the Project Plans and advise Lessor whether
the same are satisfactory for the intended purposes thereof;
B. to make periodic inspections of the Leased Property for the purpose of
assuring that construction performed in connection with the Project
prior to the date of such inspection has been completed in accordance
with the Project Plans and this Agreement;
C. to review Lessee's then current requisition to determine whether it is
consistent with the obligations of Lessee under this Agreement, and to
advise Lessor of the anticipated costs of, and the time for, the
completion of the Project in accordance with the Project Plans, and
the adequacy of reserves and contingencies related thereto;
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D. to review and analyze any proposed changes to the Project Plans and
advise Lessor regarding the same;
E. to review and analyze the Project Budget and advise Lessor as to the
sufficiency thereof; and
F. to review and analyze the Architect's Contract and the Construction
Contract entered into by Lessee in connection with the construction of
the Project and advise Lessor regarding the same.
Except as otherwise expressly provided herein, Lessee agrees promptly to
make such changes or corrections in the construction of the Project as may be
required by Lessor, based on the recommendation of any of the Consultants,
unless Lessee demonstrates to Lessor's satisfaction that such corrective work is
inconsistent with the Project Plans.
6.3.7 TITLE TO MATERIALS AND SECURITY INTEREST GRANTED TO LESSOR.
Except as otherwise expressly provided herein, Lessee shall not suffer the
use in connection with any construction relating to the Project of any
materials, fixtures or equipment intended to become part of the Project which
are purchased upon lease or conditional bill of sale or to which Lessee does not
have absolute and unencumbered title. Lessee covenants to cause to be paid
punctually all sums becoming due for labor, materials, fixtures or equipment
used or purchased in connection with any such construction and, in recognition
of the fact that it is intended that the Project Funds be used to pay for the
costs of the construction of the Project on behalf of the Lessor, Lessee agrees
that title to all materials, fixtures and equipment that are incorporated into
the Project shall automatically pass to Lessor upon such incorporation without
the need for the execution or delivery of any further instrument of conveyance.
Notwithstanding the foregoing, in order to more fully secure Lessor with
reference to all advances of Project Funds made hereunder, Lessee hereby conveys
to Lessor a security interest in all of Lessee's right, title and interest in
materials on the Leased Property which are not at any relevant time
incorporated into the Project and materials, wherever located, intended for
incorporation into the Project. Lessee agrees:
A. that Lessor shall have all the rights, with reference to such
security, as a secured party is
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entitled to hold with reference to any security interest under the
UCC;
B. that such security interest shall cover cash and non-cash proceeds of
such materials;
C. that such materials will not be held for sale to others or disposed of
by Lessee without the prior written consent of Lessor and, if at any
time located on the Leased Property shall be suitably stored, secured
and insured and furthermore, shall not be removed from the Leased
Property; and
D. that such security interest shall be prior to the rights of any other
Person other than the Permitted Prior Security Interests.
The undertakings of Lessee in this Section shall also be applicable to any
personal property that is owned by Lessee and that is used (or to be used) in
connection with the Project, whether or not the purchase thereof was financed by
advances of Project Funds made by Lessor.
Lessee agrees to execute such instruments as Lessor may from time to time
request to perfect the security interest of Lessor in any and all rights under
this Agreement and the other Lease Documents, and any and all property of Lessee
which, under applicable provisions of this Agreement and/or any of the other
Lease Documents, may or shall stand as security for advances of Project Funds
under this Agreement and for the complete performance of the Lease Obligations.
6.3.8 COMPLIANCE WITH LEGAL REQUIREMENTS AND APPLICABLE AGREEMENTS.
Lessee, the Project Plans and the Leased Property and all uses thereof
(including, without limitation, the construction of the Project) shall comply
with (a) all Legal Requirements, (b) all Permits and Contracts, (c) all
applicable by-laws, codes, rules, regulations and restrictions of the Board of
Fire Underwriters or other insurance underwriters or similar body and (i) the
Lease Documents, except to the extent any of the matters represented in clause
(a) or (c) are being duly contested in accordance with the terms of the Lease.
6.3.9 LIENS.
The Leased Property shall at all times be free from any attachment,
encumbrance, lis pendens, mechanic's or materialmen's lien or notice arising
from the furnishing of materials or labor and, with the exception of the
Permitted
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Encumbrances, all other Liens of any kind except to the extent the same is being
duly contested in accordance with the terms of the Lease or the terms hereof.
Lessee shall not permit the recording of any notice of contract or mechanic's or
materialmen's lien relating to construction of the Project or otherwise
affecting the Leased Property except to the extent the same is being duly
contested in accordance with the terms of the Lease or the terms hereof.
Notwithstanding the foregoing provisions of this Section 6.3.09, the existence
of an attachment or lis pendens for a period not in excess of thirty (30) days
shall not be deemed to be a default hereunder provided that (a) there shall be
no cessation of construction of the Project, (b) a Lease Default has not
occurred and (c) Lessee shall proceed promptly to cause such attachment or lis
pendens to be removed, but Lessor shall not be obliged to make any further
advance under this Agreement while such attachment or lis pendens remains
outstanding, unless a bond, satisfactory to Lessor, has been posted as security
for such attachment or lis pendens.
6.3.10 BOOKS AND RECORDS.
Lessee shall cause to be kept and maintained, and shall permit Lessor and
its representatives to inspect at all reasonable times, accurate books of
accounts in which complete entries will be made in accordance with GAAP, if
applicable, reflecting all financial transactions of Lessee relating to the
Project (showing, without limitation, all materials ordered and received and all
disbursements, accounts payable and accounts receivable in connection with the
construction of the Project and the operation of the Leased Property). Such
books and records must accurately reflect that all funds advanced hereunder for
construction of the Project have been used solely for the payment of obligations
and expenses properly incurred in accordance with the Project Budget.
6.3.11 INSPECTION OF CONSTRUCTION.
Lessor and its representatives including, without limitation, the
Consultants, shall, at all times as long as this Agreement remains in effect,
have the right to enter the Leased Property, upon reasonable notice to Lessee
and at reasonable times (except in the event of an emergency) for the purpose of
inspecting the Project and the progress of the work and materials thereon, and
if any such inspection reveals that Lessee is not in compliance herewith (in its
sole and absolute discretion), then Lessor shall not be obligated to make any
further advances under this Agreement to Lessee.
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6.3.12 NOTICE OF DELAY.
Lessee shall give to Lessor prompt written notice of any fire, explosion,
accident, flood, storm, earthquake or other casualty or strike, lock out, act of
God or interruption of the construction of the Project which is reasonably
anticipated to interfere with the ability of Lessee to complete the Project by
the Completion Date.
6.3.13 BONDS.
Performance, payment and lien bonds, in form and substance and guaranteed
by sureties satisfactory to Lessor (in its sole and absolute discretion), shall
be furnished to Lessor in connection with the Construction Contract in amounts
at least equivalent to the amount of such contract, naming Lessor as a dual
obligee and shall be furnished to Lessor prior to the commencement of any work
pursuant to such contract.
6.3.14 USE OF PROJECT FUNDS.
Lessee shall utilize all advances by Lessor pursuant to the terms of this
Agreement only for those items for which requisitions are permitted under this
Agreement or for reimbursement of expenditures already made for items for which
requisitions are so permitted. Lessee agrees to hold all advances by Lessor
hereunder as a trust fund for the purpose of payment of the costs and expenses
permitted under this Agreement.
6.3.15 OCCUPANCY OF THE PROJECT.
Lessee shall not permit any occupancy of the Project (other than such
occupancy as is required in connection with the construction thereto) prior to
(a) the substantial completion of that portion of the Project being occupied and
(b) the issuance by the appropriate Governmental Authorities of a Certificate of
Occupancy, or its equivalent) permitting the occupancy of the Project for its
Primary Intended Use and, if applicable, the Other Permitted Uses. The Project
shall not be deemed to have been completed unless and until constructed in
accordance with this Agreement and a Certificate of Occupancy (or its
equivalent) permitting the occupancy of the Project for its Primary Intended Use
has been issued by the applicable Governmental Authorities.
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7. CONSTRUCTION ADVANCES
7.1 CONDITIONS PRECEDENT TO FIRST ADVANCE OF PROJECT FUNDS.
Prior to the first advance of Project Funds contemplated by this Agreement,
and as a condition of Lessee's right to receive any of the proceeds of the
Project Funds, there shall have been furnished to Lessor:
A. An owner's title insurance policy in form and substance
satisfactory to Lessor, in its sole and absolute discretion,
issued by a title insurance company or companies satisfactory to
Lessor (the "Title Company") with such endorsements, reinsurance
and/or co-insurance as Lessor may require, insuring Lessor's fee
title to the Leased Property free from all Liens and without
exception for (i) filed or unfiled mechanics' liens, (ii)
survey matters, (iii) rights of parties in possession, (iv)
environmental liens and (v) any other matters of any kind or
nature whatsoever other than the Permitted Encumbrances (the
"Title Policy");
B. Such evidence as Lessor may require that the use contemplated for
the Project, and all of the improvements and construction
contemplated by the Project Plans, comply with all applicable
Legal Requirements, to the extent in force and applicable;
C. Insurance policies and/or Certificates of Insurance required
pursuant to the terms and provisions of the Facility Lease;
D. Such evidence as Lessor may require to determine that the total
cost of completion of the Project in all respects, including all
related direct and indirect costs as previously approved by
Lessor, will not exceed the amount set forth in the Project
Budget;
E. Such evidence as Lessor may require that Lessee's representations
and warranties contained herein and in all of the other Lease
Documents are true and correct in every material respect;
F. Such evidence as Lessor may require as to the satisfaction of
such of the terms and conditions of this Agreement and of the
other Lease Documents as may by their nature be satisfied prior
to the making of such advance;
G. Such evidence as Lessor may require that all outstanding
Impositions which are due and payable as of the date of the First
Advance pertaining to the Leased
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Property have been paid in full in accordance with the terms of
the Facility Lease;
H. A current instrument survey, satisfactory in form and content to
Lessor, prepared in accordance with the requirements set forth in
EXHIBIT G (the "Survey") and a certificate substantially in the
form of EXHIBIT H (the "Surveyor's Certificate"), prepared and
signed by a surveyor licensed to do business in the state where
the Leased Property is located with his or her seal affixed
thereto;
I. True and correct copies of the Construction Contract and the
Architect's Contract in effect with respect to the Project, as
well as all receipted bills paid by Lessee to the General
Contractor and the Architect for goods and/or services rendered
with respect to the Project prior to the date hereof;
J. A certificate from an engineer and/or architect, registered as
such in the state where the Leased Property is located,
substantially in the form attached hereto as EXHIBIT H,
certifying as to the (i) compliance of the Leased Property with
all, applicable Legal Requirements, (ii) the availability and
adequacy of access/egress to and from the Leased Property and
(iii) the availability and adequacy of sewer, drainage, water,
electric and other utility services to the lot line of the Leased
Property; together with such other assurances concerning the
design of the Project as Lessor may require;
K. Lessor's receipt of opinions, in forms satisfactory to Lessor (in
its sole and absolute discretion), from Lessee's counsel and the
Guarantor's counsel, regarding (i) the due execution, authority
and enforceability of the Lease Documents; (ii) the compliance of
the Leased Property and the Project, in all material respects,
with applicable zoning and other land use Legal Requirements
(except in such instances in which a satisfactory title insurance
zoning endorsement has been issued); (iii) the valid issuance of
the Certificate of Need, if applicable, and all other Permits
required for the construction of the Project, the continuing
effectiveness of said Certificate of Need, if applicable, and
other Permits and Lessee's and Project's compliance therewith and
(iv) such other matters as Lessor may reasonably request
(collectively, the "Opinions");
L. Payment of the Leasehold Improvement Fee (subject, however, to
the provisions of Section 3 hereof);
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M. True and correct copies of all Permits and Contracts relating to
the construction and operation of the Project (including, without
limitation, an unconditional building permit or a building permit
which is subject only to such conditions as will be fully
satisfied by the completion of the construction of the Project in
accordance with the Project Plans and this Agreement);
N. Such evidence as Lessor may require that there has been no
material adverse change in the financial condition and strength
of Lessee and the Guarantor, and that the Leased Property shall
have sustained no impairment, reduction, loss or damage which has
not been fully restored and repaired, and that no Condemnation
proceedings or other governmental action is or shall be pending
against or with respect thereto;
0. Such evidence as Lessor may require that the General Contractor
and the Architect maintain adequate insurance, as determined in
Lessor's reasonable discretion;
P. True and correct copies of all payment, performance and
Completion bonds required pursuant to 6.3.13 hereof;
Q. A fully executed Construction Assignment, in form and substance
satisfactory to Lessor;
R. A fully executed and authorized Architect's Assignment, in form
and substance satisfactory to Lessor; and
S. A fully executed and authorized Development Assignment, in form
and substance satisfactory to Lessor;
7.2 LESSOR'S RIGHT TO ADVANCE THE PROJECT FUNDS.
Without at any time waiving any of Lessor's rights hereunder, Lessor shall
have the right to make the first advance of a portion of the Project Funds
hereunder without the satisfaction of each and every condition precedent to
Lessor's obligation to make such advance, and Lessee agrees to accept such
advance as Lessor may elect to make. The making of an advance hereunder shall
not constitute an approval or acceptance by Lessor of any work on the Project
theretofore completed.
7.3 SUBMISSION OF REQUESTS FOR ADVANCES OF THE PROJECT FUNDS.
Advances under this Agreement shall be made not more than once each month
and at least ten (10) days before the date upon which an advance is requested,
Lessee shall give notice to
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Lessor, specifying the total advance which will be desired, accompanied by:
A. Itemized requisitions for advances or, at Lessee's option, for
reimbursements to Lessee for prepaid items, signed by Lessee, the
Architect and the General Contractor on A.I.A. Forms G702, G702A or
G703 or such other form(s) as Lessor may reasonably require (together
with copies of invoices or receipted bills relating to items covered
by such requisitions when so requested by Lessor). All such
requisitions shall include an indemnification of Lessor by the
Architect, the General Contractor and Lessee, jointly and severally,
to the extent such indemnification is available from the General
Contractor and the Architect upon Lessee's best efforts to obtain such
indemnification, against any and all claims of any subcontractors,
laborers and suppliers;
B. A certificate executed by Lessee substantially in the form attached
hereto as EXHIBIT I;
C. A certificate executed by the General Contractor substantially in the
form attached hereto as EXHIBIT J;
D. With respect to every other Advance requested, a certificate executed
by the Architect substantially in the form attached hereto as EXHIBIT
K.
E. At Lessor's request, certificates executed by the Consultants in such
form as Lessor may reasonably require;
F. To the event the Advance is not clearly subject to effective coverage,
an endorsement of the Title Policy issued by the Title Company,
satisfactory in form and substance to Lessor, redating the Title
Policy to the date that the then current advance will be made,
increasing the coverage afforded by the Title Policy so that the same
shall constitute insurance in an amount at least equal to the sum of
the amount of the insurance then existing under the Title Policy PLUS
the amount of the then current advance of Project Funds to be
disbursed to Lessee under this Agreement and subject to no additional
exceptions other than the Permitted Encumbrances;
G. If and when reasonably requested by Lessor, satisfactory assurance
that the construction of the Project has been performed in accordance
with the requirements of the Construction Contract, the Project Plans,
this Agreement and all of the other Lease
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Documents and has been inspected and found satisfactory by the parties
hereto;
H. If and when reasonably requested by Lessor, an updated Surveyor's
Certificate substantially in the form attached hereto as EXHIBIT G
and/or updated Engineer's/Architect's Certificate substantially in the
form attached hereto as EXHIBIT H;
I. If and when requested by Lessor, updated Opinions from Lessee's
counsel and the Guarantor's counsel (in form and substance
satisfactory to Lessor in its sole and absolute discretion);
J. If and when requested by Lessor, satisfactory evidence that the funds
remaining unadvanced under this Agreement are sufficient for the
payment of all related direct and indirect costs for the completion of
the Project in accordance with the terms and provisions hereof. If
the evidence furnished shall not be satisfactory to Lessor, in its
sole and absolute discretion, it shall be a condition to the making of
any further advance hereunder that Lessee will provide Lessor with
such financial guaranties (whether in the form of a bond, cash
deposit, letter of credit or otherwise) as are acceptable to Lessor,
in its sole and absolute discretion, to assure the completion of the
construction of the Project in accordance with the Project Plans and
the terms and conditions of this Agreement. In the event that Lessor
requires a cash deposit from Lessee, Lessee shall deposit with Lessor
such funds, to be held in an interest bearing account with the
interest accruing thereon to the benefit of Lessee, which, together
with such unadvanced funds of the Loan, shall be sufficient to pay all
of the aforesaid costs. All funds so deposited with Lessor along with
the proceeds thereof, shall be disbursed prior to any further advance
hereunder and upon completion of the Project any remaining funds so
deposited or any unadvanced portion of the Project Funds, shall be
remitted to Lessee;
K. A certification of work completed by the General Contractor, together
with a statement of the payment due therefor;
L. Partial lien waivers from the General Contractor for all work
theretofore performed, and from all other contractors and all
subcontractors and suppliers for all work, the cost of which in each
instance exceeds ONE THOUSAND DOLLARS ($1,000.00), which was the
subject of a requisition in the immediately preceding month;
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M. If and when reasonably requested, Lessee shall deliver to Lessor an
updated Survey of the Leased Property, acceptable to Lessor (in its
reasonable discretion);
N. Evidence satisfactory to Lessor (in its reasonable discretion) that
all materials and other property furnished by any contractors,
subcontractors, materialmen or other Persons, the cost of which will
be paid with the proceeds of the advance to be made by Lessor, are
free and clear of all Liens, except (a) encumbrances, if any,
(securing indebtedness due to Persons whose names, addresses and
amounts due to them are identified to Lessor) that shall be discharged
upon the disbursement of the funds then being requested, (b) the Liens
created by the Lease Documents and (c) the Permitted Encumbrances;
0. Such evidence as Lessor may require that there has been no material
adverse change in the financial condition and strength of Lessee and
the Guarantor, and that the Leased Property shall have sustained no
impairment, reduction, loss or damage which has not been fully,
restored and repaired and that no condemnation is or shall be pending
against or with respect thereto; and
P. Prior to the first advance which includes amounts to be expended on
the construction or equipping of the Improvements, Lessee shall, to
the extent not previously delivered to Lessor, submit to Lessor true
and correct copies of (i) the Project Budget, (ii) the Project Plans,
(iii) the Schedules and (iv) the Construction Contract, each of which
shall be in form and content satisfactory to Lessor (in its sole and
absolute discretion);
Lessee hereby designates George Lenes as Lessee's construction
representative with authority to approve requisitions and to execute
certificates to be delivered pursuant to Section 13.3B on behalf of Lessee.
7.4 ADVANCES BY WIRE TRANSFER.
All advances hereunder shall be made by wire transfer of funds into a bank
account maintained by either Lessee or an authorized agent of Lessee.
7.5 CONDITIONS PRECEDENT TO ALL ADVANCES.
A. Advances hereunder shall be made solely for the payment of the costs
and expenses incurred by Lessee directly in connection with the
construction of the Project, consistent with the Project Budget, which
are required
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to be paid out-of-pocket to all other Persons or to reimburse Lessee
for out-of-pocket costs incurred by it pursuant to the Project Budget.
No funds advanced by Lessor shall be utilized for any purpose other
than as specified herein and none of the Project Funds shall be paid
over to any officer, stockholder or employee of any member of the
Leasing Group or to any of the Persons collectively constituting any
member of the Leasing Group or those holding a beneficial interest in
any member of the Leasing Group, or any employee thereof, except to
the extent funds are used to pay compensation to an employee for and
with respect to activity of such employee in construction of the
Project.
B. The amount of each requisition shall represent (i) the cost of the
work completed on the Project as of the date of such requisition,
which has not been paid for under prior requisitions, (ii) the cost of
all equipment, fixtures and furnishings included within the Project
Budget approved by Lessor, which has not been paid for under prior
requisitions, but not incorporated into any contract and which have
been delivered to the Leased Property for incorporation into the
Project; provided that, in Lessor's judgment, such materials are
suitably stored, secured and insured and that Lessee can furnish
Lessor with evidence satisfactory to Lessor of Lessee unencumbered
title thereto and (iii) approved soft costs, which have not been paid
for under prior requisitions.
C. All requisitions for the first fifty percent (50%) of the Project
Funds shall be subject to a ten percent (10%) retainage for the
completion of the Project, and no retainage shall be required with
respect to all requisitions thereafter. It is understood that such
retainage is intended to provide a contingency fund to assure that the
construction of the Project shall be fully completed in accordance
with the Project Plans. and the terms and provisions of this
Agreement. All amounts so withheld shall be disbursed after (i)
construction of the Project has been fully completed in accordance
with the Project Plans and the terms and provisions of this Agreement,
(ii) all of the items set forth in Section 7.6 hereof have been
delivered to Lessor and (iii) the expiration of the period during
which liens may be perfected with respect to any work performed or
labor or materials supplied in connection with the construction of the
Project or the receipt of such evidence as may be required to assure
Lessor that no claim may thereafter arise with respect
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to any work performed or labor or materials supplied in connection
with the construction of the Project.
D. At the time of each advance, no event which constitutes, or which,
with notice or lapse of time, or both, would constitute, a Lease
Default shall have occurred and be continuing.
E. Without at any time waiving any of Lessor's rights under this
Agreement, Lessor shall always have the right to make an advance
hereunder without satisfaction of each and every condition upon
Lessor's obligation to make an advance under this Agreement, and
Lessee agrees to accept any advance which Lessor may elect to make
under this Agreement. Notwithstanding the foregoing, Lessor shall
have the right, notwithstanding a waiver relative to the first advance
or any subsequent advance hereunder, to refuse to make any and all
subsequent advances under this Agreement until each and every
condition set forth in this Section has been satisfied. The making of
any advance hereunder shall not constitute an approval or acceptance
by Lessor of any work on the Project theretofore completed.
F. If, while this Agreement is in effect, a claim is made that the
Project does not comply with any Legal Requirement or an action is
instituted before any Governmental Authority with jurisdiction over
the Leased Property or Lessee in which a claim is made as to whether
the Project does so comply, Lessor shall have the right to defer any
advance of Project Funds which Lessor would otherwise be obligated to
make until such time as any such claim is finally disposed of
favorably to the position of Lessee, without any obligation on the
part of Lessor to make a determination of, or judgment on, the merits
of any such claim. For the purposes of the foregoing sentence, the
term "claim" shall mean an assertion by any Governmental Authority or
Person as to which, in each case, Lessor has made a good faith
determination that the assertion may properly be made by the party
asserting the same, that the assertion, on its face, is not without
foundation and that the interests of Lessor require that the assertion
be treated as presenting a bona fide risk of liability or adverse
effect on the Project.
If any such proceeding is not favorably resolved within thirty
(30)days after the commencement thereof, Lessor shall also have the
right, at its option, to treat the commencement of such action as a
Lease Default, for which Lessor shall have all rights herein specified
for
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a Lease Default. As aforesaid, Lessor shall have no obligation to
make a determination with reference to the merits of any such claim.
No waiver of the foregoing right shall be implied from any forbearance
by Lessor in making such election or any continuation by Lessor in
making advances under this Agreement.
In all events, Lessee agrees to notify Lessor forthwith upon learning
of the assertion of any such claim or the commencement of any such
proceedings.
G. It is contemplated that all advances of the Project Funds made by
Lessor to Lessee will be pursuant to this Agreement.
H. No inspections or any approvals of the Project during or after
construction shall constitute a warranty or representation by Lessor
or any of the Consultants as to the technical sufficiency, adequacy or
safety of any structure or any of its component parts, including,
without limitation, any fixtures, equipment or furnishings, or as to
the subsoil conditions or any other physical condition or feature
pertaining to the Leased Property. All acts, including any failure to
act, relating to the Leased Property by any agent, representative or
designee of Lessor (including, without limitation, the Consultants)
are performed solely for the benefit of Lessor to assure the payment
and performance of the Obligations and are not for the benefit of
Lessee or the benefit of any other Person.
7.6 COMPLETION OF THE PROJECT.
Upon the completion of the construction of the Project in accordance with
the Project Plans and the terms and provisions of this Agreement, Lessee shall
provide Lessor with (A) true, correct and complete copies of (i) a final
unconditional Certificate of Occupancy (or its equivalent) issued by the
appropriate governmental authorities, permitting the occupancy and use of the
Project for its Primary Intended use and (ii) all Permits issued by the
appropriate Governmental Authorities which are necessary in order to operate the
Project as a fully-licensed assisted living facility, (B) a certification from
the Architect or the Consultants stating that the Project was completed in
accordance with the Project Plans, (C) an updated Survey of the Leased Property,
acceptable to Lessor (in its sole and absolute discretion), (D) updated Opinions
and (E) such other items relating to the operation and/or construction of the
Project as may be reasonably requested by Lessor.
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8. LESSOR'S RIGHT TO MAKE PAYMENTS AND TAKE OTHER ACTION
Lessor may, after ten (10) Business Days, prior notice to Lessee of its
intention so to do (except in an emergency when such shorter notice shall be
given as is reasonable under the circumstances), under Lessee demonstrates the
same has already been paid, pay any sums due or claimed to be due for labor or
materials furnished in connection with the ownership, construction, development,
maintenance, management, repair, use or operation of the Leased Property, and
any other sums which in the reasonable opinion of Lessor, or its attorneys, it
is expedient to pay, and may take such other and further action which in the
reasonable opinion of Lessor is reasonably necessary in order to secure (A) the
completion of the Project in accordance with the Project Plans and the terms and
conditions of this Agreement, (B) the protection and priority of the security
interests granted to Lessor pursuant to the Lease Documents and (C) the
performance of all obligations under the Lease Documents. Lessor, in its sole
and absolute discretion, may charge any such payments against any advance that
may otherwise be due hereunder to Lessee or may otherwise collect such amounts
from Lessee, and Lessee agrees to repay to Lessor all such amounts, which may
exceed the line item amount therefor in the Project Budget. Any amount which is
not so charged against advances due hereunder and all costs and expenses
reasonably incurred by Lessor in connection therewith (including, without
limitation, attorneys' fees and expenses and court costs) shall be a demand
obligation of Lessee and, to the extent permitted by applicable law, shall be
added to the Lease Obligations and secured by the Liens created by the Lease
Documents, as fully and effectively and with the same priority as every other
obligation of Lessee thereunder and, if not paid within ten (10) days after
demand, shall thereafter, to the extent permitted under applicable law, bear
interest at the Overdue Rate until the date of payment.
If Lessee fails to observe or cause to be observed any of the provisions of
this Agreement and such failure continues beyond any applicable notice or cure
period provided for under this Agreement, Lessor or a lawfully appointed
receiver of the Leased Property, at their respective options, from time to time
may perform, or cause to be performed, any and all repairs and such other work
as they deem necessary to bring the Leased Property in to compliance with the
provisions of this Agreement may enter upon the Leased Property for any of the
foregoing purposes, and Lessee hereby waives any claim against Lessor or such
receiver arising out of such entry or out of any other act carried out pursuant
to this Section. All amounts so expended or incurred by Lessor and by such
receiver and all costs and expenses reasonably incurred in connection therewith
(including, without limitation, attorneys fees and expenses and court costs),
shall be a demand obligation of Lessee to Lessor or such receiver, and, to the
extent permitted by law, shall be added to
26
<PAGE>
the Obligations and shall be secured by the Liens created by the Lease Documents
as fully and effectively and with the same priority as every other obligation of
Lessee secured thereunder and, if not paid within ten (10) days after demand,
shall thereafter, to the extent permitted by applicable law, bear interest at
the Overdue Rate until the date of payment.
9. INSURANCE; CASUALTY; TAKING
9.1 GENERAL INSURANCE REQUIREMENTS.
Lessee shall at its sole cost and expense keep the Leased Property and the
business operations conducted thereon insured as required under the Facility
Lease.
9.2 FIRE OR OTHER CASUALTY OR CONDEMNATION.
In the event of any damage or destruction to the Leased Property by reason
of fire or other hazard or casualty (a "Casualty") or a taking by power of
eminent domain or conveyance in lieu thereof of all or any portion of the Leased
Property (a "Condemnation"), Lessee shall give immediate written notice thereof
to Lessor and comply with the provisions of the Facility Lease governing
Casualties and Condemnations.
10. EVENTS OF DEFAULT
Each of the following shall constitute an "Event of Default" hereunder and
shall entitle Lessor to exercise its remedies hereunder and under any of the
other Lease Documents:
A. any failure of Lessee to pay any amount due hereunder or under any of
the other Lease Documents within ten (10) days following the date when
such payment was due;
B. any failure in the observance or performance of any other covenant,
term, condition or warranty provided in this Agreement or any of the
other Lease Documents, other than the payment of any monetary
obligation and other than as specified in subsections (C) through (F)
below referred to herein as a "Failure to Perform"), continuing for
thirty (30) days after the giving of notice by Lessor to Lessee
specifying the nature of the Failure to Perform; except as to matters
not susceptible to cure within thirty (30) days, provided that with
respect to such matters, (i) Lessee commences the cure thereof within
thirty (30) days after the giving of such notice by Lessor to Lessee,
(ii) Lessee continuously prosecutes such cure to completion, (iii)such
cure is completed within one hundred twenty(120)days after the giving
of such notice by Lessor to Lessee and (iv) such Failure to Perform
does not impair
27
<PAGE>
Lessor's rights with respect to the Leased Property or otherwise
impair the Collateral or Lessor's security interest therein,
C. the occurrence of any default or breach of condition continuing beyond
the expiration of the applicable notice and grace periods, if any,
under any of the other Lease Documents;
D. if any representation, warranty or statement contained herein or in
any of the other Lease Documents proves to be untrue in any material
respect as of the date when made or at any time during the Term if
such representation or warranty is a continuing representation or
warranty pursuant to Section 6.2;
E. except as a result of any Casualty or a partial or complete
Condemnation, if a suspension of any work in connection with the
construction of the Project occurs for a period in excess of ten (10)
Business Days, irrespective of the cause thereof, provided that Lessee
shall not be deemed to be in default under this Subsection if such
suspension is for circumstances not reasonably within its control, but
only if Lessor, in its sole and absolute discretion, shall determine
that such suspension shall not create any risk that the construction
of the Project will not be completed (in accordance with the Project
Plans and the terms and conditions of this Agreement) on or before the
Completion Date; and
F. if construction of the Project shall not be completed in accordance
with the Project Plans and this Agreement (including, without
limitation, satisfaction of the conditions set forth in Section 7.6)
on or before the Completion Date.
11. REMEDIES IN EVENT OF DEFAULT
Upon the occurrence of an Event of Default, at the option of Lessor, which
may be exercised at any time after an Event of Default shall have occurred,
Lessor shall have all rights and remedies available to it, at law or in equity,
including, without limitation, all of the rights and remedies under the Facility
Lease and the other Lease Documents. Subject to the requirements of applicable
law, all materials at that time on or near the Leased Property which are the
property of Lessee and which are to be used in connection with the completion of
the Project shall be subject to the Liens created by the Lease Documents.
In addition to, and without limitation of, the foregoing, Lessor is
authorized to charge all money expended for completion
28
<PAGE>
of the Project against sums hereunder which have not already been advanced
(even if the aggregate amount of such sums expended and all amounts
previously advanced hereunder exceed the amount of the Project Funds which
Lessor has agreed to advance hereunder); and Lessee agrees to pay to Lessor
Rent under the Facility Lease (calculated, in part, thereunder based upon all
sums advanced hereunder, including, without limitation, all sums expended in
good faith by Lessor in connection with the completion of the Project), and,
in addition thereto, Lessee agrees to pay to Lessor (as Rent under the
Facility Lease), for services in connection with said completion of the
Project, such additional sums as shall compensate Lessor for the time and
effort Lessor and its employees shall have expended in connection therewith.
Lessor is authorized, but not obligated in any event, to do all such things
in connection with the construction of the Project as Lessor, in its sole and
absolute discretion, may deem advisable, including, without limitation, the
right to make any payments with respect to any obligation of Lessee to Lessor
or to any other Person in connection with the completion of construction of
the Project and to make additions and changes in the Project Plans, to employ
contractors, subcontractors and agents and to take any and all such action,
either in Lessor's own name or in the name of Lessee, and Lessee hereby
grants Lessor an irrevocable power of attorney to act in its name in
connection with the foregoing. This power of attorney, being coupled with an
interest, shall be irrevocable until all of the Obligations are fully paid
and performed and shall not be affected by any disability or incapacity which
Lessee may suffer and shall survive the same. The power of attorney
conferred on Lessor by the provisions of this Section 11 is provided solely
to protect the interests of Lessor and shall not impose any duty an Lessor to
exercise any such power and neither Lessor nor such attorney-in-fact shall be
liable for any act, omission, error in judgment or mistake of law, except as
the same may result from its gross negligence or willful misconduct. In the
event that Lessor takes possession of the Leased Property and assumes control
of the Project as aforesaid, it shall not be obligated to continue the
construction of the Project and/or the operation of the Project for any
period of time longer than Lessor shall see fit (in its sole and absolute
discretion), and Lessor may thereafter, at any time, abandon its efforts and
refuse to make further payments for the account of Lessee, whether or not the
Project has been completed.
In addition, at Lessor's option and without demand, notice or protest, the
occurrence of any Event of Default shall also constitute a default under any one
or more of the Related Party Agreements.
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<PAGE>
12. GENERAL
The provisions set forth in Article 23 and Sections 2.2, 16.8 through
16.10, 24.2 through 24.6, and 24.8 through 24.12 of the Lease are hereby
incorporated by reference, MUTATIS, MUTANDIS, and shall be applicable to this
Agreement as if set forth in full herein.
This Agreement, the other Lease Documents and the other Lease Documents set
forth the entire agreement of the parties with respect to the subject matter and
shall supersede in all respect the Letter of Intent.
13. LEASE PROVISIONS PARAMOUNT.
In the event of a conflict between the provisions hereof and the provisions
of the Lease, the provisions of the Lease are paramount.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
EXECUTED as a sealed instrument as of the day and year first above
mentioned.
WITNESS: LESSOR:
MEDITRUST ACQUISITION CORPORATION I,
a Massachusetts corporation
// Lila Brazao /s/ Michael F. Bushee
- ----------------------------------- ------------------------------
Name Lila Brazao By: MICHAEL F. BUSHEE
CHIEF OPERATING OFFICER
WITNESS: LESSEE:
ESC I, L.P., a Washington limited
partnership
By: ESC G.P. I, Inc., a Washington,
its sole said Partner
/s/ Jim Wright By: /s/ Raymond R. Brandstrom
- ------------------------------------ --------------------------------
Name: Jim Wright Name: Raymond R. Brandstrom
Title: President
31
<PAGE>
THE FOLLOWING AGREEMENT IS SUBSTANTIALLY THE SAME FOR THE FOLLOWING PROPERTIES
EXCEPT FOR THE FOLLOWING:
Barrington Place: Base rent of $413,601.00 per annum
Springtree: Base rent of $1,410,353.40 per annum
<PAGE>
F A C I L I T Y L E A S E A G R E E M E N T
MEDITRUST ACQUISITION CORPORATION I
(A Massachusetts corporation)
as
Lessor
AND
EMERITUS PROPERTIES I, INC.
(A Washington corporation)
as
Lessee
Dated as of May 1, 1996
For Premises Located in
<PAGE>
FACILITY LEASE AGREEMENT
This FACILITY LEASE AGREEMENT ("Lease") is dated as of the 1st day of May,
1996 and is between MEDITRUST ACQUISITION CORPORATION I ("Lessor"), a
Massachusetts corporation having its principal office at 197 First Avenue,
Needham Heights, Massachusetts 02194, and EMERITUS PROPERTIES I, INC.
("Lessee"), a Washington corporation, having its principal office at c/o
Emeritus Corporation, Market Place One, 2003 Western Avenue, Suite 660, Seattle,
Washington 98121-2162.
ARTICLE 1
LEASED PROPERTY; TERM; CONSTRUCTION; EXTENSIONS
1.1 LEASED PROPERTY. Upon and subject to the terms and conditions
hereinafter set forth, Lessor leases to Lessee and Lessee rents and leases from
Lessor all of Lessor's rights and interests in and to the following real and
personal property (collectively, the "Leased Property"):
(a) the real property described in EXHIBIT A attached hereto (the
"Land");
(b) all buildings, structures, Fixtures (as hereinafter defined) and
other improvements of every kind including, but not limited to, alleyways
and connecting tunnels, sidewalks, utility pipes, conduits and lines, and
parking areas and roadways appurtenant to such buildings and structures
presently or hereafter situated upon the Land (collectively, the "Leased
Improvements");
(c) all easements, rights and appurtenances of every nature and
description now or hereafter relating to or benefitting any or all of the
Land and the Leased Improvements; and
(d) all equipment, machinery, building fixtures, and other items of
property (whether realty, personalty or mixed), including all components
thereof, now or hereafter located in, on or used in connection with, and
permanently affixed to or incorporated into the Leased Improvements,
including, without limitation, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling
and air-conditioning systems and apparatus, sprinkler systems and fire and
theft protection equipment, and built-in oxygen and vacuum systems, all of
which, to the greatest extent permitted by law, are hereby deemed by the
parties hereto to constitute real estate, together with all replacements,
<PAGE>
modifications, alterations and additions thereto, but specifically
excluding all items included within the category of Tangible Personal
Property (as hereinafter defined) which are not permanently affixed to or
incorporated in the Leased Property (collectively, the "Fixtures"); and
The Leased Property is leased in its present condition, AS IS, without
representation or warranty of any kind, express or implied, by Lessor and
subject to: (i) the rights of parties in possession; (ii) the existing state of
title including all covenants, conditions, Liens (as hereinafter defined) and
other matters of record (including, without limitation, the matters set forth in
EXHIBIT B); (iii) all applicable laws and (iv) all matters, whether or not of a
similar nature, which would be disclosed by an inspection of the Leased Property
or by an accurate survey thereof.
1.2 TERM. The term of this Lease shall consist of: the "Initial Term",
which shall commence on May 1, 1996 (the "Commencement Date") and end on March
31, 2008 (the "Expiration Date"); PROVIDED, HOWEVER, that this Lease may be
sooner terminated as hereinafter provided. In addition, Lessee shall have the
option(s) to extend the Term (as hereinafter defined) as provided for in Section
1.3.
1.3 EXTENDED TERMS. Provided that this Lease has not been previously
terminated, and as long as there exists no Lease Default (as hereinafter
defined) at the time of exercise and on the last day of the Initial Term or the
then current Extended Term (as hereinafter defined), as the case may be, Lessee
is hereby granted the option to extend the Initial Term of this Lease for four
(4) additional periods (collectively, the "Extended Terms") as follows: four (4)
successive five (5) year periods for a maximum Term, if all such options are
exercised, which ends on March 31, 2028. Lessee's extension option rights shall
be exercised by Lessee by giving written notice to Lessor of each such extension
at least one hundred eighty (180) days, but not more than three hundred sixty
(360) days, prior to the termination of the Initial Term or the then current
Extended Term, as the case may be. Lessee shall have no right to rescind any
such notice once given. Lessee may not exercise its option for more than one
Extended Term at a time. During each effective Extended Term, all of the terms
and conditions of this Lease shall continue in full force and effect, except
that the Base Rent (as hereinafter defined) for each such Extended Term shall be
adjusted as set forth in Section 3.1(a).
Notwithstanding anything to the contrary set forth herein, Lessee's rights
to exercise the options granted in this Section 1.3 are subject to the further
condition that concurrently with the exercise of any extension option hereunder,
Lessee shall have
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<PAGE>
exercised its option to extend the terms of all of the Related Leases in
accordance with the provisions of the Agreement Regarding Related Transactions
and the provisions of Section 1.3 of each of the Related Leases.
ARTICLE 2
DEFINITIONS AND RULES OF CONSTRUCTION
2.1 DEFINITIONS. For all purposes of this Lease and the other Lease
Documents (as hereinafter defined), except as otherwise expressly provided or
unless the context otherwise requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular and (ii) all references in this Lease or any of the other
Lease Documents to designated "Articles", "Sections" and other subdivisions are
to the designated Articles, Sections and other subdivisions of this Lease or the
other applicable Lease Document.
ACCOUNTS: As defined in the UCC.
ACCREDITATION BODY: Any person, including any Person having or claiming
jurisdiction over the accreditation, certification, evaluation or operation of
the Facility.
ADDED VALUE PERCENTAGE: The proportion of the Fair Market Added Value of
Capital Additions paid for or financed by Lessee to the Fair Market Value of the
entire Leased Property, expressed as a percentage.
ADDITIONAL CHARGES: As defined in Article 3.
ADDITIONAL LAND: As defined in Section 9.3.
ADDITIONAL RENT: As defined in Article 3.
ADDITIONAL RENT COMMENCEMENT DATE: As defined in Article 3.
AFFILIATE: With respect to any Person (i) any other Person which, directly
or indirectly, controls or is controlled by or is under common control with such
Person, (ii) any other Person that owns, beneficially, directly or indirectly,
five percent (5%) or more of the outstanding capital stock, shares or equity
interests of such Person or (iii) any officer, director, employee, general
partner or trustee of such Person, or any other Person controlling, controlled
by, or under common control with, such Person (excluding trustees and Persons
serving in a fiduciary or similar capacity who are not otherwise an Affiliate of
such Person). For the purposes of this definition, "control" (including the
correlative meanings of the terms "controlled by"
3
<PAGE>
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests provided,
however, that, (a) for purposes of determining a Related Party Default, the
percentage of outstanding capital stock, shares or equity interests referenced
in (ii) above shall be fifty percent (50%) and (b) any Person who is an
Affiliate by virtue of the ownership thereof by Daniel R. Baty or his status
therein as an officer or director shall not be deemed an Affiliate for purposes
of determining a Related Party Default.
AFFILIATED PARTY SUBORDINATION AGREEMENT: That certain Affiliated Party
Subordination Agreement of even date by and among Lessee, the Guarantor, various
Affiliates of Lessee and various Affiliates of Lessor.
AGREEMENT REGARDING RELATED TRANSACTIONS: The Second Amended and Restated
Agreement Regarding Related Transactions (Acquisition) of even date, as amended
from time to time, between Lessee, Lessor and any Related Party that is party to
any Related Lease or Related Party Agreement. Lessor and Lessee anticipate that
the Agreement Regarding Related Transactions will be amended from time to time
to include Affiliates of Lessor and Lessee as parties thereto in connection with
future transactions and acknowledge and agree that for all purposes under this
Lease Agreement such amendments shall be deemed to be included in this
definition.
ANNUAL FACILITY UPGRADE EXPENDITURE: An aggregate annual amount equal to
the product of TWO HUNDRED DOLLARS ($200) (as increased as of the first day of
each Lease Year in which the Annual Facility Upgrade Expenditure is to be made
by an amount equal to the product of the CPI Increase multiplied by TWO HUNDRED
DOLLARS ($200)) times the number of units in the Facility, such amount to be
spent on Upgrade Renovations. The term "CPI Increase" means a fraction, the
numerator of which is the Price Index in effect as of the first day of the Lease
Year in which the Annual Facility Upgrade Expenditure is to be made and the
denominator of which is the Price Index in effect as of the date hereof. The
term "Price Index" means the Consumer Price Index for Urban Wage Earners and
Clerical Workers, All Items-Series A (1982-84=100), published by the Bureau of
Labor Statistics, U.S. Department of Labor. If the Bureau of Labor Statistics
should cease to publish such Price Index in its present form and calculated on
the present basis, then the most similar index published by the same Bureau
shall be used for the same purpose. If there is no such similar index, a
substitute index which is then generally recognized as being similar to such
Price Index, such substitute index to be reasonably selected by Lessor.
4
<PAGE>
APPURTENANT AGREEMENTS: Collectively, all instruments, documents and other
agreements that now or hereafter create any utility, access or other rights or
appurtenances benefiting or relating to the Leased Property.
AWARD: All compensation, sums or anything of value awarded, paid or
received on a total or partial Condemnation.
BASE GROSS REVENUES: The annualized Gross Revenues of the Facility for the
period from and including April 1, 1997 through and including March 31, 1998,
initially as shown by Lessee's certified Consolidated Financial Statements and
as later verified by Lessee's Consolidated Financial Statements.
BASE RENT: As defined in Section 3.1.
BUSINESS DAY: Any day which is not a Saturday or Sunday or a public holiday
under the laws of the United States of America, the Commonwealth of
Massachusetts, the State or the state in which Lessor's depository bank is
located.
CAPITAL ADDITIONS: Collectively, all new buildings and additional
structures annexed to any portion of any of the Leased Improvements and material
expansions of any of the Leased Improvements which are constructed on any
portion of the Land during the Term, including, without limitation, the
construction of a new wing or new story, the renovation of any of the Leased
Improvements on the Leased Property and any expansion, construction, renovation
or conversion in connection therewith (a) in order to provide a functionally new
facility that is needed or used to provide services not previously offered or
(b)in order to (i) increase the bed capacity of a Facility, (ii) change the
purpose for which such beds are utilized and/or (iii) change the utilization of
any material portion of any of the Leased Improvements.
CAPITAL ADDITION COST: The cost of any Capital Addition made by Lessee
whether paid for by Lessee or Lessor. Such cost shall include all costs and
expenses of every nature whatsoever incurred directly or indirectly in
connection with the development, permitting, construction and financing of a
Capital Addition as reasonably determined by, or to the reasonable satisfaction
of, Lessor.
CASH COLLATERAL: As defined in the Deposit Pledge Agreement.
CASH FLOW: The Consolidated Net Income (or Consolidated Net Loss) before
federal and state income taxes for any period PLUS (i) the amount of the
provision for depreciation and amortization actually deducted on the books of
the applicable Person for the purposes of computing such Consolidated Net Income
(or
5
<PAGE>
Consolidated Net Loss) for the period involved, PLUS (ii) Rent and interest on
all other Indebtedness which is fully subordinated to the Lease Obligations,
PLUS (iii) any indebtedness which is fully subordinated to the Lease Obligations
pursuant to the Affiliated Party Subordination Agreement or the Management
Subordination Agreement.
CASUALTY: As defined in Section 13.1.
CHATTEL PAPER: As defined in the UCC.
CLOSING: As defined in Section 18.3.6.
CODE: The Internal Revenue Code of 1986, as amended.
COLLATERAL: All of the property in which security interests are granted to
Lessor and the other Meditrust Entities pursuant to the Lease Documents and the
Related Party Agreements to secure the Lease Obligations, including, without
limitation, the Cash Collateral.
COMPETITIVE ACTIVITY: As defined in Section 11.5.
CONDEMNATION: With respect to the Leased Property or any interest therein
or right accruing thereto or use thereof (i) the exercise of any governmental
authority, whether by legal proceedings or otherwise, by a Condemnor or (ii) a
voluntary sale or transfer by Lessor to any Condemnor, either under threat of
Condemnation or Taking or while legal proceedings for Condemnation or Taking are
pending.
CONDEMNOR: Any public or quasi-public authority, or private corporation or
individual, having the power of condemnation.
CONSOLIDATED: The consolidated accounts of the relevant Person and its
Subsidiaries consolidated in accordance with GAAP.
CONSOLIDATED FINANCIALS: For any fiscal year or other accounting period for
any Person and its consolidated Subsidiaries, statements of earnings and
retained earnings and of changes in financial position for such period and for
the period from the beginning of the respective fiscal year to the end of such
period and the related balance sheet as at the end of such period, together with
the notes thereto, all in reasonable detail and setting forth in comparative
form the corresponding figures for the corresponding period in the preceding
fiscal year, and prepared in accordance with GAAP, and disclosing all
liabilities of such Person and its consolidated Subsidiaries, including, without
limitation, contingent liabilities.
CONSULTANTS: Collectively, the architects, engineers, inspectors, surveyors
and other consultants that are engaged from
6
<PAGE>
time to time by Lessor to perform services for Lessor in connection with this
Lease.
CONTRACTS: All agreements (including, without limitation, Provider
Agreements, to the extent applicable, and any Residency Agreement), contracts
(including without limitation, construction contracts, subcontracts, and
architects' contracts), contract rights, warranties and representations,
franchises, and records and books of account benefiting, relating to or
affecting the Leased Property or the ownership, construction, development,
maintenance, management, repair, use, occupancy, possession, or operation
thereof, or the operation of any programs or services in conjunction with the
Facility and all renewals, replacement and substitutions therefor, now or
hereafter issued to any member of the Leasing Group by, or entered into by any
member of the Leasing Group with, any Governmental Authority, Accreditation Body
or Third Party Payor or maintained or used by any member of the Leasing Group or
entered into by any member of the Leasing Group with any third Person.
CURRENT ASSETS: All assets of any Person which would, in accordance with
GAAP, be classified as current assets.
CURRENT LIABILITIES: All liabilities of any Person which would, in
accordance with GAAP, be classified as current liabilities.
DATE OF TAKING: The date the Condemnor has the right to possession of the
property being condemned.
DEBT COVERAGE RATIO: The ratio of (i) Cash Flow for each applicable period
to (ii) the total of all Rent (excluding Additional Rent due under this Lease)
paid or payable during such period or accrued for such period.
DECLARATION: As defined in Article 23.
DEED: As defined in Section 18.3.
DEPOSIT: As defined in Section 18.3.
DEPOSIT PLEDGE AGREEMENT: The pledge and security agreement so captioned
and dated as of even date herewith between Lessee and Lessor.
DOCUMENTS: As defined in the UCC.
ENCUMBRANCE: As defined in Section 20.3.
ENVIRONMENTAL INDEMNITY AGREEMENT: The Environmental Indemnity Agreement of
even date herewith by and among Lessee the Guarantor and Lessor.
7
<PAGE>
ENVIRONMENTAL LAWS: As defined in the Environmental Indemnity Agreement.
ERISA: The Employment Retirement Income Security Act of 1974, as amended.
EVENT OF DEFAULT: As defined in Article 16.
EXCESS GROSS REVENUES: Gross Revenues less Base Gross Revenues.
EXPIRATION DATE: As defined in Section 1.2.
EXTENDED TERMS: As defined in Section 1.4.
FACILITY: The one hundred eighty-four (184) unit, two hundred forty-six
(246) bed, fully licensed assisted living facility known as "Springtree
Retirement Residence" on the Land (together with related parking and other
amenities).
FAILURE TO OPERATE: As defined in Article 16.
FAILURE TO PERFORM: As defined Article 16.
FAIR MARKET ADDED VALUE: The Fair Market Value of the Leased Property
(including all Capital Additions) MINUS the Fair Market Value of the Leased
Property determined as if no Capital Additions paid for by Lessee had been
constructed.
FAIR MARKET VALUE OF THE CAPITAL ADDITION: The amount by which the Fair
Market Value of the Leased Property upon the completion of a particular Capital
Addition exceeds the Fair Market Value of the Leased Property just prior to the
construction of the particular Capital Addition.
FAIR MARKET VALUE OF THE LEASED PROPERTY: The fair market value of the
Leased Property, including all Capital Additions, and including the Land and all
other portions of the Leased Property, and (a) assuming the same is unencumbered
by this Lease, (b) determined in accordance with the appraisal procedures set
forth in Section 18.2 or in such other manner as shall be mutually acceptable to
Lessor and Lessee and not taking into account any reduction in value resulting
from any Lien to which the Leased Property is subject and which Lien Lessee or
Lessor is otherwise required to remove at or prior to closing of the
transaction. However, the positive or negative effect on the value of the
Leased Property attributable to the interest rate, amortization schedule,
maturity date, prepayment provisions and other terms and conditions of any Lien
an the Leased Property which is not so required or agreed to be removed shall be
taken into account in determining the Fair Market Value of the Leased Property.
The Fair Market Value shall be determined as the
8
<PAGE>
overall value based on due consideration of the "income" approach, the
"comparable sales" approach, and the "replacement cost" approach.
FEE MORTGAGE: As defined in Section 20.3.
FEE MORTGAGEE: As defined in Section 20.3.
FINANCING PARTY: Any Person who is or may be participating with Lessor in
any way in connection with the financing of any Capital Addition.
FINANCING STATEMENTS: Uniform Commercial Code financing statements
evidencing the security interests granted to Lessor in connection with the Lease
Documents.
FISCAL QUARTER: Each of the three (3) month periods commencing on January
1st, April 1st, July 1st and October 1st.
FISCAL YEAR: The twelve (12) month period from January 1st to December
31st.
FIXTURES: As defined in Article 1.
GAAP: Generally accepted accounting principles, consistently applied
throughout the relevant period.
GENERAL INTANGIBLES: As defined in the UCC.
GOVERNMENTAL AUTHORITIES: Collectively, all agencies, authorities, bodies,
boards, commissions, courts, instrumentalities, legislatures, and offices of any
nature whatsoever of any government, quasi-government unit or political
subdivision, whether with a federal, state, county, district, municipal, city or
otherwise and whether now or hereinafter in existence.
GROSS REVENUES: Collectively, all revenues generated by reason of the
operation of the Leased Property (including any Capital Additions), directly or
indirectly received or to be received by Lessee or any Affiliate of Lessee,
including, without limitation, all resident revenues received or receivable for
the use of, or otherwise by reason of, all rooms, units and other facilities
provided, meals served, services performed, space or facilities subleased or
goods sold on or from the Leased Property and further including, without
limitation, except as otherwise specifically provided below, any consideration
received under any subletting, licensing, or other arrangements with any Person
relating to the possession or use of the Leased Property and all revenues from
all ancillary services provided at or relating to the Leased Property; PROVIDED,
HOWEVER, that Gross Revenues shall not include non-operating revenues such as
interest income or
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gain from the sale of assets not sold in the ordinary course of business; and
PROVIDED, FURTHER, that there shall be excluded or deducted (as the case may be)
from such revenues:
(i) all applicable contractual allowances (relating to any period during
the Term of this Lease and thereafter until the Rent hereunder is paid in
full), if any, for billings not paid by or received from the appropriate
Governmental Agencies or Third Party Payors,
(ii) all applicable allowances according to GAAP for uncollectible
accounts,
(iii) all proper resident billing credits and adjustments according to
GAAP, if any, relating to health care accounting,
(iv) federal, state or local sales, use, gross receipts and excise taxes
and any tax based upon or measured by said Gross Revenues which is added to
or made a part of the amount billed to the resident or other recipient of
such services or goods, whether included in the billing or stated
separately,
(v) provider discounts for hospital or other medical facility utilization
contracts, if any,
(vi) the cost, if any, of any federal, state or local governmental program
imposed specially to provide or finance indigent resident care (other than
Medicare, Medicaid and the like),
(vii) deposits refundable to residents of the Facility, and
(viii) payments received on behalf of, and paid to, Persons who are not
Affiliates of Lessee.
To the extent that the Leased Property is subleased or occupied by an
Affiliate of Lessee, Gross Revenues calculated for all purposes of this Lease
(including, without limitation, the determination of the Additional Rent payable
under this Lease) shall include the Gross Revenues of such Sublessee with
respect to the premises demised under the applicable Sublease (i.e., the Gross
Revenues generated from the operations conducted on such subleased portion of
the Leased Property) and the rent received or receivable from such Sublessee
pursuant to such Subleases shall be excluded from Gross Revenues for all such
purposes. As to any Sublease between Lessee and a non-Affiliate of Lessee, only
the rental actually received by Lessee from such non-Affiliate shall be included
in Gross Revenues.
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GROUP TWO ACQUISITION FACILITIES: As defined in the Agreement Regarding
Related Transactions.
GUARANTOR: Emeritus Corporation, a Washington corporation, and its
successors and assigns.
GUARANTY OF LEASE OBLIGATIONS: The Guaranty of Lease Obligations of even
date executed by Guarantor in favor of Lessor, relating to the Lease
Obligations.
HAZARDOUS SUBSTANCES: As defined in the Environmental Indemnity Agreement.
IMPOSITIONS: Collectively, all taxes (including, without limitation, all
capital stock and franchise taxes of Lessor, all ad valorem, property, sales
and use, single business, gross receipts, transaction privilege, rent or
similar taxes), assessments (including, without limitation, all assessments
for public improvements or benefits, whether or not commenced or completed
prior to the date hereof and whether or not to be completed within the Term),
ground rents, water and sewer rents, water charges or other rents and
charges, excises, tax levies, fees (including, without limitation, license,
permit, inspection, authorization and similar fees), transfer taxes and
recordation taxes imposed as a result of this Lease or any extensions hereof,
and all other governmental charges, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character in
respect of either or both of the Leased Property and the Rent (including all
interest and penalties thereon due to any failure in payment by Lessee),
which at any time prior to, during or in respect of the Term hereof and
thereafter until the Leased Property is surrendered to Lessor as required by
the terms of this Lease, may be assessed or imposed on or in respect of or be
a Lien upon (a) Lessor or Lessor's interest in the Leased Property, (b) the
Leased Property or any rent therefrom or any estate, right, title or interest
therein, or (c) any occupancy, operation, use or possession of, sales from,
or activity conducted on, or in connection with, the Leased Property or the
leasing or use of the Leased Property. Notwithstanding the foregoing,
nothing contained in this Lease shall be construed to require Lessee to pay
(1) any tax based on net income (whether denominated as a franchise or
capital stock or other tax) imposed on Lessor or any other Person, except
Lessee or its successors, (2) any net revenue tax of Lessor or any other
Person, except Lessee and its successors, (3) any tax imposed with respect to
the sale, exchange or other disposition by Lessor of the Leased Property or
the proceeds thereof, or (4) except as expressly provided elsewhere in this
Lease, any principal or interest on any Encumbrance on the Leased Property;
PROVIDED, HOWEVER, the provisos set forth in clauses (1) and (2) of this
sentence shall not be applicable to the extent that any real or personal
property tax, assessment, tax levy or charge
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which Lessee is obligated to pay pursuant to the first sentence of this
definition and which is in effect at any time during the Term hereof is totally
or partially repealed, and a tax, assessment, tax levy or charge set forth in
clause (1) or (2) is levied, assessed or imposed expressly in lieu thereof. In
computing the amount of any franchise tax or capital stock tax which may be or
become an Imposition, the amount payable by Lessee shall be equitably
apportioned based upon all properties owned by Lessor that are located within
the particular jurisdiction subject to any such tax.
INDEBTEDNESS: The total of all obligations of a Person, whether current or
long-term, which in accordance with GAAP would be included as liabilities upon
such Person's balance sheet at the date as of which Indebtedness is to be
determined, and shall also include (i) all capital lease obligations and (ii)
all guarantees, endorsements (other than for collection of instruments in the
ordinary course of business), or other arrangements whereby responsibility is
assumed for the obligations of others, whether by agreement to purchase or
otherwise acquire the obligations of others, including any agreement contingent
or otherwise to furnish funds through the purchase of goods, supplies or
services for the purpose of payment of the obligations of others.
INDEMNIFIED PARTIES: As defined in Section 12.2.2.
INDEX: The rate of interest of actively traded marketable United States
Treasury Securities bearing a fixed rate of interest adjusted for a constant
maturity of ten (10) years as calculated by the Federal Reserve Board.
INITIAL TERM: As defined in Section 1.2.
INSTRUMENTS: As defined in the UCC.
INSURANCE REQUIREMENTS: All terms of any insurance policy required by this
Lease, all requirements of the issuer of any such policy with respect to the
Leased Property and the activities conducted thereon and the requirements of any
insurance board, association or organization or underwriters' regulations
pertaining to the Leased Property.
LAND: As defined in Article 1.
LEASE: As defined in the preamble of this Lease.
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LEASE DEFAULT: The occurrence of any default or breach of condition
continuing beyond any applicable notice and/or grace periods under this Lease
and/or any of the other Lease Documents.
LEASE DOCUMENTS: Collectively, this Lease, the Guaranty of Lease
Obligations, the Agreement Regarding Related Transactions, the Security
Agreement, the Deposit Pledge Agreement, the Negative Pledge Agreement, the
Permits Assignment, the Financing Statements, the Affiliated Party Subordination
Agreement, the Environmental Indemnity Agreement and any and all other
instruments, documents, certificates or agreements executed or furnished by any
member of the Leasing Group in connection with the transactions evidenced by the
Lease and/or any of the foregoing documents.
LEASE OBLIGATIONS: Collectively, all indebtedness, covenants, liabilities,
obligations, agreements and undertakings (other than Lessor's obligations) under
this Lease and the other Lease Documents.
LEASE YEAR: A twelve month period ending on March 31st of each year;
PROVIDED, THAT the first Lease Year shall begin on the Commencement Date and
shall end on March 31, 1997.
LEASED IMPROVEMENTS: As defined in Article 1.
LEASED PROPERTY: As defined in Article 1.
LEASING GROUP: Collectively, Lessee, the Guarantor, the General Partner,
any Sublessee which is an Affiliate of Lessee and any Manager which is an
Affiliate of Lessee.
LEGAL REQUIREMENTS: Collectively, all statutes, ordinances, by-laws, codes,
rules, regulations, restrictions, orders, judgments, decrees and injunctions
(including, without limitation, all applicable building, health code, zoning,
subdivision, and other land use and assisted living licensing statutes,
ordinances, by-laws, codes, rules and regulations), whether now or hereafter
enacted, promulgated or issued by any Governmental Authority, Accreditation Body
or Third Party Payor affecting Lessor, any member of the Leasing Group or the
Leased Property or the ownership, construction, development, maintenance,
management, repair, use, occupancy, possession or operation thereof or the
operation of any programs or services in connection with the Leased Property,
including, without limitation, any of the foregoing which may (i) require
repairs, modifications or alterations in or to the Leased Property, (ii) in any
way affect (adversely or otherwise) the use and enjoyment of the Leased Property
or (iii) require the assessment, monitoring, clean-up, containment, removal,
remediation or other treatment of any Hazardous Substances on, under or from the
Leased Property. Without limiting the foregoing, the term Legal
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Requirements includes all Environmental Laws and shall also include all Permits
and Contracts issued or entered into by any Governmental Authority, any
Accreditation Body and/or any Third Party Payor and all Permitted Encumbrances.
LESSEE: As defined in the preamble of this Lease and its successors and
assigns.
LESSEE'S ELECTION NOTICE: As defined in Section 14.3.
LESSEE'S PURCHASE OPTION NOTICE: As defined in Section 18.3.
LESSOR: As defined in the preamble of this Lease and its successors and
assigns.
LIEN: With respect to any real or personal property, any mortgage,
easement, restriction, lien, pledge, collateral assignment, hypothecation,
charge, security interest, title retention agreement, levy, execution, seizure,
attachment, garnishment or other encumbrance of any kind in respect of such
property, whether or not inchoate, vested or perfected.
LIMITED PARTIES: As defined in Section 11.5.4; PROVIDED, HOWEVER, in no
event shall the term Limited Parties include any Person in its capacity as a
shareholder of a public entity, unless such shareholder is a member of the
Leasing Group or an Affiliate thereof.
MANAGED CARE PLANS: All health maintenance organizations, preferred
provider organizations, individual practice associations, competitive medical
plans, and similar arrangements.
MANAGEMENT AGREEMENT: Any agreement, whether written or oral, between
Lessee or any Sublessee and any other Person pursuant to which Lessee or such
Sublessee provides any payment, fee or other consideration to any other Person
to operate or manage the Facility.
MANAGEMENT SUBORDINATION AGREEMENT: The Management Subordination Agreement
as of even date herewith between Lessee and Lessor.
MANAGER: Any Person who has entered into a Management Agreement with Lessee
or any Sublessee.
MATERIAL STRUCTURAL WORK: Any (i) structural alteration, (ii) structural
repair or (iii) structural renovation to the Leased Property, which would
customarily require or which require the design and/or involvement of a
structural engineer or architect or which would require the issuance of a
Permit.
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MEDICAID: The medical assistance program established by Title XIX of the
Social Security Act (42 USC Sections 1396 ET SEQ.) and any statute succeeding
thereto.
MEDICARE: The health insurance program for the aged and disabled
established by Title XVIII of the Social Security Act (42 USC Sections 1395
ET SEQ.) and any statute succeeding thereto.
MEDITRUST: As defined in Article 23.
MEDITRUST/EMERITUS TRANSACTION AFFILIATE: An Affiliate of Lessee, the
business and activities of which are limited to those subject to
Meditrust/Emeritus Transaction Documents (other than the Affiliated Party
Subordination Agreement, the Agreement Regarding Related Transactions and
comparable agreement now or hereafter in effect among Affiliates of Lessee and
of Lessor) to which such Affiliate is a party.
MEDITRUST/EMERITUS TRANSACTION DOCUMENTS: As defined in the Agreement
Regarding Related Transactions.
MEDITRUST ENTITIES: Collectively, Meditrust, Lessor and any other Affiliate
of Lessor which may now or hereafter be a party to any Related Party Agreement.
MEDITRUST INVESTMENT: The sum of (i) the Original Meditrust Investment PLUS
(ii) the aggregate amount of all Subsequent Investments LESS the sum of any Net
Award Amounts and/or Net Proceeds Amounts.
MONTHLY DEPOSIT DATE: As defined in Section 4.6.
NEGATIVE PLEDGE AGREEMENT: The Group Two Negative Pledge Agreement
(Acquisition) of even date by and between Guarantor, Lessee and Lessor.
NET AWARD AMOUNT: As defined in Section 3.7.
NET INCOME (OR NET LOSS): The net income (or net loss, expressed as a
negative number) of a Person for any period, after all taxes actually paid or
accrued and all expenses and other charges determined in accordance with GAAP.
NET PROCEEDS AMOUNT: As defined in Section 3.7.
NET WORTH: An amount determined in accordance with GAAP equal to the total
assets of any Person, minus the total liabilities of such Person.
OBLIGATIONS: Collectively, the Lease obligations and the Related Party
Obligations.
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OFFICER'S CERTIFICATE: A Certificate of Lessee signed on behalf of Lessee
by the Chairman of the Board of Directors, the President, any Vice President or
the Treasurer of Lessee, or another officer authorized to so sign by the Board
of Directors or By-Laws of Lessee, or any other Person whose power and authority
to act has been authorized by delegation in writing by any of the Persons
holding the foregoing offices.
ORIGINAL MEDITRUST INVESTMENT: The sum of FOURTEEN MILLION TWO HUNDRED
SEVENTEEN THOUSAND TWO HUNDRED SEVENTY THREE DOLLARS ($14,217,273.00).
OTHER PERMITTED USES: To the extent permitted under applicable Legal
Requirements and under Insurance Requirements, and so long as the same do not
detract in any material manner from the Primary Intended Use and do not occupy
more than ten percent (10%) of the useable floor area of the building comprising
the Facility, such uses as Lessee reasonably determines are appropriate and
incidental to the Primary Permitted Use.
OVERDUE RATE: On any date, a rate of interest per annum equal to the
greater of: (i) a variable rate of interest per annum equal to one hundred
twenty percent (120%) of the Prime Rate, or (ii) eighteen percent (18%) per
annum; PROVIDED, HOWEVER, in no event shall the Overdue Rate be greater than the
maximum rate then permitted under applicable law to be charged by Lessor.
PBGC: Pension Benefit Guaranty Corporation.
PERMITS: Collectively, all permits, licenses, approvals, qualifications,
rights, variances, permissive uses, accreditation, certificates, certifications,
consents, agreements, contracts, contract rights, franchises, interim licenses,
permits and other authorizations of every nature whatsoever required by, or
issued under, applicable Legal Requirements relating or affecting the Leased
Property or the construction, development, maintenance, management, use or
operation thereof, or the operation of any programs or services in conjunction
with the Facility and all renewals, replacements and substitutions therefor, now
or hereafter required or issued by any Governmental Authority, Accreditation
Body or Third Party Payor to any member of the Leasing Group, or maintained or
used by any member of the Leasing Group, or entered into by any member of the
Leasing Group with any third Person with respect to the Leased Property.
PERMITS ASSIGNMENT: The Collateral Assignment of Permits, Licenses and
Contracts of even date granted by Lessee to Lessor.
PERMITTED ENCUMBRANCES: As defined in Section 10.1.18.
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PERMITTED PRIOR SECURITY INTERESTS: As defined in Section 6.1.2.
PERSON: Any individual, corporation, general partnership, limited
partnership, joint venture, stock company or association, company, bank, trust,
trust company, land trust, business trust, unincorporated organization,
unincorporated association, Governmental Authority or other entity of any kind
or nature.
PLANS AND SPECIFICATIONS: As defined in Section 13.1.3.
PRIMARY INTENDED USE: The use of the Facility as an assisted living
facility with one hundred eighty-four (184) units, two hundred forty six (246)
beds or such additional number of units or beds as may hereafter be permitted
under this Lease, and such ancillary uses as are permitted by law and may be
necessary in connection therewith or incidental thereto.
PRIME RATE: The variable rate of interest per annum from time to time
announced by the Reference Bank as its prime rate of interest and in the event
that the Reference Bank no longer announces a prime rate of interest, then the
Prime Rate shall be deemed to be the variable rate of interest per annum which
is the prime rate of interest or base rate of interest from time to time
announced by any other major bank or other financial institution reasonably
selected by Lessor.
PRINCIPAL PLACE OF BUSINESS: As defined in Section 10.1.28.
PROCEEDS: As defined in the UCC.
PROVIDER AGREEMENTS: All participation, provider and reimbursement
agreements or arrangements, if any, now or hereafter in effect for the benefit
of Lessee or any Sublessee in connection with the operation of the Facility
relating to any right of payment or other claim arising out of or in connection
with Lessee's or such Sublessee's participation in any Third Party Payor
Program.
PURCHASE OPTION: As defined in Section 18.3.
PURCHASE OPTION DATE: As defined in Section 18.3.
PURCHASE OPTION PURCHASE PRICE: As defined in Section 18.3.
PURCHASER: As defined in Section 11.5.
RECEIVABLES: Collectively, (i) all rights to payment for goods sold or
leased or services rendered by Lessee or any other party, whether now in
existence or arising from time to time hereafter and whether or not yet earned
by performance, including, without limitation, obligations evidenced by an
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account, note, contract, security agreement, chattel paper, or other evidence of
indebtedness, including Accounts and Proceeds, and (ii) a license to use such
Instruments, Documents, Accounts, Proceeds, General Intangibles and Chattel
Paper as are reasonably required for purposes of exercising the rights set forth
in (i) above.
REFERENCE BANK: Fleet Bank of Connecticut, N.A.
RELATED LEASES: The Group Two Acquisition Facility Leases (as defined in
the Agreement Regarding Related Transactions), together with such other new
leases identified from time to time in the Agreement Regarding Related
Transactions.
RELATED PARTIES: Collectively, each Person that may now or hereafter be a
party to any Related Party Agreement other than the Meditrust Entities.
RELATED PARTY AGREEMENT: Any agreement, document or instrument now or
hereafter evidencing or securing any Related Party Obligation, including,
without limitation, the Related Leases.
RELATED PARTY DEFAULT: The occurrence of a default or breach of condition
continuing beyond the expiration of any applicable notice and grace periods, if
any, under the terms of any Related Party Agreement.
RELATED PARTY OBLIGATIONS: Collectively, all indebtedness, covenants,
liabilities, obligations, agreements and undertakings due to, or made for the
benefit of, Lessor or any of the other Meditrust Entities by Lessee or any other
member of the Leasing Group or any of their respective Affiliates in connection
with any of the properties described in EXHIBIT E to the Agreement Regarding
Related Transactions, as the same may be modified and amended from time to time;
whether such indebtedness, covenants, liabilities, obligations, agreements
and/or undertakings are direct or indirect, absolute or contingent, liquidated
or unliquidated, due or to become due, joint, several or joint and several,
primary or secondary, now existing or hereafter arising.
RENT: Collectively, the Base Rent, Additional Rent, the Additional Charges
and all other sums payable under this Lease and the other Lease Documents.
RENT ADJUSTMENT DATE: The first day of any of the Extended Terms.
RENT ADJUSTMENT RATE: 325 basis points over the Index.
RENT INSURANCE PROCEEDS: As defined in Section 13.8.
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RESIDENCY AGREEMENT: All contracts, agreements and consents executed by or
on behalf of any resident or other Person seeking services at the Facility,
including, without limitation, assignments of benefits and guarantees.
RETAINAGE: As defined in Section 13.1.4.
SECURITY AGREEMENT: The Security Agreement as of even date herewith between
Lessee and Lessor.
SELLER: Barrington, Ltd.
STATE: The state or commonwealth in which the Leased Property is located.
SUBLEASE: Collectively, all subleases, licenses, use agreements, concession
agreements, tenancy at will agreements and other occupancy agreements of every
kind and nature (but excluding any Residency Agreement), whether oral or in
writing, now in existence or subsequently entered into by Lessee, encumbering or
affecting the Leased Property.
SUBLESSEE: Any sublessee, licensee, concessionaire, tenant or other
occupant under any of the Subleases.
SUBSEQUENT INVESTMENTS: The aggregate amount of all sums expended and
liabilities incurred by Lessor in connection with Capital Additions.
SUBSIDIARY OR SUBSIDIARIES: With respect to any Person, any corporation or
other entity of which such Person, directly, or indirectly, through another
entity or otherwise, owns, or has the right to control or direct the voting of,
fifty percent (50%) or more of the outstanding capital stock or other ownership
interest having general voting power (under ordinary circumstances).
TAKING: A taking or voluntary conveyance during the Term of the Leased
Property, or any interest therein or right accruing thereto, or use thereof, as
the result of, or in settlement of, any Condemnation or other eminent domain
proceeding affecting the Leased Property whether or not the same shall have
actually been commenced.
TANGIBLE PERSONAL PROPERTY: All machinery, equipment, furniture,
furnishings, movable walls or partitions, computers or trade fixtures, goods,
inventory, supplies, and other personal property owned or leased (pursuant to
equipment leases) by Lessee and used in the operation of the Leased Property.
TERM: Collectively, the Initial Term and each Extended Term which has
become effective pursuant to Section 1.4, as the
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context may require, unless earlier terminated pursuant to the provisions
hereof.
THIRD PARTY PAYOR PROGRAMS: Collectively, all third party payor programs in
which Lessee or any Sublessee presently or in the future may participate,
including without limitation, Medicare, Medicaid, Blue Cross and/or Blue Shield,
Managed Care Plans, other private insurance plans and employee assistance
programs.
THIRD PARTY PAYORS: Collectively, Medicare, Medicaid, Blue Cross and/or
Blue Shield, private insurers and any other Person which presently or in the
future maintains Third Party Payor Programs.
TIME OF CLOSING: As defined in Section 18.3.
UCC: The Uniform Commercial Code as in effect from time to time in the
State.
UNITED STATES TREASURY SECURITIES: The uninsured treasury securities issued
by the United States Federal Reserve Bank.
UNSUITABLE FOR ITS PRIMARY INTENDED USE: As used anywhere in this Lease,
the term "Unsuitable For Its Primary Intended Use" shall mean that, by reason of
Casualty, or a partial or temporary Taking by Condemnation, in the good faith
judgment of Lessor, the Facility cannot be operated on a commercially
practicable basis for the Primary Intended Use, taking into account, among other
relevant factors, the number of usable units or beds affected by such Casualty
or partial or temporary Taking.
UNAVOIDABLE DELAYS: Delays due to strikes, lockouts, inability to procure
materials, power failure, acts of God, governmental restrictions, enemy action,
civil commotion, fire, unavoidable casualty or other causes beyond the control
of the party responsible for performing an obligation hereunder, provided that
lack of funds shall not be deemed a cause beyond the control of either party
hereto.
UPGRADE RENOVATIONS: Repair and refurbishing other than normal janitorial,
cleaning and maintenance activities.
WORK: As defined in Section 13.1.1.
WORK CERTIFICATES: As defined in Section 13.1.4.
WORKING CAPITAL Loan: As defined in Section 6.1.2.
WORKING CAPITAL STOCK PLEDGE: As defined in Section 16.1(h).
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2.2 RULES OF CONSTRUCTION. The following rules of construction shall
apply to the Lease and each of the other Lease Documents: (a) references to
"herein", "hereof" and "hereunder" shall be deemed to refer to this Lease or
the other applicable Lease Document, and shall not be limited to the
particular text or section or subsection in which such words appear; (b) the
use of any gender shall include all genders and the singular number shall
include the plural and vice versa as the context may require; (c) references
to Lessor's attorneys shall be deemed to include, without limitation, special
counsel and local counsel for Lessor; (d) reference to attorneys' fees and
expenses shall be deemed to include all costs for administrative, paralegal
and other support staff and to exclude any fees and expenses of attorneys who
are employees of an Affiliate of Lessor; (e) references to Leased Property
shall be deemed to include references to all of the Leased Property and
references to any portion thereof; (f) references to the Lease Obligations
shall be deemed to include references to all of the Lease Obligations and
references to any portion thereof; (g) references to the Obligations shall be
deemed to include references to all of the Obligations and references to any
portion thereof; (h) the term "including", when following any general
statement, will not be construed to limit such statement to the specific
items or matters as provided immediately following the term "including"
(whether or not non-limiting language such as "without limitation" or "but
not limited to" or words of similar import are also used), but rather will be
deemed to refer to all of the items or matters that could reasonably fall
within the broadest scope of the general statement; (i) any requirement that
financial statements be Consolidated in form shall apply only to such
financial statements as relate to a period during any portion of which the
relevant Person has one or more Subsidiaries; (j) all accounting terms not
specifically defined in the Lease Documents shall be construed in accordance
with GAAP and (k) all exhibits annexed to any of the Lease Documents as
referenced therein shall be deemed incorporated in such Lease Document by
such annexation and/or reference.
ARTICLE 3
RENT
3.1 RENT FOR LAND, LEASED IMPROVEMENTS, RELATED RIGHTS AND FIXTURES.
Lessee will pay to Lessor, in lawful money of the United States of America, at
Lessor's address set forth herein or at such other place or to such other Person
as Lessor from time to time may designate in writing, rent for the Leased
Property, as follows.
3.1.1 BASE RENT: From and after the Commencement Date, Lessee shall
pay to Lessor a base rent (the "Base Rent") per annum which is equal to
$ and that is payable in
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advance in equal, consecutive monthly installments due on the first day of
each calendar month, commencing on April 1, 1996; PROVIDED, HOWEVER, that
on each Rent Adjustment Date, the Base Rent shall be adjusted to equal the
greater of (i) the then current Base Rent or (ii)$ plus
Subsequent Investments multiplied by the Rent Adjustment Rate then in
effect on such Rent Adjustment Date and FURTHER, PROVIDED, HOWEVER, that on
the Commencement Date, Lessee shall pay to Lessor (x) the proportionate
share of the Base Rent due for the period from (and including) the
Commencement Date through the end of the calendar month during which the
Commencement Date occurred.
3.1.2 ADDITIONAL RENT: In addition to the Base Rent, Lessee shall also
pay to Lessor additional rent (the "Additional Rent") in an amount equal to
five percent (5%) of Excess Gross Revenues. Additional Rent shall accrue
commencing on April 1, 1998 (the "Additional Rent Accrual Date")and shall
be payable during the Term, quarterly in arrears, commencing on the July 1,
1998 ("Additional Rent Commencement Date") and shall be payable during the
Term, quarterly in arrears, commencing on the first day of the first fiscal
quarter occurring following the Additional Rent Accrual Date and there
shall be an annual reconciliation as provided in Section 3.2 below.
3.2 CALCULATION AND PAYMENT OF ADDITIONAL RENT; ANNUAL RECONCILIATION.
3.2.1 OFFICER'S CERTIFICATE AND PRORATION. Each quarterly payment of
Additional Rent shall be delivered to Lessor, together with an Officer's
Certificate setting forth the calculation thereof, within thirty (30) days
after the end of the corresponding quarter. Additional Rent due for any
portion of any calendar year shall be prorated accordingly.
3.2.2 ANNUAL STATEMENT. In addition, on or before the first day of
April of each year following any calendar year for which Additional Rent is
payable hereunder, Lessee shall deliver to Lessor an Officer's Certificate,
reasonably acceptable to Lessor and certified by the chief financial
officer of Lessee, setting forth the Gross Revenues for the immediately
preceding calendar year.
3.2.3 DEFICITS. If the Additional Rent, as finally determined for any
calendar year (or portion thereof), exceeds the sum of the quarterly
payments of Additional Rent previously paid by Lessee with respect to said
calendar year, within thirty (30) days after such determination is required
to be made hereunder, Lessee shall pay such deficit to Lessor and, if the
deficit exceeds five percent (5%) of
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the Additional Rent which was previously paid to Lessor with respect to
said calendar year, then Lessee shall also pay Lessor interest on such
deficit at the Overdue Rate from the date that such payment should have
been made by Lessee to the date that Lessor receives such payment.
3.2.4 OVERPAYMENTS. If the Additional Rent, as finally determined for
any calendar year (or portion thereof), is less than the amount previously
paid with respect thereto by Lessee, Lessee shall notify Lessor either
(a) to pay to Lessee an amount equal to such difference or (b) to grant
Lessee a credit against Additional Rent next coming due in the amount of
such difference.
3.2.5 FINAL DETERMINATION. The obligation to pay Additional Rent shall
survive the expiration or earlier termination of the Term (as to Additional
Rent payments that are due and payable prior to the expiration or earlier
termination of the Term and during any periods that Lessee remains in
possession of the Leased Property), and a final reconciliation, taking into
account, among other relevant adjustments, any contractual allowances which
related to Gross Revenues that accrued prior to the date of such expiration
or earlier termination, but which have been determined to be not payable
and Lessee's good faith best estimate of the amount of any unresolved
contractual allowances, shall be made not later than two (2) years after
said expiration or termination date. Within sixty (60) days after the
expiration or earlier termination of the Term, Lessee shall advise Lessor
of Lessee's best estimate of the approximate amount of such adjustments,
which estimate shall not be binding on Lessee or have any legal effect
whatsoever.
3.2.6 BEAT EFFORTS TO MAXIMIZE. Lessee further covenants that the
operation of the Facility shall be conducted in a manner consistent with
the prevailing standards and practices recognized in the assisted living
industry as those customarily utilized by reputable business operations.
Subject to any applicable Legal Requirements, the members of the Leasing
Group shall use their best efforts to maximize the Facility's Gross
Revenues.
3.3 CONFIRMATION AND AUDIT OF ADDITIONAL RENT.
3.3.1 MAINTAIN ACCOUNTING SYSTEMS. Lessee shall utilize, or cause to
be utilized, an accounting system for the Leased Property in accordance
with usual and customary practices in the assisted living industry and in
accordance with GAAP which will accurately record all Gross Revenues.
Lessee shall retain, for at least three (3) years after the expiration of
each calendar year (and in any event until the
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final reconciliation described in Section 3.2 above has been made),
adequate records conforming to such accounting system showing all Gross
Revenues for such calendar year.
3.3.2 AUDIT BY LESSOR. Lessor, at its own expense except as provided
hereinbelow, shall have the right from time to time to have its accountants
or representatives audit the information set forth in the Officer's
Certificate referred to in Section 3.2 and in connection with such audits,
to examine Lessee's records with respect thereto (including supporting
data, income tax and sales tax returns), subject to any prohibitions or
limitations on disclosure of any such data under applicable law or
regulations.
3.3.3 DEFICIENCIES AND OVERPAYMENTS. If any such audit discloses a
deficiency in the reporting of Gross Revenues, and either Lessee agrees
with the result of such audit or the matter is compromised, Lessee shall
forthwith pay to Lessor the amount of the deficiency in Additional Rent
which would have been payable BY it had such deficiency in reporting Gross
Revenues not occurred, as finally agreed or determined, together with
interest on the Additional Rent which should have been payable by it,
calculated at the Overdue Rate, from the date when said payment should have
been made by Lessee to the date that Lessor receives such payment.
Notwithstanding anything to the contrary herein, with respect to any audit
that is commenced more than two (2) years after the date Gross Revenues for
any calendar year are reported by Lessee to Lessor, the deficiency, if any,
with respect to Additional Rent shall bear interest as permitted herein
only from the date such determination of deficiency is made, unless such
deficiency is the result of gross negligence or willful misconduct on the
part of Lessee (or any Affiliate thereof). If any audit conducted for
Lessor pursuant to the provisions hereof discloses that (a) the Gross
Revenues actually received by Lessee for any calendar year exceed those
reported by Lessee by more than five percent (5%), Lessee shall pay the
reasonable cost of such audit and examination or (b) Lessee has overpaid
Additional Rent, Lessor shall so notify Lessee and Lessee shall direct
Lessor either (i) to refund the overpayment to Lessee or (ii) grant a
credit against Additional Rent next coming due in the amount of such
difference.
3.3.4 SURVIVAL. The obligations of Lessor and Lessee contained in this
Section shall survive the expiration or earlier termination of this Lease.
3.4 ADDITIONAL CHARGES. Subject to the rights to contest as set forth in
Article 15, in addition to the Base Rent and Additional Rent, (a) Lessee will
also pay and discharge as and
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when due and payable all Impositions, all amounts, liabilities and obligations
under the Appurtenant Agreements and all other amounts, liabilities and
obligations which Lessee assumes or agrees to pay under this Lease, and (b) in
the event of any failure on the part of Lessee to pay any of those items
referred to in clause (a) above, Lessee will also promptly pay and discharge
every fine, penalty, interest and cost which may be added for non-payment or
late payment of such items (the items referred to in clauses (a) and (b) above
being referred to herein collectively as the "Additional Charges"), and Lessor
shall have all legal, equitable and contractual rights, powers and remedies
provided in this Lease, by statute or otherwise, in the case of non-payment of
the Additional Charges, as well as the Base Rent and Additional Rent. To the
extent that Lessee pays any Additional Charges to Lessor pursuant to any
requirement of this Lease, Lessee shall be relieved of its obligation to pay
such Additional Charges to any other Person to which such Additional Charges
would otherwise be due.
3.5 NET LEASE. The Rent shall be paid absolutely net to Lessor, so that
this Lease shall yield to Lessor the full amount of the installments of Base
Rent, and the payments of Additional Rent and, if and to the extent payable to
Lessor, Additional Charges throughout the Term.
3.6 NO LESSEE TERMINATION OR OFFSET.
3.6.1 NO TERMINATION. Except as may be otherwise specifically and
expressly provided in this Lease, Lessee, to the extent not prohibited by
applicable law, shall remain bound by this Lease in accordance with its
terms and shall neither take any action without the consent of Lessor to
modify, surrender or terminate the same, nor seek nor be entitled to any
abatement, deduction, deferment or reduction of Rent, or set-off against
the Rent, nor shall the respective obligations of Lessor and Lessee be
otherwise affected by reason of (a) any Casualty or any Taking of the
Leased Property, (b) the lawful or unlawful prohibition of, or restriction
upon, Lessee's use of the Leased Property or the interference with such use
by any Person (other than Lessor, except to the extent permitted hereunder)
or by reason of eviction by paramount title; (c) any claim that Lessee has
or might have against Lessor, (d) any default or breach of any warranty by
Lessor or any of the other Meditrust Entities under this Lease, any other
Lease Document or any Related Party Agreement, (e) any bankruptcy,
insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding up or other proceedings affecting Lessor or any
assignee or transferee of Lessor or (f) for any other cause whether similar
or dissimilar to any of the foregoing, other than a discharge of Lessee
from any of the Lease Obligations as a matter of law.
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3.6.2 WAIVER. Lessee to the fullest extent not prohibited by
applicable law, hereby specifically waives all rights, arising from any
occurrence whatsoever, which may now or hereafter be conferred upon it by
law to (a) modify, surrender or terminate this Lease or quit or surrender
the Leased Property or (b) entitle Lessee to any abatement, reduction,
suspension or deferment of the Rent or other sums payable by Lessee
hereunder, except as otherwise specifically and expressly provided in this
Lease.
3.6.3 INDEPENDENT COVENANTS. The obligations of Lessor and Lessee
hereunder shall be separate and independent covenants and agreements and
the Rent and all other sums payable by Lessee hereunder shall continue to
be payable in all events unless the obligations to pay the same shall be
terminated pursuant to the express provisions of this Lease or (except in
those instances where the obligation to pay expressly survives the
termination of this Lease) by termination of this Lease other than by
reason of an Event of Default.
3.7 ABATEMENT OF RENT LIMITED. There shall be no abatement of Rent on
account of any Casualty, Taking or other event, except that (a) in the event of
a partial Taking or a temporary Taking as described in Section 14.3, the Base
Rent shall be abated as follows: (i) in the case of such a partial Taking, the
Meditrust Investment shall be reduced for the purposes of calculating Base Rent
pursuant to Section 3.1 by subtracting therefrom, as applicable, the net amount
of the Award received by Lessor, and (ii) in the case of such a temporary
Taking, by reducing the Base Rent for the period of such a temporary Taking, by
the net amount of the Award received by Lessor and (b) in the event of a
Casualty, the Base Rent shall be abated as follows: the Meditrust Investment
shall be reduced for the purposes of calculating Base Rent pursuant to Section
3.1 by subtracting therefrom, as applicable, the net amount of the insurance
proceeds.
For the purposes of this Section 3.7, the "net amount of the Award received
by Lessor" shall mean the Award paid to Lessor or Lessor's mortgagee on account
of such Taking, minus all costs and expenses incurred by Lessor in connection
therewith, and minus any amounts paid to or for the account of Lessee to
reimburse for the costs and expenses of reconstructing the Facility following
such Taking in order to create a viable and functional Facility under all of the
circumstances "Net Award Amount") and the "net amount of the insurance proceeds"
shall mean the insurance proceeds paid to Lessor or Lessor's mortgagee on
account of such Casualty, minus all costs and expenses incurred by Lessor in
connection therewith and minus any amounts paid to or for the account of Lessee
to reimburse for the costs and expenses of reconstructing the Facility following
such Casualty in order to
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create a viable and functional Facility under all of the circumstances ("Net
Proceeds Amount").
ARTICLE 4
IMPOSITIONS; TAXES; UTILITIES;
INSURANCE PAYMENTS
4.1 PAYMENT OF IMPOSITIONS.
4.1.1 LESSEE TO PAY. Subject to the provisions of Article 15, Lessee
will pay or cause to be paid all Impositions before any fine, penalty,
interest or cost may be added for non-payment, such payments to be made
directly to the taxing authority where feasible, and Lessee will promptly
furnish Lessor copies of official receipts or other satisfactory proof
evidencing payment not later than the last day on which the same may be
paid without penalty or interest. Subject to the provisions of Article 15
and Section 4.1.2, Lessee's obligation to pay such Impositions shall be
deemed absolutely fixed upon the date such Impositions become a lien upon
the Leased Property or any part thereof.
4.1.2 INSTALLMENT ELECTIONS. If any such Imposition may, at the option
of the taxpayer, lawfully be paid in installments (whether or not interest
shall accrue on the unpaid balance of such Imposition), Lessee may exercise
the option to pay the same (and any accrued interest on the unpaid balance
of such Imposition) in installments and, in such event, shall pay such
installments during the Term hereof (subject to Lessee's right to contest
pursuant to the provisions of Section 4.1.5 below) as the same respectively
become due and before any fine, penalty, premium, further interest or cost
may be added thereto.
4.1.3 RETURNS AND REPORTS. Lessor, at its expense, shall, to the
extent permitted by applicable law, prepare and file all tax returns and
reports as may be required by Governmental Authorities in respect of
Lessor's net income, gross receipts, franchise taxes and taxes on its
capital stock, and Lessee, at its expense, shall, to the extent permitted
by applicable laws and regulations, prepare and file all other tax returns
and reports in respect of any Imposition as may be required by Governmental
Authorities. Lessor and Lessee shall, upon request of the other, provide
such data as is maintained by the party to whom the request is made with
respect to the Leased Property as may be necessary to prepare any required
returns and reports. In the event that any Governmental Authority
classifies any property covered by this Lease as personal property, Lessee
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shall file all personal property tax returns in such jurisdictions where it
may legally so file. Lessor, to the extent it possesses the same, and
Lessee, to the extent it possesses the same, will provide the other party,
upon request, with cost and depreciation records necessary for filing
returns for any portion of Leased Property so classified as personal
property. Where Lessor is legally required to file personal property tax
returns, if Lessee notifies Lessor of the obligation to do so in each year
at least thirty (30) days prior to the date any protest must be filed,
Lessee will be provided with copies of assessment notices so as to enable
Lessee to file a protest.
4.1.4 REFUNDS. If no Lease Default shall have occurred and be
continuing, any refund due from any taxing authority in respect of any
Imposition paid by Lessee shall be paid over to or retained by Lessee. If
a Lease Default shall have occurred and be continuing, at Lessor's option,
such funds shall be paid over to Lessor and/or retained by Lessor and
applied toward Lease Obligations which relate to the Leased Property in
accordance with the Lease Documents.
4.1.5 PROTEST. Upon giving notice to Lessor, at Lessee's option and
sole cost and expense, and subject to compliance with the provisions of
Article 15, Lessee may contest, protest, appeal, or institute such other
proceedings as Lessee may deem appropriate to effect a reduction of any
Imposition and Lessor, at Lessee's cost and expense as aforesaid, shall
fully cooperate in a reasonable manner with Lessee in connection with such
protest, appeal or other action.
4.2 NOTICE OF IMPOSITIONS. Lessor shall give prompt notice to Lessee of
all Impositions payable by Lessee hereunder of which Lessor at any time has
knowledge, but Lessor's failure to give any such notice shall in no way diminish
Lessee's obligations hereunder to pay such Impositions.
4.3 ADJUSTMENT OF IMPOSITIONS. Impositions imposed in respect of the
period during which the expiration or earlier termination of the Term occurs
shall be adjusted and prorated between Lessor and Lessee, whether or not such
Impositions are imposed before or after such expiration or termination, and
Lessee's obligation to pay its prorated share thereof shall survive such
expiration or termination.
4.4 UTILITY CHARGES. Lessee will pay or cause to be paid all charges for
electricity, power, gas, oil, water, telephone, cable television and other
utilities used in the Leased Property during the Term and thereafter until
Lessee surrenders the Leased Property in the manner required by this Lease.
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4.5 INSURANCE PREMIUMS. Lessee will pay or cause to be paid all premiums
for the insurance coverage required to be maintained pursuant to Article 12
during the Term, and thereafter until Lessee yields up the Leased Property in
the manner required by this Lease. All such premiums shall be paid annually in
advance and Lessee shall furnish Lessor with evidence satisfactory to Lessor
that all such premiums have been so paid prior to the commencement of the Term
and thereafter at least thirty (30) days prior to the due date of each premium
which thereafter becomes due. Notwithstanding the foregoing, Lessee may pay
such insurance premiums to the insurer in monthly installments so long as the
applicable insurer is contractually obligated to give Lessor not less than a
sixty (60) days notice of non-payment and so long as no Lease Default has
occurred and is continuing. In the event of the failure of Lessee either to
comply with the insurance requirements in Article 12, or to pay the premiums for
such insurance, or to deliver such policies or certificates thereof to Lessor at
the times required hereunder, Lessor shall be entitled, but shall have no
obligation, to effect such insurance and pay the premiums therefor, which
premiums shall be a demand obligation of Lessee to Lessor.
4.6 DEPOSITS.
4.6.1 LESSOR'S OPTION. At the option of Lessor upon the occurrence of
an event or circumstance which, with the giving of notice and/or the
passage of time, would constitute a Lease Default, which may be exercised
at any time thereafter, Lessee shall, upon written request of Lessor, on
the first day on the calendar month immediately following such request, and
on the first day of each calendar month thereafter during the Term (each of
which dates is referred to as a "Monthly Deposit Date"), pay to and deposit
with Lessor a sum equal to one-twelfth (1/12th) of the Impositions to be
levied, charged, filed, assessed or imposed upon or against the Leased
Property within one (1) year after said Monthly Deposit Date and a sum
equal to one-twelfth (1/12th) of the premiums for the insurance policies
required pursuant to Article 12 which are payable within one (1) year after
said Monthly Deposit Date. If the amount of the Impositions to be levied,
charged, assessed or imposed or insurance premiums to be paid within the
ensuing one (1) year period shall not be fixed upon any Monthly Deposit
Date, such amount for the purpose of computing the deposit to be made by
Lessee hereunder shall be estimated by Lessor based upon the most recent
available information concerning said Impositions with an appropriate
adjustment to be promptly made between Lessor and Lessee as soon as such
amount becomes determinable. In addition, Lessor may, at its option, from
time to time require that any particular deposit be greater than one-
twelfth (1/12th) of the estimated amount payable within one (1) year after
said
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Monthly Deposit Date, if such additional deposit is required in order to
provide to Lessor a sufficient fund from which to make payment of all
Impositions on or before the next due date of any installment thereof, or
to make payment of any required insurance premiums not later than the due
date thereof.
4.6.2 USE OF DEPOSITS. The sums deposited by Lessee under this Section
4.6 shall be held by Lessor and shall be applied in payment of the
Impositions or insurance premiums, as the case may be, when due. Any such
deposits may be commingled with other assets of Lessor, and shall be
deposited by Lessor at such bank as Lessor may, from time to time select,
and, provided that Lessor has invested such deposits in one or more of the
investment vehicles described on SCHEDULE 4.6.2 attached hereto and
incorporated by reference, Lessor shall not be liable to Lessee or any
other Person (a) based on Lessor's (or such bank's) choice of investment
vehicles, (b) for any consequent loss of principal or interest or (c) for
any unavailability of funds based on such choice of investment.
Furthermore, Lessor shall bear no responsibility for the financial
condition of, nor any act or omission by, Lessor's depository bank. The
income from such investment or interest on such deposit shall be paid to
Lessee on a semi-annual basis as long as no Lease Default has occurred and
is then continuing, and as long as no fact or circumstance exists which,
with the giving of notice and/or the passage of time, would constitute a
Lease Default. Lessee shall give not less than ten (10) days prior written
notice to Lessor in each instance when an Imposition or insurance premium
is due, specifying the Imposition or premium to be paid and the amount
thereof, the place of payment, and the last day on which the same may be
paid in order to comply with the requirements of this Lease. If Lessor, in
violation of its obligations under this Lease, does not pay any Imposition
or insurance premium when due, for which a sufficient deposit exists,
Lessee shall not be in default hereunder by virtue of the failure of
Lessor to pay such Imposition or such insurance premium and Lessor shall
pay any interest or fine assessed by virtue of Lessor's failure to pay such
Imposition or insurance premium.
4.6.3 DEFICITS. If for any reason any deposit held by Lessor under
this Section 4.6 shall not be sufficient to pay an Imposition or insurance
premium within the time specified therefor in this Lease, then, within ten
(10) days after demand by Lessor, Lessee shall deposit an additional amount
with Lessor, increasing the deposit held by Lessor so that Lessor holds
sufficient funds to pay such Imposition or premium in full (or in
installments as otherwise provided for herein), together with any penalty
or interest due
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thereon. Lessor may change its estimate of any Imposition or insurance
premium for any period on the basis of a change in an assessment or tax
rate or on the basis of a prior miscalculation or for any other good faith
reason; in which event, within ten (10) days after demand by Lessor, Lessee
shall deposit with Lessor the amount in excess of the sums previously
deposited with Lessor for the applicable period which would theretofore
have been payable under the revised estimate.
4.6.4 OTHER PROPERTIES. If any Imposition shall be levied, charged,
filed, assessed, or imposed upon or against the Leased Property, and if
such Imposition shall also be a levy, charge, assessment, or imposition
upon or for any other real or personal property that does not constitute a
part of the Leased Property but for which a lien exists or can exist upon
the Leased Property, then, at Lessor's reasonable discretion, the
computation of the amounts to be deposited under this Section 4.6 shall be
based upon the entire amount of such Imposition and Lessee shall not have
the right to apportion any deposit with respect to such Imposition.
4.6.5 TRANSFERS. In connection with any assignment of Lessor's
interest under this Lease, the original Lessor named herein and each
successor in interest shall transfer all amounts deposited pursuant to the
provisions of this Section 4.6 and still in its possession to such assignee
(as the subsequent holder of Lessor's interest in this Lease) and upon such
transfer, the original Lessor named herein or the applicable successor in
interest transferring the deposits shall thereupon be completely released
from all liability with respect to such deposits so transferred and Lessee
shall look solely to said assignee, as the subsequent holder of Lessor's
interest under this Lease, in reference thereto.
4.6.6 SECURITY. All amounts deposited with Lessor pursuant to the
provisions of this Section 4.6 shall be held by Lessor as additional
security for the payment and performance of the Obligations and, upon the
occurrence of any Lease Default, Lessor may, in its sole and absolute
discretion, apply said amounts towards payment or performance of such
Obligations.
4.6.7 RETURN. Upon the expiration or earlier termination of this
Lease, provided that all of the Lease Obligations relating to the Leased
Property have been fully paid and performed, any sums then held by Lessor
under this Section 4.6 shall be refunded to Lessee.
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4.6.8 RECEIPTS. Lessee shall deliver to Lessor copies of all notices,
demands, claims, bills and receipts in relation to the Impositions and
insurance premiums upon the earlier to occur of (a) ten (10) days following
receipt thereof by Lessee and (b) in the case of an invoice, demand or bill
for the payment of an Imposition, prior to the date when such Imposition is
due and payable.
ARTICLE 5
OWNERSHIP OF LEASED PROPERTY AND PERSONAL PROPERTY;
INSTALLATION, REMOVAL AND REPLACEMENT OF
PERSONAL PROPERTY;
5.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee acknowledges that the Leased
Property is the property of Lessor and that Lessee has only the right to the
exclusive possession and use of the Leased Property upon the terms and
conditions of this Lease.
5.2 PERSONAL PROPERTY; REMOVAL AND REPLACEMENT OF PERSONAL PROPERTY.
5.2.1 LESSEE TO EQUIP FACILITY. If and to the extent not included in
the Leased Property, Lessee, at its sole cost and expense, shall install,
affix or assemble or place on the Leased Property, sufficient items of
Tangible Personal Property, to enable the operation of the Facility in
accordance with the requirements of this Lease for the Primary Intended
Use, and such Tangible Personal Property and replacements thereof, shall be
at all times the property of Lessee.
5.2.2 SUFFICIENT PERSONAL PROPERTY. Lessee shall maintain, during the
entire Term, the Tangible Personal Property in good order and repair and
shall provide at its expense all necessary replacements thereof, as may be
necessary in order to operate the Facility in compliance with all
applicable Legal Requirements and Insurance Requirements and otherwise in
accordance with customary practice in the industry for the Primary Intended
Use and, if applicable, Other Permitted Uses. In addition, Lessee shall
furnish all necessary replacements of such obsolete items of the Tangible
Personal Property during the Term as are necessary to enable the operation
of the Facility in accordance with the requirements of this Lease for the
Primary Intended Use.
5.2.3 REMOVAL AND REPLACEMENT; LESSOR'S OPTION TO PURCHASE. Lessee
shall not remove from the Leased Property any one or more items of Tangible
Personal Property (whether now owned or hereafter acquired), the fair
market value of
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which exceeds TWENTY-FIVE THOUSAND DOLLARS ($25,000), individually or ONE
HUNDRED THOUSAND DOLLARS ($100,000.00) collectively, if such Tangible
Personal Property is necessary to enable the operation of the Facility in
accordance with the requirements of this Lease for the Primary Intended
Use. At its sole cost and expense, Lessee shall restore the Leased
Property to the condition required by Article 8, including repair of all
damage to the Leased Property caused by the removal of the Tangible
Personal Property, whether effected by Lessee or Lessor. Upon the
expiration or earlier termination of this Lease, Lessor shall have the
option, which may be exercised by giving notice thereof within twenty (20)
days prior to such expiration or termination, of (a) acquiring the Tangible
Personal Property (pursuant to a bill of sale and assignments of any
equipment leases, all in such forms as are reasonably satisfactory to
Lessor) upon payment of its fair market value or (b) requiring Lessee to
remove the Tangible Personal Property. If Lessor exercises its option to
purchase the Tangible Personal Property, the price to be paid by Lessor
shall be (i) reduced by the amount of all payments due on any equipment
leases or any other Permitted Prior Security Interests assumed by Lessor
and (ii) applied to the Lease Obligations before any payment to Lessee. If
Lessor requires the removal of the Tangible Personal Property, then all of
the Tangible Personal Property that is not removed by Lessee within ten
(10) days following such request shall be considered abandoned by Lessee
and may be appropriated, sold, destroyed or otherwise disposed of by Lessor
without first giving notice thereof to Lessee, without any payment to
Lessee and without any obligation to account therefor.
ARTICLE 6
SECURITY FOR LEASE OBLIGATIONS
6.1 SECURITY FOR LESSEE'S OBLIGATIONS; PERMITTED PRIOR SECURITY INTERESTS.
6.1.1 SECURITY. In order to secure the payment and performance fall of
the Obligations, Lessee agrees to provide or cause there to be provided the
following security:
(a) a first lien and exclusive security interest in the
Collateral, as more particularly provided for in the Security
Agreement;
(b) the Cash Collateral.
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(c) a first lien and exclusive pledge and assignment of, and
security interest in, all Permits and Contracts, as more particularly
provided for in the Collateral Assignment of Permits and Contracts;
and
(d) in the event that, at any time during the Term, Lessee holds
the fee title to or a leasehold interest in any real property and/or
personal property which is used as an integral part of the operation
of the Leased Property (but is not subject to this Lease), Lessee
shall (i) provide Lessor with prior notice of such acquisition and
(ii) shall take such actions and enter into such agreements as Lessor
shall reasonably request in order to grant Lessor a first priority
mortgage or other security interest in such real property and personal
property, subject only to the Permitted Encumbrances and other Liens
reasonably acceptable to Lessor. Without limiting the foregoing, it
is acknowledged and agreed that all revenues generated from the
operation of such additional real property shall be included in the
determination of Gross Revenues (subject to such adjustments as agreed
upon hereunder).
Notwithstanding the foregoing, Lessor shall subordinate its
security interest in Receivables to a prior security interest to
secure a working capital line as provided in Section 6.1.3.
6.1.2 PURCHASE MONEY SECURITY INTERESTS AND EQUIPMENT LEASES.
Notwithstanding any other provision hereof regarding the creation of Liens,
Lessee may (a) grant priority purchase money security interests in items of
Tangible Personal Property, (b) lease Tangible Personal Property from
equipment lessors as long as: (i) the aggregate value of such Tangible
Personal Property shall not exceed TWO HUNDRED THOUSAND DOLLARS ($200,000)
or (ii) (A) the secured party or equipment lessor enters into an
intercreditor agreement with, and satisfactory to, Lessor pursuant to
which, without limiting the foregoing, (1) Lessor shall be afforded the
option of curing defaults and the option of succeeding to the rights of
Lessee and (2) Lessor's security interest in Tangible Personal Property
shall be subordinated to the security interest granted to such secured
party, (B) all of the terms, conditions and provisions of the financing,
security interest or lease are reasonably acceptable to Lessor, (C) Lessee
provides a true and complete copy, as executed, of each such purchase money
security agreement, financing document and equipment lease and all
amendments thereto
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and (D) no such security interest, financing agreement or lease is
cross-defaulted or cross-collateralized with any other obligation.
Security interests granted by Lessee in full compliance with the
provisions of this Section 6.1.2 are referred to as "Permitted Prior
Security Interests".
6.1.3 RECEIVABLES FINANCING. Notwithstanding any other provision
hereof regarding the creation of Liens, Lessee shall also be permitted to
grant a prior security interest in Receivables (with the Lessor retaining a
junior security interest therein) to an institutional lender which is
providing a working capital line of credit (a "Working Capital Loan") for
the exclusive use of Guarantor, Lessee and Affiliates of Lessee as long as
such Lender enters into an intercreditor agreement with, and satisfactory
to, Lessor pursuant to which, without limiting the foregoing, (1) Lessor
shall be provided with notice with respect to defaults under the Working
Capital Loan simultaneously with the delivery of such notice to Lessee and
shall be afforded the option of curing defaults thereunder, (2) such
lender's use of Instruments, Documents, General Intangibles and Chattel
Paper shall be limited to a license only for the purpose of collecting
Receivables and (3) the subordination of Lessor's interest in the
Receivables shall be of no force and effect and Lessor's first priority
security interest shall be reinstated from and after the occurrence of an
Event of Default if, upon or following such Event of Default, Lessor either
exercises any of its remedies set forth in Article 16 or Lessor notifies in
writing such lender of Lessor's intention to invoke its right to reinstate
its first priority security interest in the Receivables.
6.2 GUARANTY. All of the Lease Obligations shall be unconditionally and
irrevocably guaranteed by the Guarantor pursuant to the Guaranty of Lease
Obligations.
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTY;
MANAGEMENT AGREEMENTS
7.1 CONDITION OF THE LEASED PROPERTY. Lessee acknowledges that Lessee has
caused the Leased Property to be sold to Lessor and has concurrently entered
into this Lease. Lessee acknowledges receipt and delivery of possession of the
Leased Property and that Lessee has examined and otherwise has acquired
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knowledge of the condition of the Leased Property prior to the execution and
delivery of this Lease and has found the same to be in good order and repair and
satisfactory for its purposes hereunder. Lessee is leasing the Leased Property
"AS IS" in its present condition. Lessee waives any claim or action against
Lessor in respect of the condition of the Leased Property. LESSOR MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED
PROPERTY, EITHER AS TO ITS FITNESS FOR ANY PARTICULAR PURPOSE OR USE, ITS DESIGN
OR CONDITION OR OTHERWISE, OR AS TO DEFECTS IN THE QUALITY OF THE MATERIAL OR
WORKMANSHIP THEREIN, LATENT OR PATENT; IT BEING AGREED THAT ALL RISKS RELATING
TO THE DESIGN, CONDITION AND/OR USE OF THE LEASED PROPERTY ARE TO BE BORNE BY
LESSEE. LESSEE HEREBY ASSUMES ALL RISK OF THE PHYSICAL CONDITION OF THE LEASED
PROPERTY, THE SUITABILITY OF THE LEASED PROPERTY FOR LESSEE'S PURPOSES, AND THE
COMPLIANCE OR NON-COMPLIANCE OF THE LEASED PROPERTY WITH ALL APPLICABLE
REQUIREMENTS OF LAW, INCLUDING BUT NOT LIMITED TO ENVIRONMENTAL LAWS AND ZONING
OR LAND USE LAWS.
Upon the request of Lessor, at any time and from time to time during the
Term, Lessee shall engage one (1) or more independent professional consultants,
engineers and inspectors, qualified to do business in the State and acceptable
to Lessor to perform any environmental and/or structural investigations and/or
other inspections of the Leased Property and the Facility as Lessor may
reasonably request in order to detect (a) any structural deficiencies in the
Leased Improvements or the utilities servicing the Leased Property or (b) the
presence of any condition that (i) may be harmful or present a health hazard to
the residents and other occupants of the Leased Property or (ii) constitutes a
breach or violation of any of the Lease Documents. In the event that Lessor
reasonably determines that the results of such testing or inspections are
unsatisfactory, within thirty (30) days of notice from Lessor, Lessee shall
commence such appropriate remedial actions as may be reasonably requested by
Lessor to correct such unsatisfactory conditions and, thereafter, shall
diligently and continuously prosecute such remedial actions to completion within
the time limits prescribed in this Lease or the other Lease Documents.
7.2 USE OF THE LEASED PROPERTY; COMPLIANCE; MANAGEMENT.
7.2.1 OBLIGATION TO OPERATE. Lessee shall continuously operate the
Leased Property in accordance with the Primary Intended Use and the Other
Permitted Uses and maintain its qualifications for licensure and
accreditation as required by all applicable Legal Requirements.
7.2.2 PERMITTED USES. During the entire Term, Lessee shall use the
Leased Property, or permit the Leased Property to be used, only for the
Primary Intended Use and, if applicable, the Other Permitted Uses. Lessee
shall not
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use the Leased Property or permit the Leased Property to be used for any
other use without the prior written consent of Lessor, which consent may be
withheld in Lessor's sole and absolute discretion.
7.2.3 COMPLIANCE WITH INSURANCE REQUIREMENTS. No use shall be made or
permitted to be made of the Leased Property and no acts shall be done which
will cause the cancellation of any insurance policy covering the Leased
Property, nor shall Lessee, any Manager or any other Person sell or
otherwise provide to residents, other occupants or invites therein, or
permit to be kept, used or sold in or about the Leased Property, any
article which may be prohibited by any of the Insurance Requirements.
Furthermore, Lessee shall, at its sole cost and expense, take whatever
other actions that may be necessary to comply with and to insure that the
Leased Property complies with all Insurance Requirements.
7.2.4 NO WASTE. Lessee shall not commit or suffer to be committed any
waste on, in or under the Leased Property, nor shall Lessee cause or permit
any nuisance thereon.
7.2.5 NO IMPAIRMENT. Lessee shall neither permit nor knowingly suffer
the Leased Property to be used in such a manner as (a) might reasonably
tend to impair Lessor's title thereto or (b) may reasonably make possible a
claim or claims of adverse usage or adverse possession by the public or of
implied dedication of the Leased Property.
7.2.6 NO LIENS. Except as permitted pursuant to Section 6.1.2, Lessee
shall not permit or suffer any Lien to exist on the Tangible Personal
Property and shall in no event cause, permit or suffer any Lien to exist
with respect to the Leased Property other than as set forth in Section
11.5.2.
7.3 COMPLIANCE WITH LEGAL REQUIREMENTS. Lessee covenants and agrees that
the Leased Property shall not be used for any unlawful purpose and that
Lessee, at its sole cost and expense, will promptly (a) comply with, and
shall cause every other member of the Leasing Group to comply with, all
applicable Legal Requirements relating to the use, operation, maintenance,
repair and restoration of the Leased Property, whether or not compliance
therewith shall require structural change in any of the Leased Property or
interfere with the use and enjoyment of the Leased Property and (b) procure,
maintain and comply with (in all material respects), and shall cause every
other member of the Leasing Group to procure, maintain and comply with (in
all material respects), all Contracts and Permits necessary or desirable in
order to operate the Leased Property for the Primary
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Intended Use and/or, if applicable, other Permitted Uses, and for compliance
with all of the terms and conditions of this Lease. Unless a Lease Default has
occurred or any event has occurred which, with the passage of time and/or the
giving of notice would constitute a Lease Default, Lessee may, upon prior
written notice to Lessor, contest any Legal Requirement to the extent permitted
by, and in accordance with, Article 15 below.
7.4 MANAGEMENT AGREEMENTS. Throughout the Term, Lessee shall not enter
into any Management Agreement without the prior written approval of Lessor, in
each instance, which approval shall not be unreasonably withheld. Lessee shall
not, without the prior written approval of Lessor, in each instance, which
approval shall not be unreasonably withheld, agree to or allow: (a) any change
in the Manager or change in the ownership or control of the Manager, (b) the
termination of any Management Agreement (other than in connection with the
exercise by Lessee of any of its remedies under the Management Agreement as a
result of any default by the Manager thereunder), (c) any assignment by the
Manager of its interest under the Management Agreement or (d) any material
amendment of the Management Agreement. In addition, Lessee shall, at its sole
cost and expense, promptly and fully perform or cause to be performed every
covenant, condition, promise and obligation of the licensed operator of the
Leased Property under any Management Agreement.
Each Management Agreement shall provide that Lessor shall be provided
notice of any defaults thereunder and, at Lessor's option, an opportunity to
cure such default. Lessee shall furnish to Lessor, within three (3) days after
receipt thereof, or after the mailing or service thereof by Lessee, as the case
may be, a copy of each notice of default which Lessee shall give to, or receive
from any Person, based upon the occurrence, or alleged occurrence, of any
default in the performance of any covenant, condition, promise or obligation
under any Management Agreement.
Whenever and as often as Lessee shall fail to perform, promptly and fully,
at its sole cost and expense, any covenant, condition, promise or obligation on
the part of the licensed operator of the Leased Property under and pursuant to
any Management Agreement, Lessor, or a lawfully appointed receiver of the Leased
Property, may, at their respective options (and without any obligation to do
so), after five (5) days' prior notice to Lessee (except in the case of an
emergency) enter upon the Leased Property and perform, or cause to be performed,
such work, labor, services, acts or things, and take such other steps and do
such other acts as they may deem advisable, to cure such defaulted covenant,
condition, promise or obligation, and any amount so paid or advanced by Lessor
or such receiver and all costs and expenses reasonably incurred in connection
therewith (including, without limitation, attorneys' fees and expenses and
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court costs), shall be a demand obligation of Lessee to Lessor or such receiver,
and, Lessor shall have the same rights and remedies for failure to pay such
costs on demand as for Lessee's failure to pay any other sums due hereunder.
7.5 PARTICIPATION IN THIRD PARTY PAYOR PROGRAMS. No provision of this
Lease shall be deemed to require Lessee to commence participation in any Third
Party Payor Program or any Managed Care Plan.
ARTICLE 8
REPAIRS; RESTRICTIONS
8.1 MAINTENANCE AND REPAIR.
8.1.1 LESSEE'S RESPONSIBILITY. Lessee, at its sole cost and expense,
shall keep the Leased Property and all private roadways, sidewalks and
curbs appurtenant thereto which are under Lessee's control in good order
and repair (whether or not the need for such repairs occurs as a result of
Lessee's use, any prior use, the elements or the age of the Leased Property
or such private roadways, sidewalks and curbs or any other cause whatsoever
other than Lessor's gross negligence or willful misconduct) and, subject to
Articles 9, 13 and 14, Lessee shall promptly, with the exercise of all
reasonable efforts, undertake and diligently complete all necessary and
appropriate repairs, replacements, renovations, restorations, alterations
and modifications thereof of every kind and nature, whether interior or
exterior, structural or non-structural, ordinary or extraordinary, foreseen
or unforeseen or arising by reason of a condition (concealed or otherwise)
existing prior to the commencement of, or during, the Term and thereafter
until Lessee surrenders the Leased Property in the manner required by this
Lease. In addition, Lessee, at its sole cost and expense, shall make all
repairs, modifications, replacements, renovations and alterations of the
Leased Property (and such private roadways, sidewalks and curbs) that are
necessary to comply with all applicable Legal Requirements and Insurance
Requirements so that the Leased Property can be legally operated for the
Primary Intended Use and, if applicable, the Other Permitted Uses. All
repairs, replacements, renovations, alterations, and modifications required
by the terms of this Section 8.1 shall be (a) performed in a good and
workmanlike manner in compliance with all applicable Legal Requirements,
Insurance Requirements and the requirements of Article 9 hereof, using new
materials well suited for their intended purpose and (b) consistent with
the operation of the Facility in a reputable manner. Lessee will not take
or omit to take any action the taking or omission of which might materially
impair the
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value or the usefulness of the Leased Property for the Primary Intended Use
and, if applicable, the other Permitted Uses. To the extent that any of
the repairs, replacements, renovations, alterations or modifications
required by the terms of this Section 8.1 constitute Material Structural
Work, Lessee shall obtain Lessor's prior written approval (which approval
shall not be unreasonably withheld) of the specific repairs, replacements,
renovations, alterations and modifications to be performed by or on behalf
of Lessee in connection with such Material Structural Work.
Notwithstanding the foregoing, in the event of a bona fide emergency during
which Lessee is unable to contact the appropriate representatives of
Lessor, Lessee may commence such Material Structural Work as may be
necessary in order to address such emergency without Lessor's prior
approval, PROVIDED, HOWEVER, that Lessee shall immediately thereafter
advise Lessor of such emergency and the nature and scope of the Material
Structural Work commenced and shall obtain Lessor's approval of the
remaining Material Structural Work to be completed.
8.1.2 NO LESSOR OBLIGATION. Lessor shall not, under any
circumstances, be required to build or rebuild any improvements on the
Leased Property (or any private roadways, sidewalks or curbs appurtenant
thereto), or to make any repairs, replacements, renovations, alterations,
restorations, modifications, or renewals of any nature or description to
the Leased Property (or any private roadways, sidewalks or curbs
appurtenant thereto), whether ordinary or extraordinary, structural or non-
structural, foreseen or unforeseen, or to make any expenditure whatsoever
with respect thereto in connection with this Lease, or to maintain the
Leased Property (or any private roadways, sidewalks or curbs appurtenant
thereto) in any way.
8.1.3 LESSEE MAY NOT OBLIGATE LESSOR. Nothing contained herein nor any
action or inaction by Lessor shall be construed as (a) constituting the
consent or request of Lessor, express or implied, to any contractor,
subcontractor, laborer, materialman or vendor to or for the performance of
any labor or services for any construction, alteration, addition, repair or
demolition of or to the Leased Property or (b) except as otherwise provided
in this Lease, giving Lessee any right, power or permission to contract for
or permit the performance of any labor or services or the furnishing of any
materials or other property in such fashion as would permit the making of
any claim against Lessor for the payment thereof or to make any agreement
that may create, or in any way be the basis for, any right, title or
interest in, or Lien or claim against, the estate of Lessor in the Leased
Property. Without limiting the generality of the foregoing and except as
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otherwise provided in this Lease, the right title and interest of Lessor in
and to the Leased Property shall not be subject to liens or encumbrances
for the performance of any labor or services or the furnishing of any
materials or other property furnished to the Leased Property at or by the
request of Lessee or any other Person other than Lessor. Lessee shall
notify any contractor, subcontractor, laborer, materialman or vendor
providing any labor, services or materials to the Leased Property of this
provision.
8.2 ENCROACHMENTS; TITLE RESTRICTIONS. If any of the Leased Improvements
shall, at any time, encroach upon any property, street or right-of-way adjacent
to the Leased Property, or shall violate the agreements or conditions contained
in any lawful restrictive covenant or other Lien now or hereafter affecting the
Leased Property, or shall impair the rights of others under any easement, right-
of-way or other Lien to which the Leased Property is now or hereafter subject,
then promptly upon the request of Lessor, Lessee shall, at its sole cost and
expense, subject to Lessee's right to contest the existence of any encroachment,
violation or impairment as set forth in Article 15, (a) obtain valid and
effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation or impairment or (b) make such
alterations to the Leased Improvements, and take such other actions, as Lessee
in the good faith exercise of its judgment deems reasonably practicable, to
remove such encroachment, or to end such violation or impairment, including, if
necessary, the alteration of any of the Leased Improvements. Notwithstanding
the foregoing, Lessee shall, in any event, take all such actions as may be
reasonably necessary in order to be able to continue the operation of the Leased
Improvements for the Primary Intended Use and, if applicable, the Other
Permitted Uses substantially in the manner and to the extent that the Leased
Improvements were operated prior to the assertion of such encroachment,
violation or impairment and nothing contained herein shall limit Lessee's
obligations to operate the Leased Property in accordance with its Primary
Intended Use. Any such alteration made pursuant to the terms of this Section
8.2 shall be completed in conformity with the applicable requirements of Section
8.1 and Article 9. Lessee's obligations under this Section 8.2 shall be in
addition to and shall in no way discharge or diminish any obligation of any
insurer under any policy of title or other insurance. If and to the extent any
obligation of an insurer under any policy of title or other insurance exists and
Lessee has incurred costs and expenses with respect to the subject matter of
such obligation and provided Lessor is reasonably satisfied with the resolution
of such subject matter, at the request of Lessee, Lessor, at Lessor's option,
shall either assign to Lessee any right it may have to proceed against such
insurer or remit to Lessee any amount which Lessor recovers from such insurer,
minus any amounts needed to reimburse Lessor for its reasonable costs and
expenses,
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for the costs and expenses incurred by Lessee in reconstructing the Facility or
taking such other action reasonably required in order to create a viable and
functional Facility under all of the circumstances.
ARTICLE 9
MATERIAL STRUCTURAL WORK AND
CAPITAL ADDITIONS
9.1 LESSOR'S APPROVAL. Without the prior written consent of Lessor, which
consent may be withheld by Lessor, in its sole and absolute discretion, Lessee
shall make no Capital Addition or Material Structural Work to the Leased
Property (including, without limitation, any change in the size or unit capacity
of the Facility), except as may be otherwise expressly required pursuant to
Article 8.
9.2 GENERAL PROVISIONS AS TO CAPITAL ADDITIONS AND CERTAIN MATERIAL
STRUCTURAL WORK. As to any Capital Addition or Material Structural Work (other
than such Material Structural Work that is required to be performed pursuant to
the terms of Section 8.1) for which Lessor has granted its prior written
approval, the following terms and conditions shall apply unless otherwise
expressly set forth in Lessor's written approval.
9.2.1 NO LIENS. Lessee shall not be permitted to create any Lien on
the Leased Property in connection with any Capital Addition or Material
Structural Work (including, without limitation, Liens relating to the
provision of financing for a Capital Addition) other than Liens expressly
permitted by the terms and provisions of this Lease Agreement.
9.2.2 LESSEE'S PROPOSAL REGARDING CAPITAL ADDITIONS AND MATERIAL
STRUCTURAL WORK. If Lessee desires to undertake any Capital Addition or
Material Structural Work, Lessee shall submit to Lessor in writing a
proposal setting forth in reasonable detail any proposed Capital Addition
or Material Structural Work and shall provide to Lessor copies of, or
information regarding, the applicable plans and specifications, Permits,
Contracts and any other materials concerning the proposed Capital Addition
or Material Structural Work, as the case may be, as Lessor may reasonably
request. Without limiting the generality of the foregoing, each such
proposal pertaining to any Capital Addition shall indicate the approximate
projected cost of constructing such Capital Addition, the use or uses to
which it will be put and a good faith estimate of the change, if any, in
the Gross Revenues that Lessee anticipates will result from the
construction of such Capital Addition.
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9.2.3 LESSOR'S OPTIONS REGARDING CAPITAL ADDITIONS AND STRUCTURAL WORK.
Lessor shall have the options of (a) denying permission for the construction of
the applicable Capital Addition or Material Structural Work, (b) offering to
finance the construction of the Capital Addition pursuant to Section 9.3 on such
terms as may be specified by Lessor, including the terms of any amendment to
this Lease, including, without limitation, an increase in Base Rent based on
Lessor's then existing terms and prevailing conditions to compensate Lessor for
the additional funds advanced by it, (c) allowing Lessee to separately pay for
or finance the construction of the Capital Addition, subject to compliance with
the terms and conditions of Section 9.2.1, Section 9.4, Section 13.1.3, all
applicable Legal Requirements, all other requirements of this Lease and to such
other terms and conditions as Lessor may in its discretion reasonably impose or
(d) any combination of the foregoing. Unless Lessor notifies Lessee in writing
of a contrary election within thirty (30) days of Lessee's request or unless
Lessor is required to consent thereto pursuant to this Section 9.2.3, Lessor
shall be deemed to have denied the request for the Capital Addition or Material
Structural Work. In the event and to the extent Lessor has granted permission
for the construction of the applicable Capital Addition or Material Structural
Work and (b) Lessor has not offered to finance the construction of the same or
(y) Lessee declines to accept the financing offered by Lessor, Lessee may
separately finance such construction, subject to the limitation on Liens set
forth in Section 9.2.1, or pay for such construction itself. In the event
Lessee declines to accept the financing offered by Lessor or if Lessor has not
offered such financing to Lessee and proposes to obtaining financing from
another Person, Lessee shall inform Lessor in writing of the terms and
conditions of such financing and shall provide Lessor with a copy of a
commitment letter evidencing the same and Lessor may, by giving notice thereof
to Lessee within twenty (20) days following being so informed, elect to provide
financing to Lessee at the effective rate of interest as such financing. Lessor
shall not unreasonably withhold its permission for the construction of Material
Structural Work which is necessary to protect the safety or welfare of residents
of the Facility.
9.2.4 LESSOR MAY ELECT TO FINANCE CAPITAL ADDITIONS. If Lessor elects
to offer financing for the proposed Capital Addition and Lessee accepts
Lessor's financing proposal, the provisions of Section 9.3 shall apply.
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9.3 CAPITAL ADDITIONS FINANCED BY LESSOR.
9.3.1 ADVANCES. All advances of funds for any such financing shall be
made in accordance with Lessor's then standard construction loan
requirements and procedures, which may include, without limitation, the
requirements and procedures applicable to Work under Sections 13.1.3 and
13.1.4.
9.3.2 LESSOR' S GENERAL REQUIREMENTS. If Lessor agrees to finance the
proposed Capital Addition and Lessee accepts Lessor's proposal therefor, in
addition to all other items which Lessor or any applicable Financing Party
may reasonably require, Lessee shall provide to Lessor the following:
(a) prior to any advance of funds, (i) any information, opinions,
certificates, Permits or documents reasonably requested by Lessor or
any applicable Financing Party which are necessary to confirm that
Lessee is reasonably expected to be able to use the Capital Addition
upon completion thereof in accordance with the Primary Intended Use
and/or, if applicable, the Other Permitted Uses and (ii) evidence
satisfactory to Lessor and any applicable Financing Party that all
Permits required for the construction and use of the Capital Addition
have been received, are in full force and effect and are not subject
to appeal, except only for those Permits which cannot in the normal
course be obtained prior to commencement or completion of the
construction; PROVIDED, THAT Lessor and any applicable Financing Party
are furnished with reasonable evidence that the same is reasonably
expected to be available in the normal course of business without
unusual condition;
(b) prior to any advance of funds, an Officer's
Certificate and, if requested, a certificate from Lessee's architect,
setting forth in reasonable detail the projected (or actual, if
available) Capital Addition Cost;
(c) bills of sale, instruments of
transfer and other documents required by Lessor so as to vest title to
the Capital Addition in Lessor free and clear of all Liens (except to
the extent a Lien is being duly contested in accordance with the terms
and provisions of this Lease), and amendments to this Lease and any
recorded notice or memorandum thereof, duly executed and acknowledged,
in form and substance reasonably satisfactory to Lessor, providing for
any changes required by Lessor including, without limitation,
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changes in the Base Rent and the legal description of the Land;
(d) upon payment therefor, a deed conveying to Lessor title to
any land acquired for the purpose of constructing the Capital Addition
("Additional Land") free and clear of any Liens except those approved
by Lessor;
(e) upon completion of the Capital Addition, a final as built
survey thereof reasonably satisfactory to Lessor, if required by
Lessor;
(f) during and following the advance of funds and the completion
of the Capital Addition, endorsements to any outstanding policy of
title insurance covering the Leased Property satisfactory in form and
substance to Lessor (i) updating the same without any additional
exception except as may be reasonably permitted by Lessor and (ii)
increasing the coverage thereof by an amount equal to the Fair Market
Value of the Capital Addition and/or increasing the coverage thereof
by an amount equal to the Fair Market Value of the Additional Land and
including the Additional Land in the premises covered by such title
insurance policy;
(g) simultaneous with the initial advance of funds, if
appropriate, (i) an owner's policy of title insurance insuring fee
simple title to any Additional Land conveyed to Lessor pursuant to
subparagraph (d) free and clear of all Liens except those approved by
Lessor and (ii) an owner's policy of title insurance reasonably
satisfactory in form and substance to Lessor and a lender's policy of
title insurance reasonably satisfactory in form and substance to any
applicable Financing Party;
(h) following the completion of the Capital Addition, if
reasonably deemed necessary by Lessor, an appraisal of the Leased
Property by an M.A.I. appraiser acceptable to Lessor, which states
that the Fair Market Value of the Leased Property upon completion of
the Capital Addition exceeds the Fair Market Value of the Leased
Property prior to the commencement of such Capital Addition by an
amount not less than one hundred twenty-five percent (125%) of the
Capital Addition Cost;
(i) and during or following the advancement of funds, prints of
architectural and engineering drawings relating to the Capital
Addition and such other materials, including, without limitation, the
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modifications to outstanding policies of title insurance contemplated
by subsection (f) above, opinions of counsel, appraisals, surveys,
certified copies of duly adopted resolutions of the board of directors
of Lessee authorizing the execution and delivery of the lease
amendment and any other documents and instruments as may be reasonably
required by Lessor and any applicable Financing Party.
9.3.3 PAYMENT OF COSTS. By virtue of making a request to finance a
Capital Addition, whether or not such financing is actually consummated,
Lessee shall be deemed to have agreed to pay, upon demand, all costs and
expenses reasonably incurred by Lessor and any Person participating with
Lessor in any way in the financing of the Capital Addition Cost, including,
but not limited to (a) fees and expenses of their respective attorneys, (b)
all photocopying expenses, if any, (c) the amount of any filing,
registration and recording taxes and fees, (d) documentary stamp taxes and
intangible taxes (e) title insurance charges and appraisal fees.
9.4 GENERAL LIMITATIONS. Without in any way limiting Lessor's options
with respect to proposed Capital Additions or Material Structural Work: (a)
no Capital Addition or Material Structural Work shall be completed that
could, upon completion, significantly alter the character or purpose or
detract from the value or operating efficiency of the Leased Property, or
significantly impair the revenue-producing capability of the Leased
Property, or adversely affect the ability of Lessee to comply with the
terms of this Lease; (b) no Capital Addition or Material Structural Work
shall be completed which would tie in or connect any Leased Improvements on
the Leased Property with any other improvements on property adjacent to the
Leased Property (and not part of the Land covered by this Lease) including,
without limitation, tie-ins of buildings or other structures or utilities,
unless Lessee shall have obtained the prior written approval of Lessor,
which approval may be withheld in Lessor's sole and absolute discretion and
(c) all proposed Capital Additions and Material Structural Work shall be
architecturally integrated and consistent with the Leased Property.
9.5 NON-CAPITAL ADDITIONS. Lessee shall have the obligation and
right to make repairs, replacements and alterations which are not Capital
Additions as required by the other Sections of this Lease, but in so doing,
Lessee shall always comply with and satisfy the conditions of Section 9.4.
Lessee shall have the right, from time to time, to make additions,
modifications or improvements to the Leased Property which do not
constitute Capital Additions or Material Structural Work as it may deem to
be desirable or necessary for its uses and purposes, subject to the same
limits and conditions imposed under
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Section 9.4. The cost of any such repair, replacement, alteration,
addition, modification or improvement shall be paid by Lessee and the
results thereof shall be included under the terms of this Lease and become
a part of the Leased Property, without payment therefor by Lessor at any
time. Notwithstanding the foregoing, all such additions, modifications and
improvements which affect the structure of any of the Leased Improvements,
or which involve the expenditure of more than FIFTY THOUSAND DOLLARS
($50,000.00), shall be undertaken only upon compliance with the provisions
of Section 13.1.3, all applicable Legal Requirements and all other
applicable requirements of this Lease; PROVIDED, HOWEVER, that in the event
of a bona fide emergency during which Lessee is unable to contact the
appropriate representatives of Lessor, Lessee may commence such additions,
modifications and improvements as may be necessary in order to address such
emergency without Lessor's prior approval, as long as Lessee immediately
thereafter advises Lessor of such emergency and the nature and scope of the
additions, modifications and improvements performed and obtains Lessor's
approval of the remaining work to be completed. Any such addition,
modification and improvement which affects the structure of any of the
Leased Improvements which is not a Capital Addition or Material Structural
Work shall be exempt from the requirements of Section 9.2 hereof.
9.6 COMPENSATION TO LESSEE FOR CAPITAL ADDITIONS PAID FOR OR FINANCED BY
LESSEE. Upon the expiration or earlier termination of this Lease, except by
reason of the default by Lessee hereunder, Lessor shall compensate Lessee for
all Capital Additions paid for or financed lay Lessee in any of the following
ways, determined in the sole discretion of Lessor:
(a) By purchasing all Capital Additions paid for or financed by Lessee from
Lessee for cash in the amount of the Fair Market Added Value (determined as of
the date of such purchase) of all such Capital Additions paid for or financed by
Lessee or
(b) By purchasing such Capital Addition from Lessee by delivering to Lessee
Lessor's purchase money promissory note in the amount of said Fair Market Added
Value, due and payable no later than eighteen (18) months after the date of
expiration or other termination of this Lease, bearing interest at a rate equal
to one hundred ten percent (110%) of the applicable federal rate (determined at
the time of execution of such note pursuant to Section 1274 of the Code or any
successor section thereto), compounded semiannually, or, if no such rate exists,
or such rate is in excess of that permitted under applicable law, at the Prime
Rate, which interest shall be payable monthly, and which note shall be secured
by a mortgage on the Leased Property, subject to all Liens on the Leased
Property at the time of such purchase; or
(c) By Lessor assigning to Lessee under appropriate written instruments the
right to receive an amount equal to the Added
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Value Percentage (determined as of the expiration of earlier termination of this
Lease) from all rent and other consideration receivable by Lessor under any re-
letting or other disposition of the Leased Property, after deducting all costs
and expenses incurred by Lessor in connection with such re-letting or other
disposition of the leased Property and all costs and expenses of operating and
maintaining the Leased Property during any such new lease which are not borne by
the tenant thereunder. The provisions of this Subparagraph (c) shall remain in
effect until the sale or other final disposition of the Leased Property in which
event Lessor shall pay to Lessee the outstanding balance of the Fair Market
Added Value in accordance with Subparagraph (a), (b), or (d) of this Section
9.6, after deducting any amounts received by Lessee under this Subparagraph (c);
or
(d) Such other arrangement regarding such compensation as shall be mutually
acceptable to Lessor and Lessee.
ARTICLE 10
WARRANTIES AND REPRESENTATIONS
10.1 REPRESENTATIONS AND WARRANTIES. Lessee hereby represents and warrants
to, and covenants and agrees with, Lessor that:
10.1.1 EXISTENCE; POWER; QUALIFICATION.
Lessee is a corporation duly organized, validly existing and in good
standing under the laws of the State of Washington. Lessee has all
requisite corporate power to own and operate its properties and to carry on
its business as now conducted and is duly qualified to transact business
and is in good standing in each jurisdiction where such qualification is
necessary or desirable in order to carry out its business as presently
conducted. As of the date of this Agreement, Lessee does not have any
Subsidiaries and Lessee is not a member of any partnership or joint
venture. Attached hereto as EXHIBIT C is a true and correct list of all of
the shareholders of Lessee and their respective ownership interests in
Lessee;
10.1.2 VALID AND BINDING. Lessee is duly authorized to make and enter
into all of the Lease Documents to which Lessee is a party and to carry out
the transactions contemplated therein. All of the Lease Documents to which
Lessee is a party have been duly executed and delivered by Lessee, and each
is a legal, valid and binding obligation of Lessee, enforceable in
accordance with its terms.
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10.1.3 SINGLE PURPOSE. Lessee is, and during the entire time that this
Lease remains in force and effect shall be, engaged in no business, trade
or activity other than the operation and development of the Leased Property
for the Primary Intended Use and such other activities in which Lessee may
be permitted to engage by the provisions of Meditrust/Emeritus Transaction
Documents. The fiscal year of Lessee, and the Guarantor is the Fiscal
Year.
10.1.4 NO VIOLATION. The execution, delivery and performance of the
Lease Documents by the members of the Leasing Group and the consummation by
the members of the Leasing Group of the transactions thereby contemplated
shall not result in any breach of, or constitute a default under, or result
in the acceleration of, or constitute an event which, with the giving of
notice or the passage of time, or both, could result in default or
acceleration of any obligation of any such member of the Leasing Group
under any of the Permits or Contracts or any other contract, mortgages
lien, lease, agreement, instrument, franchise, arbitration award, judgment,
decree, bank loan or credit agreement, trust indenture or other instrument
to which any member of the Leasing Group is a party or by which any member
of the Leasing Group may be bound or affected and do not violate or
contravene any Legal Requirement.
10.1.5 CONSENTS AND APPROVALS. Except as already obtained or filed, as
the case may be, no consent or approval or other authorization of, or
exemption by, or declaration or filing with, any Person and no waiver of
any right by any Person is required to authorize or permit, or is otherwise
required as a condition of the execution, delivery and performance of its
obligations under the Lease Documents by any member of the Leasing Group or
as a condition to the validity (assuming the due authorization, execution
and delivery by Lessor of the Lease Documents to which it is a party) and
the first priority of any Liens granted under the Lease Documents, except
the filing of the Financing Statements.
10.1.6 NO LIENS OR INSOLVENCY PROCEEDINGS. Each member of the Leasing
Group in existence as of the date hereof is financially solvent and there
are no actions, suits, investigations or proceedings including, without
limitation, outstanding federal or state tax liens, garnishments or
insolvency or bankruptcy proceedings, pending or, to the best of Lessee's
knowledge and belief, threatened:
(a)against or affecting any member of the Leasing Group, which if
adversely resolved to such
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member of the Leasing Group, would materially adversely affect the
ability of any of the foregoing to perform their respective
obligations under the Lease Documents;
(b) against or affecting the Leased Property or the ownership,
construction, development, maintenance, management, repair, use,
occupancy, possession or operation thereof; or
(c) which may involve or affect the validity, priority or
enforceability of any of the Lease Documents, at law or in equity, or
before or by any arbitrator or Governmental Authority.
10.1.7 INTENTIONALLY DELETED.
10.1.8 COMMERCIAL ACTS. Lessee's performance of and compliance with
the obligations and conditions set forth herein and in the other Lease
Documents will constitute commercial acts done and performed for commercial
purposes.
10.1.9 ADEQUATE CAPITAL, NOT INSOLVENT. After giving effect to the
consummation of the transactions contemplated by the Lease Documents, each
member of the Leasing Group:
(a) will be able to pay its debts as they become due;
(b) will have sufficient funds or available capital to carry on
its business as now conducted or as contemplated to be conducted (in
accordance with the terms of the Lease Documents); and
(c) will not be rendered insolvent as determined by applicable
law.
10.1.10 NOT DELINQUENT. Except as permitted under Section 11.3.8, no
member of the Leasing Group which exists as of the date hereof is
delinquent or claimed to be delinquent under any obligation for the payment
of borrowed money.
10.1.11 NO AFFILIATE DEBT. Lessee has not created, incurred,
guaranteed, endorsed, assumed or suffered to exist any liability (whether
direct or contingent) for borrowed money from the Guarantor (or any of its
Affiliates) or any Affiliate of Lessee which has not been fully
subordinated to the Lease Obligations.
10.1.12 TAXES CURRENT. Each member of the Leasing Group which exists
as of the date hereof has filed
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all federal, state and local tax returns which are required to be filed as
to which extensions are not currently in effect and has paid all taxes,
assessments, impositions, fees and other governmental charges (including
interest and penalties) which have become due pursuant to such returns or
pursuant to any assessment or notice of tax claim or deficiency received by
each such member of the Leasing Group. No tax liability has been asserted
by the Internal Revenue Service against any member of the Leasing Group or
any other federal, state or local taxing authority for taxes, assessments,
impositions, fees or other governmental charges (including interest or
penalties thereon) in excess of those already paid.
10.1.13 FINANCIALS COMPLETE AND ACCURATE. The financial statements
of each member of the Leasing Group given to Lessor in connection with the
execution and delivery of the Lease Documents were true, complete and
accurate, in all material respects, and fairly presented the financial
condition of each such member of the Leasing Group as of the date thereof
and for the periods covered thereby, having been prepared in accordance
with GAAP and such financial statements disclosed all liabilities,
including, without limitation, contingent liabilities, of each such member
of the Leasing Group as of the date thereof. There has been no material
adverse change since such date with respect to the Net Worth of any such
member of the Leasing Group or with respect to any other matters contained
in such financial statements, nor have any additional material liabilities,
including, without limitation, contingent liabilities, of any such member
of the Leasing Group arisen or been incurred or asserted since such date
except as otherwise disclosed to Lessor. The projections heretofore
delivered to Lessor continue to be reasonable (with respect to the material
assumptions upon which such projections are based) and Lessee reasonably
anticipates based on information currently available to it after due
inquiry the results projected therein will be achieved, there having been
(a) no material adverse change in the business, assets or condition,
financial or otherwise of any such member of the Leasing Group or the
Leased Property and (b) no material depletion of the cash or decrease in
working capital of any such member of the Leasing Group.
10.1.14 PENDING ACTIONS, NOTICES AND REPORTS.
(a) There is no action or investigation pending or, to the best
knowledge and belief of Lessee, threatened, anticipated or
contemplated (nor, to the knowledge of Lessee, is there any reasonable
basis therefor) against or affecting the Leased Property or any member
of the Leasing Group (or any Affiliate thereof) before any
Governmental
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Authority, which could prevent or hinder the consummation of the
transactions contemplated hereby or call into question the validity of
any of the Lease Documents or any action taken or to be taken in
connection with the transactions contemplated thereunder or which in
any single case or in the aggregate might result in any material
adverse change in the business, prospects, condition, affairs of any
member of the Leasing Group or the Leased Property (including, without
limitation, any action to revoke, withdraw or suspend any Permit
necessary or desirable for the operation of the Leased Property in
accordance with its Primary Intended Use and any action to transfer or
relocate any such Permit to a location other than the Leased Property)
or any material impairment of the right or ability of any member of
the Leasing Group to carry on its operations as presently conducted or
proposed to be conducted with respect to the Leased Property or with
respect to its obligations under the Lease Documents.
(b) Neither the Facility nor any member of the Leasing Group has
received any notice of any claim, requirement or demand of any
Governmental Authority, or any insurance body having or claiming any
licensing, certifying, supervising, evaluating or accrediting
authority over the Leased Property to rework or redesign the Leased
Property, its professional staff or its professional services,
procedures or practices in any material respect or to provide
additional furniture, fixtures, equipment or inventory or to otherwise
take action so as to make the Leased Property conform to or comply
with any Legal Requirement;
(c) The most recent utilization reviews, if any, relating to the
Leased Property by all applicable Governmental Authorities and all
applicable reviews or scrutiny by any managed care or utilization
review companies, if any, have not had a material adverse impact on
the utilization of units or programs at any of the Leased Property.
No claims or assertions have been made in any utilization review that
any of the practices or procedures used at the Leased Property are
improper or inappropriate other than such claims or assertions which
singly and in the aggregate will not have a material adverse impact on
the Leased Property; and
(d) Lessee has delivered or caused to be delivered to Lessor true
and correct copies of all licenses, inspection surveys and
accreditation reviews, if any, relating to the Leased Property, issued
by any Governmental Authority during the most recent licensing period,
together with all plans of correction relating thereto.
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10.1.15 COMPLIANCE WITH LEGAL AND OTHER REQUIREMENTS.
(a) Lessee and the Leased Property and the ownership, construction,
development, maintenance, management, repair, use, occupancy, possession and
operation thereof comply with all applicable Legal Requirements and there is no
claim of any violation thereof known to Lessee. Without limiting the foregoing,
Lessee has obtained all Permits that are necessary or desirable to operate the
Leased Property in accordance with its Primary Intended Use.
(b) Except as previously delivered to Lessor pursuant to Section
10.1.14(d) hereof, there are no outstanding notices of deficiencies, notices of
proposed action or orders of any kind relating to the Leased Property, if any,
issued by any Governmental Authority requiring conformity to any of the
applicable Legal Requirements.
10.1.16 NO ACTION BY GOVERNMENTAL AUTHORITY. There is no action pending
or, to the best knowledge and belief of Lessee, recommended, by any Governmental
Authority to revoke, repeal, cancel, modify, withdraw or suspend any Permit or
Contract or to take any other action of any other type which could have a
material adverse effect on the Leased Property.
10.1.17 PROPERTY MATTERS.
(a) The Leased Property is free and clear of agreements, covenants and
Liens, except those agreements, covenants and Liens to which this Lease is
expressly subject, whether presently existing, as are listed on EXHIBIT B or
were listed on the UCC lien search results delivered to Lessor at or prior to
the execution and delivery of this Lease (and were not required to be terminated
as a condition of the execution and delivery of this Lease), or which may
hereafter be created in accordance with the terms hereof (collectively referred
to herein as the "Permitted Encumbrances")l and Lessee shall warrant and defend
Lessor's title to the Leased Property against any and all claims and demands of
every kind and nature whatsoever;
(b) There is no Condemnation or similar proceeding pending with respect to
or affecting the Leased Property, and Lessee is not aware, to the best of
Lessee's knowledge and belief, that any such proceeding is contemplated;
(c) No part of the Collateral or the Leased Property has been damaged by
any fire or other casualty. The Leased Improvements are in good operating
condition and repair,
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ordinary wear and tear excepted, free from known defects in construction or
design;
(d) None of the Permitted Encumbrances has or is likely to have a material
adverse impact upon, nor interfere with or impede, in any material respect, the
operation of the Leased Property in accordance with the Primary Intended Use;
(e) All buildings, facilities and other improvements necessary, both
legally and practically, for the proper and efficient operation of the Facility
are located upon the Leased Property and all real property and personal property
currently utilized by Lessee is included within the definition of the Leased
Property or the Collateral;
(f) The Leased Property abuts on and has direct vehicular access to a
public road or access to a public road via permanent, irrevocable, appurtenant
easements;
(g) The Leased Property constitutes a parcel(s) for real estate tax
purposes separate from any real property that does not constitute a portion of
the Leased Property and no portion of any real property that does not constitute
a portion of the Leased Property is part of the same tax parcel as any part of
the Leased Property;
(h) All utilities necessary for the use and operation of the Facility are
available to the lot lines of the Leased Property:
(i) in sufficient supply and capacity;
(ii) through validly created and existing easements of record
appurtenant to or encumbering the Leased Property (which easements
shall not impede or restrict the operation of the Facility); and
(iii) without need for any Permits and/or Contracts to be issued by
or entered into with any Governmental Authority, except as already
obtained or executed, as the case may be, or as otherwise shown to the
satisfaction of Lessor to be readily obtainable; and
(iv) Lessee has made no structural alterations or improvements to any
of the Leased Improvements that changed the foot print of any of the
Leased Improvements, added an additional story to any of the Leased
Improvements, decreased the amount of parking available on the Leased
Property or otherwise involved any alteration which would be regulated
by applicable zoning requirements, in each case without the express
written consent of Lessor. Except for
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matters which have been disclosed to Lessor or concerning which Lessor has
independent actual knowledge, Lessee has no actual knowledge of any such
structural alteration or improvement made to any of the Leased Improvements
during the last ten (10) years and has no knowledge of any such structural
alteration or renovation made to any of the Leased Improvements or any such
decrease in parking during such period.
10.1.18 THIRD PARTY PAYOR AGREEMENTS. Neither Lessee nor the Facility is
qualified as a provider of services under or participates in any Third Party
Payor Programs and neither Lessee nor the Facility is accredited by any
Accreditation Body.
10.1.19 RATE LIMITATIONS. The State currently imposes no restrictions or
limitations on rates which may be charged to private pay residents receiving
services at the Facility.
10.1.20 FREE CARE. There are no Contracts, Permits or applicable Legal
Requirements which require that, a percentage of units in any program at the
Facility be reserved for Medicaid or Medicare eligible residents or that the
Facility provide a certain amount of welfare, free or charity care or discounted
or government assisted resident care.
10.1.21 NO PROPOSED CHANGES. Lessee has no actual knowledge of any
applicable Legal Requirements which have been enacted, promulgated or issued
within the eighteen (18) months preceding the date of this Lease or any proposed
applicable Legal Requirements currently pending in the State which may
materially adversely affect rates at the Facility (or any program operated by a
member of the Leasing Group in conjunction with the Facility) or may result in
the likelihood of increased competition at the Facility or the imposition of
Medicaid, Medicare, charity, free care, welfare or other discounted or
government assisted residents at the Facility or require that Lessee or the
Facility obtain a certificate of need, Section 1122 approval or the equivalent,
which Lessee or the Facility does not currently possess.
10.1.22 ERISA. No employee pension benefit plan maintained by any member
of the Leasing Group has any accumulated funding deficiency within the meaning
of the ERISA, nor does any member of the Leasing Group have any material
liability to the PBGC established under ERISA (or any successor thereto) in
connection with any employee pension benefit plan (or other class of benefit
which the PBGC has elected to insure), and there have been no
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reportable events" (not waived) or "prohibited transactions" with respect to any
such plan, as those terms are defined in Section 4043 of ERISA and Section 4975
of the Internal Revenue Code of 1986, as now or hereafter amended, respectively.
10.1.23 NO BROKER. No member of the Leasing Group nor any of their
respective Affiliates has dealt with any broker or agent in connection with the
transactions contemplated by the Lease Documents.
10.1.24 NO IMPROPER PAYMENTS. No member of the Leasing Group nor any of
their respective Affiliates has:
(a) made any contributions, payments or gifts of its funds or property to
or for the private use of any government official, employee, agent or other
Person where either the payment or the purpose of such contribution, payment or
gifts is illegal under the laws of the United States, any state thereof or any
other jurisdiction (foreign or domestic);
(b) knowingly established or maintained any unrecorded fund or asset for
any purpose or knowingly made any false or artificial entries on any of its
books or records for any reason;
(c) made any payments to any Person with the intention or understanding
that any part of such payment was to be used for any other purpose other than
that described in the documents supporting the payment; or
(d) made any contribution, or reimbursed any political gift or contribution
made by any other Person, to candidates for public office, whether federal,
state or local, where such contribution would be in violation of applicable law.
10.1.25 NOTHING OMITTED. Neither this Lease, nor any of the other Lease
Documents, nor any certificate, agreement, statement or other document,
including, without limitation, any financial statements concerning the financial
condition of any member of the Leasing Group, furnished to or to be furnished to
Lessor or its attorneys in connection with the transactions contemplated by the
Lease Documents, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to
prevent all statements contained herein and therein from being misleading.
There is no fact within the special knowledge of Lessee which has not been
disclosed herein or in writing to Lessor that
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materially adversely affects, or in the future, insofar as Lessee can reasonably
foresee based on the information currently available to it after due inquiry,
may materially adversely affect the business, properties, assets or condition,
financial or otherwise, of any member of the Leasing Group or the Leased
Property.
10.1.26 NO MARGIN SECURITY. Lessee is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of the Meditrust Investment will be used to
purchase or carry any margin security or to extend credit to others for the
purpose of purchasing or carrying any margin security or in any other manner
which would involve a violation of any of the regulations of the Board of
Governors of the Federal Reserve System. Lessee is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
10.1.27 NO DEFAULT. No event or state of facts which constitutes, or
which, with notice or lapse of time, or both, could constitute, a Lease Default
has occurred and is continuing.
10.1.28 PRINCIPAL PLACE OF BUSINESS. The principal place of business and
chief executive office of Lessee is located at Market Place One, 2003 Western
Avenue, Suite 660, Seattle, Washington 98121-2162 (the "Principal Place of
Business").
10.1.29 LABOR MATTERS. There are no proceedings now pending, nor, to the
best of Lessee's knowledge, threatened with respect to the operation of the
Facility before the National Labor Relations Board, State Commission on Human
Rights and Opportunities, State Department of Labor, U.S. Department of Labor or
any other Governmental Authority having jurisdiction of employee rights with
respect to hiring, tenure and conditions of employment, and no member of the
Leasing Group has experienced any material controversy with any Facility
administrator or other employee of similar stature or with any labor
organization which has, or is likely, to have a materially adverse effect upon
the financial condition and/or operations of the Facility.
10.1.30 INTELLECTUAL PROPERTY. Lessee is duly licensed or authorized to
use all (if any) copyrights, rights of reproduction, trademarks, trade names,
trademark applications, service marks, patent applications, patents and patent
license rights, (all whether registered or
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unregistered, U.S. or foreign), inventions, franchises, discoveries, ideas,
research, engineering, methods, practices, processes, systems, formulae,
designs, drawings, products, projects, improvements, developments, know how
and trade secrets which are used in or necessary for the development and/or
operation of the Facility in accordance with its Primary Intended Use,
without conflict with or infringement of any, and subject to no
restriction, lien, encumbrance, right, title or interest in others.
10.1.31 MANAGEMENT AGREEMENTS. There is no Management Agreement in force
and effect as of the date hereof.
10.2 CONTINUING EFFECT OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Lease and the other Lease
Documents shall constitute continuing representations and warranties which shall
remain true, correct and complete throughout the Term. Notwithstanding the
provisions of the foregoing sentence but without derogation from any other terms
and provisions of this Lease, including, without limitation, those terms and
provisions containing covenants to be performed or conditions to be satisfied on
the part of Lessee, the representations and warranties contained in Sections
10.1.6, 10.1.8, 10.1.10, 10.1.14, 10.1.15, 10.1.17(b), 10.1.17(c), 10.1.17(i),
10.1.18, 10.1.19, 10.1.20, 10.1.21, 10.1.22, 10.1.27, 10.1.29, in the second
sentence of Section 10.1.12, in the second and third sentences of Section
10.1.13 and in the second sentence of Section 10.1.25 shall not constitute
continuing representations and warranties throughout the Term provided, however,
that nothing contained in the first sentence of Section 10.1.25 shall be
construed as imposing any obligation on Lessee to update after the Commencement
Date the information furnished to Lessor prior to the execution and delivery of
this Lease but without derogation of any other obligation Lessee has under this
Lease to provide information to Lessor.
ARTICLE 11
FINANCIAL AND OTHER COVENANTS
11.1 STATUS CERTIFICATES. At any time, and from time to time, upon request
from the other, Lessee and Lessor shall furnish to the other, within ten (10)
Business Days' after receipt of such request, an Officer's Certificate
certifying that this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and setting forth the
modifications) and the dates to which the Rent has been paid. Any Officer's
Certificate furnished pursuant to this Section at the request of Lessor shall be
addressed to any prospective purchaser or mortgagee of the Leased Property as
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Lessor may request and may be relied upon by Lessor and any such prospective
purchaser or mortgagee of the Leased Property.
11.2 FINANCIAL STATEMENTS; REPORTS; NOTICE AND INFORMATION.
11.2.1 OBLIGATION TO FURNISH. Lessee will furnish and shall cause to be
furnished to Lessor the following statements, information and other materials:
(a) ANNUAL STATEMENTS. Within ninety (90) days after the end of each
of their respective fiscal years, (i) a copy of the Consolidated Financials
for each of (x) Lessee, (y) the Guarantor and (z) any Sublessee which is an
Affiliate of Lessee for the preceding fiscal year, certified and, in the
case of Guarantor, audited by, and with the unqualified opinion of,
independent certified public accountants acceptable to Lessor and certified
as true and correct by Lessee, the Guarantor or the applicable Sublessee,
as the case may be (and, without limiting anything else contained herein,
the Consolidated Financials for Lessee and for each such Sublessee shall
include a detailed balance sheet for Leased Property as of the last day of
such fiscal year and a statement of earnings from the Leased Property for
such fiscal year showing, among other things, all rents and other income
therefrom and all expenses paid or incurred in connection with the
operation of the Leased Property); (ii) separate statements, certified as
true and correct by Lessee, the Guarantor, any Manager which is an
Affiliate of Lessee and each such Sublessee which is an Affiliate of
Lessee, stating whether, to the best of the signer's knowledge and belief
after making due inquiry, Lessee, the Guarantor, such Manager or any such
Sublessee, as the case may be, is in default in the performance or
observance of any of the terms of this Lease or any of the other Lease
Documents and, if so, specifying all such defaults, the nature thereof and
the steps being taken to immediately remedy the same; (iii) a copy of all
letters from the independent certified accountants engaged to perform the
annual audits referred to above, directed to the management of the
Guarantor regarding the existence of any reportable conditions or material
weaknesses; (iv) a statement certified as true and correct by Lessee
setting forth all Subleases as of the last day of such fiscal year, the
respective areas demised thereunder, the names of the Sublessees
thereunder, the respective expiration dates of the Subleases, the
respective rentals provided for therein, and such other information
pertaining to the Subleases as may be reasonably requested by Lessor; and
(v) evidence satisfactory to Lessor that Lessee has
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fulfilled its obligation to make the Annual Facility Upgrade Expenditure,
provided, however, that no such evidence shall be required to be submitted
until the fourth lease year.
(b) MONTHLY STATEMENTS OF LESSEE. Within thirty (30) days after the
end of each calendar month during the pendency of this Lease, (i) a
statement certified as true and correct by Lessee setting forth the Gross
Revenues of the Leased Property for the immediately preceding month, (ii)
an unaudited, detailed month and year to date income and expense statement
for the Leased Property which shall include a comparison to corresponding
budget figures, occupancy statistics (including the actual number of
residents, the number of units available and total resident days for such
month) and resident mix breakdowns (for each resident day during such month
classifying residents by the type of care required and source of payment)
and (iii) an express written calculation showing the compliance or non-
compliance, as the case may be, with the specific financial covenants set
forth in Section 11.3 for the applicable period, including, with respect to
the calculation of Lessee's Debt Coverage Ratio, a schedule substantially
in the form attached hereto as EXHIBIT D.
(c) QUARTERLY STATEMENTS. Within thirty (30) days after the end of
each respective fiscal quarter, unaudited Consolidated Financials for each
of (i) Lessee and (ii) each Sublessee which is an Affiliate of Lessee
certified as true and correct by Lessee or such applicable Sublessee, as
the case may be and within thirty (30) days after each calendar quarter,
Lessee shall also provide Lessor with a calculation of the Additional Rent
payable for such quarter.
(d) QUARTERLY STATEMENTS OF THE GUARANTOR. Within forty-five (45)
days after the end of each fiscal quarter, unaudited Consolidated
Financials for the Guarantor certified as true and correct by the
Guarantor.
(e) PERMITS AND CONTRACTS. Within ten (10) days after the issuance
or the execution thereof, as the case may be, true and complete copies of
(i) all Permits which constitute operating licenses for the Facility issued
by any Governmental Authority having jurisdiction over assisted living
matters and (ii) Contracts (involving payments in the aggregate in excess
of $100,000 per annum), including, without limitation, all Provider
Agreements.
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(f) CONTRACT NOTICES. Promptly but in no event more than ten (10)
days after the receipt thereof, true and complete copies of any notices,
consents, terminations or statements of any kind or nature relating to any
of the Contracts (involving payments in the aggregate in excess of ONE
HUNDRED THOUSAND DOLLARS ($100,000) per annum) other than those issued in
the ordinary course of business.
(g) PERMIT OR CONTRACT DEFAULTS. Promptly but in no event more than
ten (10) days after the receipt thereof, true and complete copies of all
surveys, follow-up surveys, licensing surveys, complaint surveys,
examinations, compliance certificates, inspection reports, statements other
than those statements that are issued in the ordinary course of business),
if any, terminations and notices of any kind (other than those notices that
are furnished in the ordinary course of business) issued or provided to
Lessee, the Manager or any Sublessee by any Governmental Authority,
Accreditation Body or any Third Party Payor, including, without limitation,
any notices pertaining to any delinquency in, or proposed revision of,
Lessee's, the Manager's or any Sublessee's obligations under the terms and
conditions of any Permits or Contracts now or hereafter issued by or
entered into with any Governmental Authority, Accreditation Body or Third
Party Payor and the responses) thereto made by or on behalf of Lessee, the
Manager or any Sublessee.
(h) OFFICIAL REPORTS. Upon completion or filing thereof, complete
copies of all applications (other than those that are furnished in the
ordinary course of business), notices (other than those that are furnished
in the ordinary course of business), statements, annual reports, cost
reports and other reports or filings of any kind (other than those that are
furnished in the ordinary course of business) provided by Lessee, the
Manager or any Sublessee to any Governmental Authority, Accreditation Body
or any Third Party Payor with respect to the Leased Property.
(i) OTHER INFORMATION. With reasonable promptness, such other
information as Lessor may from time to time reasonably request respecting
(i) the financial condition and affairs of each member of the Leasing Group
and the Leased Property and (ii) the licensing and operation of the Leased
Property; including, without limitation, financial statements, certificates
and consents from accountants and all other financial and
licensing/operational information
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as may be required or requested by any Governmental Authority.
(j) DEFAULT CONDITIONS. As soon as possible, and in any event within
five (5) days after the occurrence of any Lease Default, or any event or
circumstance which, with the giving of notice or the passage of time, or
both, would constitute a Lease Default, a written statement of Lessee
setting forth the details of such Lease Default, event or circumstance and
the action which Lessee proposes to take with respect thereto.
(k) OFFICIAL ACTIONS. Promptly but in no event more than ten (10)
days after the commencement thereof, notice of all actions, suits and
proceedings before any Governmental Authority or Accreditation Body which
could have a material adverse effect on any member of the Leasing Group or
the Leased Property.
(l) AUDIT REPORTS. Promptly but in no event more than ten (10) days
after receipt, a copy of all audits or reports submitted to Lessee by any
independent public accountant in connection with any annual, special or
interim audits of the books of Lessee and if requested by Lessor, any
letter of comments directed by such accountant to the management of Lessee.
(m) ADVERSE DEVELOPMENTS. Promptly but in no event more than ten
(10) days after Lessee acquires knowledge thereof, written notice of:
(i) the potential termination of any Permit or Provider Agreement
necessary for the operation of the Leased Property;
(ii) any loss, damage or destruction to or of the Leased Property in
excess of TWENTY FIVE THOUSAND DOLLARS ($25,000) (regardless of
whether the same is covered by insurance);
(iii) any material controversy involving Lessee or any Sublessee which
is an Affiliate of Lessee and (x) Facility administrator or
Facility employee of similar stature or (y) any labor
organization or (z) the Manager or any employee of the Manager
which has, or is reasonably likely to have, a materially adverse
effect on the financial condition and/or operations of the
Facility;
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(iv) any controversy that calls into question the eligibility of the
Facility for the participation in any Medicaid, Medicare or other
Third Party Payor Program in which the Facility is participating;
(v) any refusal of reimbursement by any Third Party Payor which,
singularly or together with all other such refusals by any Third
Party Payors, could reasonably be expected to have a material
adverse effect on the financial condition of Lessee or any
Sublessee which is an Affiliate of Lessee; and
(vi) any fact within the special knowledge of any member of the
Leasing Group, or any other development in the business or
affairs of any member of the Leasing Group, which could
reasonably be expected to be materially adverse to the business,
properties, assets or condition, financial or otherwise, of any
member of the Leasing Group or the Leased Property.
(n) RESPONSES TO INSPECTION REPORTS. Within thirty (30) days after
receipt of an inspection report relating to the Leased Property from
Lessor, a written response describing in detail prepared plans to address
concerns raised by the inspection report.
(o) PUBLIC INFORMATION. Upon the completion or filing, mailing or
other delivery thereof, complete copies of all financial statements,
reports, notices and proxy statements, if any, sent by any member of the
Leasing Group which is a publicly held corporation) to its shareholders and
of all reports, if any, filed by any member of the Leasing Group (which is
a publicly held corporation) with any securities exchange or with the
Securities Exchange Commission.
(p) ANNUAL BUDGETS. Prior to the end of each Fiscal Year, Lessee any
Sublessee which is an Affiliate of Lessee and/or any manager which is an
Affiliate of Lessee shall submit to Lessor a preliminary annual financial
budget for the Facility for the next Fiscal Year, a preliminary capital
expenditures budget for the Facility for the next Fiscal Year and a report
detailing the capital expenditures made in the then current Fiscal Year and
on or before the end of the first month of each Fiscal Year, Lessee, any
such Sublessee and/or any such
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Manager shall submit to Lessor revised finalized versions of such budgets
and report.
(q) WORKING CAPITAL LOAN. Promptly after receipt thereof, copies of
any notices with respect to default from a lender of a Working Capital
Loan.
11.2.2 RESPONSIBLE OFFICER. Any certificate, instrument, notice, or
other document to be provided to Lessor hereunder by any member of the Leasing
Group shall be signed by an executive officer of such member (in the event that
any of the foregoing is not an individual), having a position of Vice President
or higher and with respect to financial matters, any such certificate,
instrument, notice or other document shall be signed by the chief financial
officer of such member.
11.2.3 NO MATERIAL OMISSION. No certificate, instrument, notice or
other document, including without limitation, any financial statements furnished
or to be furnished to Lessor pursuant to the terms hereof or of any of the other
Lease Documents shall contain any untrue statement of a material fact or shall
omit to state any material fact necessary in order to prevent all statements
contained therein from being misleading.
11.2.4 CONFIDENTIALITY. Lessor shall afford any information received
pursuant to the provisions of the Lease Documents the same degree of
confidentiality that Lessor affords similar information proprietary to Lessor;
PROVIDED, HOWEVER, that Lessor shall have the unconditional right to (a)
disclose any such information as Lessor deems necessary or appropriate in
connection with any sale, transfer, conveyance, participation or assignment of
the Leased Property or any of the Lease Documents or any interest therein and
(b) use such information in any litigation or arbitration proceeding between
Lessor and any member of the Leasing Group. Without limiting the foregoing,
Lessor may also utilize any information furnished to it hereunder as and to the
extent (i) counsel to Lessor determines that such utilization is necessary
pursuant to 15 U.S.C. 77a-77aa or 15 U.S.C. 78a-78jj and the rules and
regulations promulgated thereunder, (ii) Lessor is required or requested by any
Governmental Authority to disclose any such information and/or (iii) Lessor is
requested to disclose any such information by any of the Meditrust Entities,
lenders or potential lenders. Lessor shall not be liable in any way for any
subsequent disclosure of such information by any Person to which Lessor has
provided such information in accordance with the terms hereof. Nevertheless, in
connection with any such disclosure, Lessor shall inform the recipient of any
such information of the confidential nature
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thereof. Lessor shall observe any prohibitions or limitations on the disclosure
of any such information under applicable confidentiality law or regulations, to
the extent that the same are applicable to such information.
11.3 FINANCIAL COVENANTS. Lessee covenants and agrees that, throughout the
Term and as long as Lessee is in possession of the Leased Property:
11.3.1 DEBT COVERAGE RATIO OF LESSEE. From and after the second
anniversary of the date hereof until the fourth anniversary hereof, Lessee shall
maintain with respect to the Facility and all other Group Two Acquisition.
Facilities for each Fiscal Quarter an aggregate Debt Coverage Ratio equal to or
greater than 1.1 to 1 and from and after the fourth anniversary hereof and for
the remainder of the Term, Lessee shall maintain with respect to the Facility
and all other Group Two Acquisition Facilities each Fiscal Quarter an aggregate
Debt Coverage Ratio equal to or greater than 1.2 to 1.
11.3.2 INTENTIONALLY DELETED.
11.3.3 INTENTIONALLY DELETED.
11.3.4 INTENTIONALLY DELETED.
11.3.5 CURRENT RATIO - GUARANTOR. From and after December 31, 1999 and
for the remainder of the Term, the Guarantor shall maintain a ratio of
Consolidated Current Assets to Consolidated Current Liabilities equal to or
greater than 1 to 1 as of the end of each fiscal year.
11.3.6 INTENTIONALLY DELETED.
11.3.7 NET WORTH - GUARANTOR. The Guarantor shall maintain, at all
times, a Net Worth of not less than TWENTY MILLION DOLLARS ($20,000,000).
11.3.8 NO INDEBTEDNESS. Lessee shall not create, incur, assume or
suffer to exist any liability for borrowed money except (i) Indebtedness to
Lessor under the Lease Documents and, (ii) Impositions allowed pursuant to the
provisions of the Lease, (iii) unsecured normal trade debt incurred upon
customary terms in the ordinary course of business, (iv) Indebtedness created in
connection with any financing of any Capital Addition, PROVIDED, THAT each such
financing has been approved by Lessor in accordance with the terms of Article 9
hereof, (v) Indebtedness to any Affiliate, PROVIDED, THAT, such Indebtedness is
fully subordinated to this Lease pursuant to the Affiliated Party Subordination
Agreement, (vi) other Indebtedness of Lessee
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in the aggregate amount not to exceed TWO HUNDRED THOUSAND DOLLARS ($200,000)
incurred, for the exclusive use of the Leased Property, on account of purchase
money indebtedness or finance lease arrangements, each of which shall not exceed
the fair market value of the assets or property acquired or leased and shall not
extend to any assets or property other than those purchased or leased and
purchase money security interests in equipment and equipment leases which comply
with the provisions of Section 6.1.2 and (vii) Indebtedness specifically
permitted by the Meditrust Emeritus Transaction Documents.
11.3.9 NO GUARANTIES. Lessee shall not assume, guarantee, endorse,
contingently agree to purchase or otherwise become directly or contingently
liable (including, without limitation, liable by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment, to supply funds to or
otherwise to invest in any debtor or otherwise to assure any creditor against
loss) in connection with any Indebtedness of any other Person, except by the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business and except for a guaranty of the
Indebtedness of the Guarantor in connection with a Working Capital Loan which
expressly limits recourse under such guaranty to the Receivables.
11.4 AFFIRMATIVE COVENANTS. Lessee covenants and agrees that throughout
the Term and any periods thereafter that Lessee remains in possession of the
Leased Property:
11.4.1 MAINTENANCE OF EXISTENCE. If Lessee is a corporation, trust or
partnership, during the entire time that this Lease remains in full force and
effect, Lessee shall keep in effect its existence and rights as a corporation,
trust or partnership under the laws of the state of its incorporation or
formation and its right to own property and transact business in the State.
11.4.2 MATERIALS. Except as provided in Section 6.1.2, Lessee shall not
suffer the use in connection with any renovations or other construction relating
to the Leased Property of any materials, fixtures or equipment intended to
become part of the Leased Property which are purchased upon lease or conditional
bill of sale or to which Lessee does not have absolute and unencumbered title,
and Lessee covenants to cause to be paid punctually all sums becoming due for
labor, materials, fixtures or equipment used or purchased in connection with any
such renovations or construction, subject to Lessee's right to contest to the
extent provided for in Article 15.
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11.4.3 COMPLIANCE WITH LEGAL REQUIREMENTS AND APPLICABLE AGREEMENTS.
Lessee and the Leased Property and all uses thereof shall comply with (i)
all applicable Legal Requirements (except to the extent being duly
contested in accordance with the terms hereof), (ii) all Permits and
Contracts, (iii) all Insurance Requirements, (iv) the Lease Documents, (v)
the Permitted Encumbrances and (vi) the Appurtenant Agreement.
11.4.4 BOOKS AND RECORDS. Lessee shall cause to be kept and
maintained, and shall permit Lessor and its representatives to inspect at
all reasonable times and upon reasonable notice, accurate books of accounts
in which complete entries will be made in accordance with GAAP reflecting
all financial transactions of Lessee (showing, without limitation, all
materials ordered and received and all disbursements, accounts payable and
accounts receivable in connection with the operation of the Leased
Property).
11.4.5 PARTICIPATION IN THIRD PARTY PAYOR PROGRAMS. If Lessee or a
Sublessee which is an Affiliate of Lessee elects to participate in Third
Party Payor Programs, Lessee or such Sublessee shall remain eligible to
participate in such Third Party Payor Programs in accordance with all
requirements thereof (including, without limitation, all applicable
Provider Agreements), if and to the extent remaining eligible shall be
necessary for the prudent operation of the Facility in the good faith
exercise of commercially reasonable business judgment.
11.4.6 CONDUCT OF ITS BUSINESS. Lessee will maintain, and cause any
Sublessee and any Manager to maintain, experienced and competent
professional management with respect to its business and with respect to
the Leased Property. Lessee, any Sublessee and any Manager shall conduct,
in the ordinary course, the operation of the Facility, and Lessee and any
Sublessee which is an Affiliate of Lessee shall not enter into any other
business or venture during the Term or such time as Lessee or any such
Sublessee is in possession of the Leased Property other than activities in
which Lessee or such Sublessee are permitted to engage by the provisions of
the Meditrust/Emeritus Transaction Documents.
11.4.7 ADDRESS. Lessee shall provide Lessor thirty
(30) days' prior written notice of any change of its Principal Place of
Business from its current Principal Place of Business. Lessee shall
maintain the Collateral, including without limitation, all books and
records relating to its business, solely at its Principal Place of Business
and at the Leased Property. Lessee shall not (a) remove the Collateral,
including, without limitation, any books or
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records relating to Lessee's business from either the Leased Property or
Lessee's Principal Place of Business or (b) relocate its Principal Place of
Business until after receipt of a certificate from Lessor, signed by an
officer thereof, stating that Lessor has, to its satisfaction, obtained
all documentation that it deems necessary or desirable to obtain, maintain,
perfect and confirm the first priority security interests granted in the
Lease Documents.
11.4.8 SUBORDINATION OF AFFILIATE TRANSACTIONS. Without limiting
the provisions of any other Section of this Lease or the Affiliated Party
Subordination Agreement, any payments to be made by Lessee to (a) any
member of the Leasing Group (or any of its Affiliates) or (b) any Affiliate
of Lessee, in connection with any transaction between Lessee and such
Person, including, without limitation, the purchase, sale or exchange of
any property, the rendering of any service to or with any such Person
(including, without limitation, all allocations of any so-called corporate
or central office costs, expenses and charges of any kind or nature) or the
making of any loan or other extension of credit or the making of any equity
investment, shall be subordinate to the complete payment and performance of
the Lease Obligations; PROVIDED, HOWEVER, that all such subordinated
payments may be paid at any time unless: (x) after giving effect to such
payment, Lessee shall be unable to comply with any of its obligations under
any of the Lease Documents or (y) a Lease Default has occurred and is
continuing and has not been expressly waived in writing by Lessor or an
event or state of facts exists, which, with the giving of notice or the
passage of time, or both, would constitute a Lease Default.
11.4.9 INSPECTION. At reasonable times and upon reasonable notice,
Lessee shall permit Lessor and its authorized representatives (including,
without limitation, the Consultants) to inspect the Leased Property as
provided in Section 7.1 above, provided, however, that, in the event
results of any such testing or inspection reflect the same satisfactory
results as the results of a similar testing or inspection initiated by
Lessor within the prior twelve (12) months period, the costs and expense of
such testing or inspection shall be the responsibility of Lessor.
11.5 ADDITIONAL NEGATIVE COVENANTS. Lessee covenants and agrees that,
throughout the Term and such time as Lessee remains in possession of the Leased
Property:
11.5.1 RESTRICTIONS RELATING TO LESSEE. Except as may otherwise be
expressly provided in Section 19.4 or in any of the other Lease Documents,
Lessee shall not, without the prior written consent of Lessor, in each
instance, which
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consent may be withheld in the sole and absolute discretion of Lessor:
(a) convey, assign, hypothecate, transfer, dispose of or
encumber, or permit the conveyance, assignment, transfer,
hypothecation, disposal or encumbrance of all or any part of any legal
or beneficial interest in this Lease, its other assets or the Leased
Property except as expressly permitted by the terms of this Lease
Agreement; PROVIDED, HOWEVER, that this restriction shall not apply to
(i) the Permitted Encumbrances that may be created after the date
hereof pursuant to the Lease Documents; (ii) Liens created in
accordance with Section 6.1.2 against Tangible Personal Property
securing Indebtedness permitted under Section 11.3.8(v); (iii) the
sale, conveyance, assignment, hypothecation, lease or other transfer
of any material asset or assets (whether now owned or hereafter
acquired), the fair market value of which equals or is less than
TWENTY-FIVE THOUSAND DOLLARS ($25,000), individually, or ONE HUNDRED
THOUSAND DOLLARS ($100,000) collectively; (iv) without limitation as
to amount, the disposition in the ordinary course of business of any
obsolete, worn out or defective fixtures, furnishings or equipment
used in the operation of the Leased Property provided that the same
are replaced with fixtures, furnishings or equipment of equal or
greater utility or value or Lessee provides Lessor with an explanation
(reasonably satisfactory to Lessor) as to why such fixtures,
furnishings or equipment is no longer required in connection with the
operation of the Leased Property; (v) without limitation as to amount,
any sale of inventory by Lessee in the ordinary course of business;
and (vi) subject to the terms of the Negative Pledge Agreement and the
Affiliated Party Subordination Agreement, distributions to the
shareholders of Lessee;
(b) permit the use of the Facility for any purpose other than
the Primary Intended Use and the Other Permitted Uses; or
(c) liquidate, dissolve or merge or consolidate with any other
Person except, subject to Lessor's prior written consent, which
consent shall not be unreasonably withheld, a Meditrust/Emeritus
Transaction Affiliate.
11.5.2 NO LIENS. Lessee will not directly or indirectly create or
allow to remain and will promptly discharge at its expense any Lien, title
retention agreement or claim upon or against the Leased Property (including
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Lessee's interest therein) or Lessee's interest in this Lease or any of the
other Lease Documents, or in respect of the Rent, excluding (a) this Lease
and any permitted Subleases, (b) the Permitted Encumbrances, (c) Liens
which are consented to in writing by Lessor, (d) Liens for those taxes of
Lessor which Lessee is not required to pay hereunder, (e) Liens of
mechanics, laborers, materialmen, suppliers or vendors for sums either not
yet due or being contested in strict compliance with the terms and
conditions of Article 15, (f) any Liens which are the responsibility of
Lessor pursuant to the provisions of Article 20, (g) Liens for Impositions
which are either not yet due and payable or which are in the process of
being contested in strict compliance with the terms and conditions of
Article 15 (h) the Liens incurred pursuant to the provisions of Section
6.1.2 and (i) involuntary Liens caused by the actions or omissions of
Lessor.
11.5.3 LIMITS ON AFFILIATE TRANSACTIONS. Lessee shall not enter
into any transaction with any Affiliate, including, without limitation,
the purchase, sale or exchange of any property, the rendering of any
service to or with any Affiliate and the making of any loan or other
extension of credit, except in the ordinary course of, and pursuant to the
reasonable requirements of, Lessee's business and upon fair and reasonable
terms no less favorable to the Lessee than would be obtained in a
comparable arms' length transaction with any Person that is not an
Affiliate.
11.5.4 NON-COMPETITION. Lessee acknowledges that upon and after
any termination of this Lease, any competition by any member of the Leasing
Group with any subsequent owner or subsequent lessee of the Leased Property
(the "Purchaser") would cause irreparable harm to Lessor and any such
Purchaser. To induce Lessor to enter into this Lease, Lessee agrees that,
from and after the date hereof and thereafter until (a) in the case of the
expiration of the Initial Term or a termination of this Lease, the fifth
(5th) anniversary of the termination hereof or of the expiration of the
Initial Term, as applicable, and (b) in the case of an expiration of any of
the Extended Terms, the second (2nd) anniversary of the expiration of the
applicable Extended Term, no member of the Leasing Group nor any Person
holding or controlling, directly or indirectly, any interest in any member
of the Leasing Group (collectively, the "Limited Parties") shall be
involved in any capacity in or lend any of their names to or engage in any
capacity in any assisted living facility, center, unit or program (or in
any Person engaged in any such activity or any related activity competitive
therewith) other than (a) those set forth on SCHEDULE 11.5.4 annexed
hereto, (b) those activities in
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which a Meditrust/Emeritus Transaction Affiliate is permitted to engage by
the provisions of the Meditrust/Emeritus Transaction Documents which relate
to any such facility, center, unit or program and (c) the acquisition of
an ownership interest in any such facility, center, unit or program which
is part of a single transaction in which an ownership interest in at least
four (4) other facilities, centers, units or programs (provided, however,
that if such acquisition occurs within the last twelve month period of the
Initial Term or any of the Extended Terms, Lessee shall have the benefit of
this clause (c) only if at the time such acquisition occurs Lessee has
already (x) exercised in that twelve month period its right under Section
1.3 hereof to extend the Term for another Extended Term or (y) given a
Purchase Option Notice and has waived any right to rescind the same based
upon the determination of the Fair Market Value of the Leased Property),
whether such competitive activity shall be as an officer, director, owner,
employee, agent, advisor, independent contractor, developer, lender,
sponsor, venture capitalist, administrator, manager, investor, partner,
joint venturer, consultant or other participant in any capacity whatsoever
with respect to an assisted living facility, center, unit or program
located within a five (5) mile radius of the Leased Property.
Lessee hereby acknowledges and agrees that none of the time span,
scope or area covered by the foregoing restrictive covenants is or are
unreasonable and that it is the specific intent of Lessee that each and all
of the restrictive covenants set forth hereinabove shall be valid and
enforceable as specifically set forth herein. Lessee further agrees that
these restrictions are special, unique, extraordinary and reasonably
necessary for the protection of Lessor and any Purchaser and that the
violation of any such covenant by any of the Limited Parties would cause
irreparable damage to Lessor and any Purchaser for which a legal remedy
alone would not be sufficient to fully protect such parties.
Therefore, in addition to and without limiting any other remedies
available at law or hereunder, in the event that any of the Limited Parties
breaches any of the restrictive covenants hereunder or shall threaten
breach of any of such covenants, then Lessor and any Purchaser shall be
entitled to obtain equitable remedies, including specific performance and
injunctive relief, to prevent or otherwise restrain a breach of this
Section 11.5.4 (without the necessity of posting a bond) and to recover any
and all costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses and court costs) incurred in enforcing the
provisions of this Section 11.5.4.
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The existence of any claim or cause of action of any of the Limited Parties
or any member of the Leasing Group against Lessor or any Purchaser, whether
predicated on this Lease or otherwise, shall not constitute a defense to
the enforcement by Lessor or any Purchaser of the foregoing restrictive
covenants and the Limited Parties shall not defend on the basis that there
is an adequate remedy at law.
Without limiting any other provision of this Lease, the parties hereto
acknowledge that the foregoing restrictive covenants are severable and
separate. If at any time any of the foregoing restrictive covenants shall
be deemed invalid or unenforceable by a court having jurisdiction over this
Lease, by reason of being vague or unreasonable as to duration, or
geographic scope or scope of activities restricted, or for any other
reason, such covenants shall be considered divisible as to such portion and
such covenants shall be immediately amended and reformed to include only
such covenants as are deemed reasonable and enforceable by the court having
jurisdiction over this Lease to the full duration, geographic scope and
scope of restrictive activities deemed reasonable and thus enforceable by
said court; and the parties agree that such covenants as so amended and
reformed, shall be valid and binding as through the invalid or
unenforceable portion has not been included therein.
The provisions of this Section 11.5.4 shall survive the termination of
the Lease and any satisfaction of the Lease Obligations in connection
therewith or subsequent thereto. The parties hereto acknowledge and agree
that any Purchaser may enforce the provisions of this Section 11.5.4 as a
third party beneficiary.
11.5.5 Intentionally deleted.
11.5.6 Intentionally deleted.
11.5.7 Intentionally deleted.
11.5.8 ERISA. Lessee shall not establish or permit any Sublessee
to establish any new pension or defined benefit plan or modify any such
existing plan for employees subject to ERISA, which plan provides any
benefits based on past service without the advance consent of Lessor (which
consent shall not be unreasonably withheld) to the amount of the aggregate
past service liability thereby created.
11.5.9 FORGIVENESS OF INDEBTEDNESS. Lessee will not waive, or
permit any Sublessee or Manager which is an Affiliate to waive any debt or
claim, except in the ordinary course of its business.
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11.5.10 VALUE OF ASSETS. Except as disclosed in the financial
statements provided to Lessor as of the date hereof, Lessee will not write
up (by creating an appraisal surplus or otherwise) the value of any assets
of Lessee above their cost to Lessee, less the depreciation regularly
allowable thereon.
11.5.11 CHANGES IN FISCAL YEAR AND ACCOUNTING PROCEDURES. Upon
notice to Lessor, Lessee may (a) change its fiscal year or capital
structure or (b) change, alter, amend or in any manner modify in accordance
with GAAP any of its current accounting procedures related to the method of
revenue recognition, billing procedures or determinations of doubtful
accounts or bad debt expenses or permit any of its Subsidiaries to so
change its fiscal year, provided that, in the event of such change,
modification or alteration, Lessee and Lessor shall make such adjustments
to the calculation of Additional Rent and the financial covenants contained
herein as Lessor shall reasonably require to make the same consistent in
result with the calculation thereof immediately prior to such change,
modification or alteration.
ARTICLE 12
INSURANCE AND INDEMNITY
12.1 GENERAL INSURANCE REQUIREMENTS. During the Term of this Lease and
thereafter until Lessee surrenders the Leased Property in the manner required by
this Lease, Lessee shall at its sole cost and expense keep the Leased Property,
the Tangible Personal Property located thereon and the business operations
conducted on the Leased Property insured as set forth below.
12.1.1 TYPES AND AMOUNTS OF INSURANCE. Lessee's insurance shall
include the following:
(a) property loss and physical damage insurance on an all-risk
basis (with only such exceptions as Lessor may in its reasonable
discretion approve) covering the Leased Property (exclusive of Land)
for its full replacement cost, which cost shall be reset once a year
at Lessor's option, with an agreed-amount endorsement and a deductible
not in excess OF TWENTY FIVE THOUSAND DOLLARS ($25,000). Such
insurance shall include, without limitation, the following coverages:
(i) increased cost of construction, (ii) cost of demolition, (iii) the
value of the undamaged portion of the Facility and (iv) contingent
liability from the operation of building laws, less exclusions
provided in the normal "All Risk" insurance policy. During any
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period of construction, such insurance shall be on a builder's-risk,
completed value, non-reporting form (including all risk and extended
coverage, collapse, cost of demolition, increased cost of construction
and value of undamaged portion of the improvements protection) with
permission to occupy;
(b) flood insurance (if the Leased Property or any portion
thereof is situated in an area which is considered a flood risk area
by the U.S. Department of Housing and Urban Development or any future
governmental authority charged with such flood risk analysis in the
future) in limits reasonably acceptable to Lessor and subject to the
availability of such flood insurance;
(c) boiler and machinery insurance (including related electrical
apparatus and components) under a standard comprehensive form,
providing coverage against loss or damage caused by explosion of steam
boilers, pressure vessels or similar vessels, now or hereafter
installed on the Leased Property, in limits acceptable to Lessor;
(d) earthquake insurance (if reasonably deemed necessary by
Lessor) in limits and with deductibles acceptable to Lessor;
(e) environmental impairment liability insurance (if available
on commercially reasonable terms and deemed reasonably necessary by
Lessor) in limits and with deductibles acceptable to Lessor;
(f) business interruption insurance in an amount equal to the
annual Base Rent due hereunder plus the aggregate sum of the
Impositions relating to the Leased Property due and payable during one
year;
(g) comprehensive general public liability insurance including
coverages commonly found in the Broad Form Commercial Liability
Endorsements with amounts not less than FIVE MILLION DOLLARS
($5,000,000) per occurrence with respect to bodily injury and death
and THREE MILLION DOLLARS ($3,000,000) for property damage and with
all limits based solely upon occurrences at the Leased Property
without any other impairment;
(h) professional liability insurance in an amount not less than
TEN MILLION DOLLARS ($10,000,000) for each medical incident;
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(i) physical damage insurance on an all-risk basis (with only
such exceptions as Lessor in its reasonable discretion shall approve)
covering the Tangible Personal Property for the full replacement cost
thereof and with a deductible not in excess of one percent (1%) of the
full replacement cost thereof;
(j) "Workers' Compensation and Employers' Liability Insurance
providing protection against all claims arising out of injuries to all
employees of Lessee or of any Sublessee (employed on the Leased
Property or any portion thereof) in amounts equal for Workers'
Compensation, to the statutory benefits payable to employees in the
State and for Employers, Liability, to limits of not less than ONE
HUNDRED THOUSAND DOLLARS ($100,000) for injury by accident, ONE
HUNDRED THOUSAND DOLLARS ($100,000) per employee for disease and FIVE
HUNDRED THOUSAND DOLLARS ($500,000) disease policy limit;
(k) subsidence insurance (if deemed necessary by Lessor) in
limits acceptable to Lessor; and
(1) such other insurance as Lessor from time to time may
reasonably require and also, as may from time to time be required by
applicable Legal Requirements and/or by any Fee Mortgagee.
12.1.2 INSURANCE COMPANY REQUIREMENTS. All such insurance required
by this Lease or the other Lease Documents shall be issued and underwritten
by insurance companies licensed to do insurance business by, and in good
standing under the laws of, the State and which companies have and maintain
a rating of A:X or better by A.M. Best Co.
12.1.3 POLICY REQUIREMENTS. Every policy of insurance from time to
time required under this Lease or any of the other Lease Documents (other
than worker's compensation) shall name Lessor as owner, loss payee, secured
party (to the extent applicable) and additional named insured as its
interests may appear. If an insurance policy covers properties other than
the Leased Property, then Lessor shall be so named with respect only to the
Leased Property. Each such policy, where applicable or appropriate, shall:
(a) include an agreed amount endorsement and loss payee,
additional named insured and secured party endorsements, in forms
acceptable to Lessor in its reasonable discretion;
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(b) include mortgagee, secured party, loss payable and
additional named insured endorsements reasonably acceptable to each
Fee Mortgagee;
(c) provide that the coverages may not be canceled or materially
modified except upon thirty (30) days' prior written notice to Lessor
and any Fee Mortgagee;
(d) be payable to Lessor and any Fee Mortgagee notwithstanding
any defense or claim that the insurer may have to the payment of the
same against any other Person holding any other interest in the Leased
Property;
(e) be endorsed with standard noncontributory clauses in favor
of and in form reasonably acceptable to Lessor and any Fee Mortgagee;
(f) expressly waive any right of subrogation on the part of the
insurer against Lessor, any Fee Mortgagee or the Leasing Group and
(g) otherwise be in such forms as shall be reasonably acceptable
to Lessor.
12.1.4 NOTICES; CERTIFICATES AND POLICIES. Lessee shall promptly
provide to Lessor copies of any and all notices (including notice of non-
renewal), claims and demands which Lessee receives from insurers of the
Leased Property. At least ten (10) days prior to the expiration of any
insurance policy required hereunder, Lessee shall deliver to Lessor
certificates and evidence of insurance relating to all renewals and
replacements thereof, together with evidence, satisfactory to Lessor, of
payment of the premiums thereon. Lessee shall deliver to Lessor original
counterparts or copies certified by the insurance company to be true and
complete copies, of all insurance policies required hereunder not later than
ten (10) days after receipt thereof by Lessee. Lessee shall use its best
efforts to obtain such counterparts or copies within ninety (90) days after
the effective date of each such policy.
12.1.5 LESSOR'S RIGHT TO PLACE INSURANCE. If Lessee shall fail to
obtain any insurance policy required hereunder by Lessor, or shall fail to
deliver the certificate and evidence of insurance relating to any such
policy to Lessor, or if any insurance policy required hereunder (or any
part thereof) shall expire or be canceled or become void or voidable by
reason of any breach of any condition thereof, or if Lessor reasonably
determines that such insurance coverage is unsatisfactory by reason of the
failure or
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impairment of the capital of any insurance company which wrote any such
policy, upon demand by Lessor, Lessee shall promptly but in any event in
not more than ten (10) days thereafter obtain new or additional insurance
coverage on the Leased Property, or for those risks required to be insured
by the provisions hereof, satisfactory to Lessor, and, in the event Lessee
fails to perform its obligations under this Section and at its option,
Lessor may obtain such insurance and pay the premium or premiums therefor;
in which event, any amount so paid or advanced by Lessor and all costs and
expenses incurred in connection therewith (including, without limitation,
reasonable attorneys' fees and expenses and court costs), shall be a demand
obligation of Lessee to Lessor, payable as an Additional Charge.
12.1.6 PAYMENT OF PROCEEDS. All insurance policies required
hereunder (except for general public liability, professional liability and
workers' compensation and employers liability insurance) shall provide
that in the event of loss, injury or damage, subject to the rights of any
Fee Mortgagee, all proceeds shall be paid to Lessor alone (rather than
jointly to Lessee and Lessor). Lessor is hereby authorized to adjust and
compromise any such loss with the consent of Lessee or, following any Lease
Default, whether or not cured, without the consent of Lessee, and to collect
and receive such proceeds in the name of Lessor and Lessee, and Lessee
appoints Lessor (or any agent designated by Lessor) as Lessee's
attorney-in-fact with full power of substitution, to endorse Lessee's name
upon any check in payment thereof. Subject to the provisions of Article 13,
such insurance proceeds shall be applied first toward reimbursement of all
costs and expenses reasonably incurred by Lessor in collecting said
insurance proceeds, then toward payment of the Lease Obligations or any
portion thereof, which have not been paid when due and payable or within
any applicable cure period, in such order as Lessor determines, and then in
whole or in part toward restoration, repair or reconstruction of the Leased
Property for which such insurance proceeds shall have been paid.
12.1.7 IRREVOCABLE POWER OF ATTORNEY. The power of attorney
conferred on Lessor pursuant to the provisions of Section 12.1, being
coupled with an interest, shall be irrevocable for as long as this Lease is
in effect or any Lease Obligations are outstanding, shall not be affected
by any disability or incapacity which Lessee may suffer and shall survive
the same. Such power of attorney, is provided solely to protect the
interests of Lessor and shall not impose any duty on Lessor to exercise any
such power, and neither Lessor nor such attorney-in-fact shall be liable
for any act, omission, error in judgment or mistake of law,
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except as the same may result from its gross negligence or wilful
misconduct.
12.1.8 BLANKET POLICIES. Notwithstanding anything to the contrary
contained herein, Lessee's obligations to carry the insurance provided for
herein may be brought within the coverage of a so-called blanket policy or
policies of insurance carried and maintained by Lessee and its Affiliates;
PROVIDED, HOWEVER, that the coverage afforded to Lessor shall not be
reduced or diminished or otherwise be different from that which would exist
under a separate policy meeting all other requirements of this Lease by
reason of the use of such blanket policy of insurance, and PROVIDED,
FURTHER that the requirements of Section 12.1 are otherwise satisfied.
12.1.9 NO SEPARATE INSURANCE. Lessee shall not, on Lessee's own
initiative or pursuant to the request or requirement of any other Person,
take out separate insurance concurrent in form or contributing in the event
of loss with the insurance required hereunder to be furnished by Lessee, or
increase the amounts of any then existing insurance by securing an
additional policy or additional policies, unless (a) all parties having an
insurable interest in the subject matter of the insurance, including
Lessor, are included therein as additional insureds and (b) losses are
payable under said insurance in the same manner as losses are required to
be payable under this Lease. Lessee shall immediately notify Lessor of the
taking out of any such separate insurance or of the increasing of any of
the amounts of the then existing insurance by securing an additional
insurance policy or policies.
12.1.10 ASSIGNMENT OF UNEARNED PREMIUMS. Lessee hereby assigns to
Lessor all rights of Lessee in and to any unearned premiums on any
insurance policy required hereunder to be furnished by Lessee which may
become payable or are refundable after the occurrence of an Event of
Default hereunder, which premium, upon receipt thereof, Lessor shall at
Lessor's option apply toward the Lease Obligations or hold as security
therefor. In the event that this Lease is terminated for any reason (other
than the purchase of the Leased Property by Lessee), the insurance policies
required to be maintained hereunder, including all right, title and
interest of Lessee thereunder, shall become the absolute property of Lessor
subject to any limitation on assignment provided for therein.
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12.2 INDEMNITY.
12.2.1 INDEMNIFICATION. Except with respect to the
gross negligence or wilful misconduct of Lessor or any of the other
Indemnified Parties, as to which no indemnity is provided, Lessee hereby
agrees to defend with counsel reasonably acceptable to Lessor, against all
claims and causes of action and to indemnify and hold harmless Lessor and
each of the other Indemnified Parties from and against all damages, losses,
liabilities, obligations, penalties, costs and expenses (including, without
limitation, reasonable attorneys' fees, court costs and other expenses of
litigation) suffered by, or claimed or asserted against, Lessor or any of
the other Indemnified Parties, directly or indirectly, by any Person other
than a member of the Leasing Group who prevails in such claim or action
based on, arising out of or resulting from (a) the use and occupancy of the
Leased Property or any business conducted therein, (b) any act, fault,
omission to act or misconduct by (i) any member of the Leasing Group, (ii)
any Affiliate of Lessee or (iii) any employee, agent, licensee, business
invitee, guest, customer, contractor or sublessee of any of the foregoing
parties, relating to, directly or indirectly, the Leased Property, (c) any
accident, injury or damage whatsoever caused to any Person, including,
without limitation, any claim of malpractice, or to the property of any
Person in or about the Leased Property or outside of the Leased Property
where such accident, injury or damage results or is claimed to have
resulted from any act, fault, omission to act or misconduct by any member
of the Leasing Group or any Affiliate of Lessee or any employee, agent,
licensee, contractor or sublessee of any of the foregoing parties, (d) any
Lease Default, (e) any claim brought or threatened against Lessor by any
member of the Leasing Group or by any other Person on account of (i)
Lessor's relationship with any member of the Leasing Group pertaining in
any way to the Leased Property and/or the transaction evidenced by the
Lease Documents and/or (ii) Lessor's negotiation of, entering into and/or
performing any of its obligations and/or exercising any of its right and
remedies under any of the Lease Documents, (f) any attempt by any member of
the Leasing Group or any Affiliate of Lessee to transfer or relocate any of
the Permits to any location other than the Leased Property and/or (g) the
enforcement of this indemnity. Any amounts which become payable by lessee
under this Section 12.2.1 shall be a demand obligation of Lessee to Lessor,
payable as an Additional Charge. The indemnity provided for in this
Section 12.2.1 shall survive any termination of this Lease.
12.2.2 INDEMNIFIED PARTIES. As used in this Lease the term
"Indemnified Parties" shall mean the Meditrust
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Entities, any Fee Mortgagee and their respective successors, assigns,
employees, servants, agents, attorneys, officers, directors, shareholders,
partners and owners.
12.2.3 LIMITATION ON LESSOR LIABILITY. Neither Lessor nor any
Affiliate of Lessor shall be liable to any member of the Leasing Group or
any Affiliate of any member of the Leasing Group, or to any other Person
whatsoever for any damage, injury, loss, compensation, or claim (including,
but not limited to, any claim for the interruption of or loss to any
business conducted on the Leased Property) based on, arising out of or
resulting from any cause whatsoever, including, but not limited to, the
following: (a) repairs to the Leased Property; (b) interruption in use of
the Leased Property; (c) any accident or damage resulting from the use or
operation of the Leased Property or any business conducted thereon; (d) the
termination of this Lease by reason of Casualty or Condemnation; (e) any
fire, theft or other casualty or crime; (f) the actions, omissions or
misconduct of any other Person; (g) damage to any property; or (h) any
damage from the flow or leaking of water, rain or snow. All Tangible
Personal Property and the personal property of any other Person on the
Leased Property shall be at the sole risk of Lessee and Lessor shall not in
any manner be held responsible therefor (except in the event Of loss caused
by the gross negligence or willful misconduct of Lessor). Notwithstanding
the foregoing, Lessor shall not be released from liability for any injury,
loss, damage or liability suffered by Lessee to the extent caused directly
by the gross negligence or willful misconduct of Lessor, its servants,
employees or agents acting within the scope of their authority on or about
the Leased Property or in regards to the Lease; provided, however, that in
no event shall Lessor, its servants, employees or agents have any liability
based on any loss for any indirect or consequential damages. or
12.2.4 RISK OF LOSS. During the Term of this Lease, the risk of
loss or of decrease in the enjoyment and beneficial use of the Leased
Property in consequence of any damage or destruction thereof by fire, the
elements, casualties, thefts, riots, wars or otherwise, or in consequence
of foreclosures, levies or executions of Liens (other than those created by
Lessor in accordance with the provisions of Article 20) is assumed by
Lessee and, in the absence of the gross negligence or willful misconduct as
set forth in Section 12.2.3, Lessor shall in no event be answerable or
accountable therefor (except for the obligation to account for insurance
proceeds and Awards to the extent provided for in Articles 13 and 14) nor
shall any of the events mentioned in this Section entitle Lessee to
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any abatement of Rent (except for an abatement, if any, as specifically
provided for in Section 3.7).
ARTICLE 13
FIRE AND CASUALTY
13.1 RESTORATION FOLLOWING FIRE OR OTHER CASUALTY.
13.1.1 FOLLOWING FIRE OR CASUALTY. In the event of
any damage or destruction to the Leased Property by reason of fire or other
hazard or casualty (a "Casualty"), Lessee shall give immediate written
notice thereof to Lessor and, subject to the terms of this Article 13 and
any applicable Legal Requirements, Lessee shall proceed with reasonable
diligence, in full compliance with all applicable Legal Requirements, to
perform such repairs, replacement and reconstruction work (referred to
herein as the "Work") to restore the Leased Property to the condition it
was in immediately prior to such damage or destruction and to a condition
adequate to operate the Facility for the Primary Intended Use and, if
applicable, the Other Permitted Uses and in compliance with applicable Legal
Requirements. All Work shall be performed and completed in accordance with
all applicable Legal Requirements and the other requirements of this Lease
within one hundred and twenty (120) days following the occurrence of the
damage or destruction plus a reasonable time to compensate for Unavoidable
Delays (including for the purposes of this Section, delays in obtaining
Permits and in adjusting insurance losses), but in no event beyond two-
hundred and seventy (270) days following the occurrence of the Casualty.
13.1.2 PROCEDURES. In the event that any Casualty results in non-
structural damage to the Leased Property in excess of FIFTY THOUSAND
DOLLARS ($50,000) or in any structural damage to the Leased Property,
regardless of the extent of such structural damage, prior to commencing
the Work, Lessee shall comply with the following requirements:
(a) Lessee shall furnish to Lessor complete plans and
specifications for the Work (collectively and as the same may be
modified and amended from time to time pursuant to the terms hereof,
the "Plans and Specifications"), for Lessor's approval, in each
instance, which approval shall not be unreasonably withheld. The
Plans and Specifications shall bear the signed approval thereof by an
architect, licensed to do business in the State, reasonably
satisfactory to Lessor (in the event Lessor reasonably determines that
the Work is of a nature for which the involvement of an
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architect is appropriate) and shall be accompanied by a written
estimate from the architect, bearing the architect's seal, of the
entire cost of completing the Work, and to the extent feasible, the
Plans and Specifications shall provide for Work of such nature,
quality and extent, that, upon the completion thereof, the Leased
Property shall be at least equal in value and general utility to its
value and general utility prior to the Casualty and shall be adequate
to operate the Leased Property for the Primary Intended Use and, if
applicable, the Other Permitted Uses;
(b) Lessee shall furnish to Lessor certified or photostatic
copies of all Permits and Contracts required by all applicable Legal
Requirements in connection with the commencement and conduct of the
Work to the extent the same can be secured in the ordinary course
prior to the commencement of construction;
(c) Lessee shall furnish to Lessor a cash deposit or a payment
and performance bond sufficient to pay for completion of and payment
for the Work in an amount not less than the architect's estimate of
the entire cost of completing the Work, less the amount of property
insurance proceeds (net of costs and expenses incurred by Lessor in
collecting the same), if any, then held by Lessor and which Lessor
shall be required to apply toward restoration of the Leased Property
as provided in Section 13.2;
(d) Lessee shall furnish to Lessor such insurance with respect
to the Work (in addition to the insurance required under Section 12.1
hereof) in such amounts and in such forms as is reasonably required
by Lessee; and
(e) Lessee shall not commence any of the Work until Lessee shall
have complied with the requirements set forth in clauses (a) through
(d) immediately above, as applicable, and, thereafter, Lessee shall
perform the Work diligently, in a good and workmanlike fashion and in
good faith in accordance with (i) the Plans and Specifications
referred to in clause (a) immediately above, (ii) the Permits and
Contracts referred to in clause (b) immediately above and (iii) all
applicable Legal Requirements and other requirements of this Lease;
PROVIDED, HOWEVER, that in the event of a bona fide emergency during
which Lessee is unable to contact the appropriate representatives of
Lessor, Lessee may commence such Work as may be necessary in order to
address such emergency without Lessor's prior approval, as long as
Lessee immediately thereafter advises Lessor
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of such emergency and the nature and scope of the Work performed and
obtains Lessor Is approval of the remaining Work to be completed.
13.1.3 DISBURSEMENT OF INSURANCE PROCEEDS. If, as provided in Section
13.2, Lessor is required to apply any property insurance proceeds toward
repair or restoration of the Leased Property, then as long as the Work is
being diligently performed by Lessee in accordance with the terms and
conditions of this Lease, Lessor shall disburse such insurance proceeds
from time to time during the course of the Work in accordance with and
subject to satisfaction of the following provisions and conditions. Lessor
shall not be required to make disbursements more often than at thirty (30)
day intervals. Lessee shall submit a written request for each disbursement
at least ten (10) Business Days in advance and shall comply with the
following requirements in connection with each disbursement:
(a) Prior to the commencement of any Work, Lessee shall have
received Lessor's written approval of the Plans and Specifications
(which approval shall not be unreasonably withheld) and the Work shall
be supervised by an experienced construction manager with the
consultation of an architect or engineer qualified and licensed to do
business in the State (in the event Lessor reasonably determines that
the Work is of a nature for which the involvement of such architect or
engineer is appropriate). Lessee shall not make any changes in, and
shall not permit any changes in, the quality of the materials to be
used in the Work, the Plans and Specifications or the Work, whether by
change order or otherwise, without the prior written consent of
Lessor, in each instance (which consent may be withheld in Lessor's
sole and absolute discretion); PROVIDED, HOWEVER, that such consent
shall not be required for any individual change which has been
approved by the architect, which does not materially affect the
structure or exterior of the Facility, and the cost of which does not
exceed TEN THOUSAND DOLLARS ($10,000) or which changes, in the
aggregate, do not exceed ONE HUNDRED THOUSAND DOLLARS ($100,000) in
cost. Notwithstanding the foregoing, prior to making any change in
Plans and Specifications, copies of all change orders shall be
submitted by Lessee to Lessor and Lessee shall also deliver to Lessor
evidence satisfactory to Lessor, in its reasonable discretion, that
all necessary Permits and/or Contracts required by any Governmental
Authority in connection therewith have been obtained or entered into,
as the case may be.
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(b) Each request for payment shall be accompanied by (x) a
certificate of the architect or engineer, bearing the architect's or
engineer's seal, and (y) a certificate of the general contractor,
qualified and licensed to do business in the State, that is performing
the Work (collectively, the "Work Certificates"), each dated not more
than ten (10) days prior to the application for withdrawal of funds,
and each stating:
(i) that all of the Work performed as of the date of the
certificates has been completed in compliance with the
approved Plans and Specifications, applicable Contracts
and all applicable Legal Requirements;
(ii) that the sum then requested to be withdrawn has been
paid by Lessee or is justly due to contractors,
subcontractors, materialmen, engineers, architects or
other Persons, whose names and addresses shall be
stated herein, who have rendered or furnished certain
services or materials for the Work, and the certificate
shall also include a brief description of such services
and materials and the principal subdivisions or
categories thereof and the respective amounts so paid
or due to each of said Persons in respect thereof and
stating the progress of the Work up to the date of said
certificate;
(iii) that the sum then requested to be withdrawn, plus all
sums previously withdrawn, does not exceed the cost of
the Work insofar as actually accomplished up to the date
of such certificate;
(iv) that the remainder of the funds held by Lessor will be
sufficient to pay for the full completion of the Work
in accordance with the Plans and Specifications;
(v) that no part of the cost of the services and materials
described in the applicable Work Certificate has been or
is being made the basis of the withdrawal of any funds
in any previous or then pending application; and
(vi) that, except for the amounts, if any,
specified in the applicable Work Certificate to be due
for services and materials, there is no outstanding
indebtedness known, after
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due inquiry, which is then due and payable for work,
labor, services or materials in connection with the
Work which, if unpaid, might become the basis of a
vendors, mechanic's, laborer's or materialman's
statutory or other similar Lien upon the Leased
Property.
(c) Lessee shall deliver to Lessor satisfactory evidence that the
Leased Property and all materials and all property described in the
Work Certificates are free and clear of Liens, except (i) Liens, if
any, securing indebtedness due to Persons (whose names and addresses
and the several amounts due them shall be stated therein) specified in
an applicable Work Certificate, which Liens shall be discharged upon
disbursement of the funds then being requested or duly contested in
accordance with the terms of this Lease Agreement, (ii) any Fee
Mortgage and (iii) the Permitted Encumbrances. Lessor shall accept as
satisfactory evidence of the foregoing lien waivers in customary form
from the general contractor and all subcontractors performing the
Work, together with an endorsement of its title insurance policy
(relating to the Leased Property) in form acceptable to Lessor, dated
as of the date of the making of the then current disbursement,
confirming the foregoing.
(d) If the Work involves alteration or restoration of the
exterior of any Leased Improvement that changes the footprint of any
Leased Improvement, Lessee shall deliver to Lessor, upon the request
of Lessor, an "as-built" survey of the Leased Property dated as of a
date within ten (10) days prior to the making of the first and final
advances (or revised to a date within ten (1O) days prior to each such
advance) showing no encroachments other than such encroachments, if
any, by the Leased Improvements upon or over the Permitted
Encumbrances as are in existence as of the date hereof.
(e) Lessee shall deliver to Lessor (i) an opinion of counsel
(satisfactory to Lessor both as to counsel and as to the form of
opinion) prior to the first advance opining that all necessary Permits
for the repair, replacement and/or restoration of the Leased Property
which can be obtained in the ordinary course as of said date have been
obtained and that the Leased Property, it repaired, replaced or
rebuilt in accordance, in all material respects, with the approved
Plans and Specifications and such Permits, shall comply with all
applicable Legal Requirements subject to such
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limitations as may be imposed on such opinion under local law and (ii)
if applicable, an architect's certificate (satisfactory to Lessor both
as to the architect and as to the form of the certificate) prior to
the final advance, certifying that the Leased Property was repaired,
replaced or rebuilt in accordance, in all material respects, with the
approved Plans and Specifications and complies with all applicable
Legal Requirements, including, without limitation, all Permits
referenced in the foregoing clause (i).
(f) There shall be no Lease Default or any state of facts or
circumstance existing which, with the giving of notice and/or the
passage of time, would constitute any Lease Default.
Lessor, at its option, may waive any of the foregoing requirements in whole
or in part in any instance. Upon compliance by Lessee with the foregoing
requirements except for such requirements, if any, as Lessor may have
expressly elected to waive), and to the extent of (x) the insurance
proceeds, if any, which Lessor may be required to apply to restoration of
the Leased Property pursuant to the provisions of this Lease and (y) all
other cash deposits made by Lessee, Lessor shall make available for payment
to the Persons named in the Work Certificate the respective amounts stated
in said certificates to be due, subject to a retention of ten percent (10%)
as to all hard costs of the Work (the "Retainage"). It is understood that
the Retainage is intended to provide a contingency fund to assure Lessor
that the Work shall be fully completed in accordance with the Plans and
Specifications and the requirements of Lessor. Upon the full and final
completion of all of the Work in accordance with the provisions hereof, the
Retainage shall be made available for payment to those Persons entitled
thereto.
Upon completion of the Work, and as a condition precedent to making any
further advance, in addition to the requirements set forth above, Lessee
shall promptly deliver to Lessor:
(i) if applicable, written certificates of the architect or engineer,
bearing the architects or engineer's seal, and the general
contractor, certifying that the Work has been fully completed in
a good and workmanlike manner in material compliance with the
Plans and Specifications and all applicable Legal Requirements;
(ii) an endorsement of its title insurance policy (relating to the
Leased Property) in form
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reasonably acceptable to Lessor insuring the Leased Property
against all mechanic's and materialman's liens accompanied by the
final lien waivers from the general contractor and all
subcontractors;
(iii) a certificate by Lessee in form and substance reasonably
satisfactory to Lessor, listing all costs and expenses in
connection with the completion of the work and the amount paid by
Lessee with respect to the Work; and
(iv) a temporary certificate of occupancy (if obtainable) and all
other applicable Permits and Contracts issued by or entered into
with any Governmental Authority with respect to the Primary
Intended Use not already delivered to Lessor and, to the extent
applicable, the Other Permitted Uses and by the appropriate Board
of Fire Underwriters or other similar bodies acting in and for
the locality in which the Leased Property is situated with
respect to the Facility; PROVIDED, THAT within thirty (30) days
after completion of the Work, Lessee shall obtain and deliver to
Lessor a permanent certificate of occupancy for the Leased
Property, subject to seasonal delays.
Upon completion of the Work and delivery of the documents required
pursuant to the provisions of this Section 13.1, Lessor shall pay the
Retainage to Lessee or to those Persons entitled thereto and if there shall
be insurance proceeds or cash deposits, other than the Retainage, held by
Lessor in excess of the amounts disbursed pursuant to the foregoing
provisions, then provided that no Lease Default has occurred and is
continuing, nor any state of facts or circumstances which, with the giving
of notice and/or the passage of time would constitute a Lease Default,
Lessor shall pay over such proceeds or cash deposits to Lessee.
No inspections or any approvals of the Work during or after
construction shall constitute a warranty or representation by Lessor, or
any of its agents or Consultants, as to the technical sufficiency, adequacy
or safety of any structure or any of its component parts, including,
without limitation, any fixtures, equipment or furnishings, or as to the
subsoil conditions or any other physical condition or feature pertaining to
the Leased Property. All acts, including any failure to act, relating to
Lessor are performed solely for the benefit of Lessor to assure the payment
and performance of the Lease Obligations
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and are not for the benefit of Lessee or the benefit of any other Person.
13.2 DISPOSITION OF INSURANCE PROCEEDS.
13.2.1 PROCEEDS TO BE RELEASED to PAY FOR WORK. In
the event of any Casualty, except as provided for in Section 13.2.2, Lessor
shall release proceeds of property insurance held by it to pay for the Work
in accordance with the provisions and procedures set forth in this Article
13, only if:
(a) all of the terms, conditions and provisions of Sections 13.1
and 13.2.1 are satisfied;
(b) Lessee demonstrates to Lessor's satisfaction that Lessee has
the financial ability to satisfy the Lease Obligations during such
repair or restoration; and
(c) no Sublease material to the operation of the Facility
immediately prior to such damage or taking shall have been canceled or
terminated, nor contain any still exercisable right to cancel or
terminate, due to such Casualty if and to the extent that the income
from such Sublease is necessary in order to avoid the violation of any
of the financial covenants set forth in this Lease or otherwise to
avoid the creation of an Event of Default.
If a Fee Mortgagee prevents Lessor from releasing proceeds of property
insurance notwithstanding the satisfaction of the foregoing requirements,
Lessee shall have no obligation to restore the Casualty to which such
proceeds pertain.
13.2.2 PROCEEDS NOT TO BE RELEASED. If, as the result of any
Casualty, the Leased Property is damaged to the extent it is rendered
Unsuitable For Its Primary Intended Use and if either: (a) Lessee, after
exercise of diligent efforts, cannot within a reasonable time (not in
excess of ninety (90) days) obtain all necessary Permits in order to be
able to perform all required Work and to again operate the Facility for its
Primary Intended Use and, if applicable, the Other Permitted Uses within
two hundred and seventy (270) days from the occurrence of the damage or
destruction in substantially the manner as immediately prior to such damage
or destruction or (b) such Casualty occurs during the last twenty-four (24)
months of the Term and would reasonably require more than nine (9) months
to obtain all Permits and complete the Work, then Lessee may either (i)
acquire the Leased Property from Lessor for a purchase price equal to the
greater of (x) the Meditrust Investment
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or (y) the Fair Market Value of the Leased Property MINUS the Fair Market
Added Value, with the Fair Market Value and the Fair Market Added Value to
be determined as of the day immediately prior to such Casualty and prior to
any other Casualty which has not been fully repaired, restored or
replaced, in which event, Lessee shall be entitled upon payment of the full
purchase price to receive all property insurance proceeds (less any costs
and expenses incurred by Lessor in collecting the same), or (ii) terminate
this Lease, in which event (subject to the provisions of the last sentence
of this Section 13.2.2) Lessor shall be entitled to receive and retain the
insurance proceeds; PROVIDED, HOWEVER, that Lessee shall only have such
right of termination effective upon payment to Lessor of all Rent and other
sums due under this Lease and the other Lease Documents through the date of
termination plus an amount, which when added to the sum of (1) the Fair
Market Value of the Leased Property as affected by all unrepaired or
unrestored damage due to any Casualty (and giving due regard for delays,
costs and expenses incident to completing all repair or restoration
required to fully repair or restore the same) PLUS (2) the amount of
insurance proceeds actually received by Lessor (net of costs and expenses
incurred by Lessor in collecting the same) equals (3) the greater-of the
Meditrust Investment or the Fair Market Value of the Leased Property MINUS
the Fair Market Added Value, with the Fair Market Value and the Fair Market
Added Value to be determined as of the day immediately prior to such
Casualty and prior to any other Casualty which has not been fully repaired.
Any acquisition of the Leased Property pursuant to the terms of this
Section 13.2.2 shall be consummated in accordance with the provisions of
Article 18, MUTATIS, MUTANDIS. If such termination becomes effective,
Lessor shall assign to Lessee any outstanding insurance claims and, at
Lessee's expense, shall cooperate in Lessee's efforts to secure the same.
In the event this Lease is terminated pursuant to the provisions of this
Section 13.2.2 and the insurance proceeds received by Lessor in connection
there with (net of costs and expenses incurred in obtaining such proceeds)
exceeds one hundred fifteen percent (115%) of the Fair Market Value of the
Leased Premises at the time of such termination, Lessor shall pay to Lessee
fifty percent (50%) of the amount of such excess.
13.3 TANGIBLE PERSONAL PROPERTY. All insurance proceeds payable by reason
of any loss of or damage to any of the Tangible Personal Property shall be paid
to Lessor as secured party, subject to the rights of the holders of any
Permitted Prior Security Interests, and, thereafter, provided that no Lease
Default, nor any fact or circumstance which with the giving of notice and/or the
passage of time could constitute a Lease Default, has occurred and is
continuing, Lessor shall pay such
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insurance proceeds to Lessee to reimburse Lessee for the cost of repairing or
replacing the damaged Tangible Personal Property, subject to the terms and
conditions set forth in the other provisions of this Article 13, MUTATIS
MUTANDIS.
13.4 RESTORATION OF CERTAIN IMPROVEMENTS AND THE TANGIBLE PERSONAL
PROPERTY. If Lessee is required or elects to restore the Facility-, Lessee shall
either (a) restore (i) all alterations and improvements to the Leased Property
made by Lessee and (ii) the Tangible Personal Property or (b) replace such
alterations and improvements and the Tangible Personal Property with
improvements or items of the same or better quality and utility in the operation
of the Leased Property provided, however, that Lessee shall be obligated to so
restore or replace the Tangible Personal Property only to the extent desirable
for the prudent operation of the Facility in the good faith exercise of
commercially reasonable business judgment.
13.5 NO ABATEMENT OF RENT. In no event shall any Rent abate as a
result of any Casualty except as expressly provided in Section 3.7.
13.6 TERMINATION OF CERTAIN RIGHTS. Any termination of this Lease
pursuant to this Article 13 shall cause any right of Lessee to extend the Term
of this Lease granted to Lessee herein and any right of Lessee to purchase the
Leased Property contained in this Lease to be terminated and to be without
further force or effect.
13.7 WAIVER. Lessee hereby waives any statutory rights of termination
which may arise by reason of any damage or destruction to the Leased Property
due to any Casualty which Lessee is obligated to restore or may restore under
any of the provisions of this Lease.
13.8 APPLICATION OF RENT LOSS AND/OR BUSINESS INTERRUPTION
INSURANCE. Lessor shall direct all proceeds of rent loss and/or business
interruption insurance (collectively, "Rent Insurance Proceeds") to be paid to
Lessee, provided no fact or circumstance exists which constitutes, or with
notice, or passage of time, or both, would constitute, a Lease Default
pertaining to Facility or the Leased Property. If a Lease Default or such fact
or circumstance exists, Lessor may rescind such direction and apply all such
insurance proceeds towards the Lease Obligations pertaining to the Facility or
the Leased Property or hold such proceeds as security therefor.
13.9 OBLIGATION TO ACCOUNT. Upon Lessee's written request, which may
not be made not more than once in any three (3) month period, Lessor shall
provide Lessee with a written accounting of the application of all insurance
proceeds received by Lessor.
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ARTICLE 14
CONDEMNATION
14.1 PARTIES' RIGHTS AND OBLIGATIONS. If during the Term there is any
Taking of all or any part of the Leased Property or any interest in this Lease,
the rights and obligations of the parties shall be determined by this Article
14.
14.2 TOTAL TAKING. If there is a permanent Taking of all or
substantially all of the Leased Property, this Lease shall terminate on the Date
of Taking. In the event this Lease is terminated pursuant to the provisions of
this Section 14.2 and the Award received by Lessor in connection therewith (net
of costs and expenses incurred in obtaining such Award) exceeds one hundred
fifteen percent (115% of the Fair Market Value of the Leased Premises at the
time of such termination, Lessor shall pay to Lessee fifty percent (50%) of the
amount of such excess.
14.3 PARTIAL OR TEMPORARY TAKING. If there is a Permanent Taking of
a portion of the Leased Property, or if there is a temporary Taking of all or a
portion of the Leased Property, this Lease shall remain in effect so long as the
Leased Property is not thereby rendered permanently Unsuitable For Its Primary
Intended Use or temporarily Unsuitable For Its Primary Intended Use for a period
not likely to, or which does not, exceed two hundred and seventy (270) days.
If, however, the Leased Property is thereby so rendered permanently or
temporarily Unsuitable For Its Primary Intended Use: (a) if only rendered
temporarily Unsuitable For Its Primary Intended Use, Lessee shall have the right
to restore the Leased Property, at its own expense (subject to the right under
certain circumstances as provided for in Section 14.5 to receive the net
proceeds of an Award for reimbursement), to the extent possible, to
substantially the same condition as existed immediately before the partial or
temporary Taking or (b) Lessee shall have the right to acquire the Leased
Property from Lessor (i) upon payment of all Rent due through the date that the
purchase price is paid, for a purchase price equal to the greater of (x) the
Meditrust Investment or (y) the Fair Market Value of the Leased Property MINUS
the Fair Market Added Value, with the Fair Market Value of the Leased Property
and the Fair Market Added Value to be determined as of the day immediately prior
to such partial or temporary Taking and (ii) in accordance with the terms and
conditions set forth in Article 18; in which event, this Lease shall terminate
upon payment of such purchase price and the consummation of such acquisition.
Notwithstanding the foregoing, Lessor may overrule Lessee's' election under
clause (a) or (b) and instead either (1) terminate this Lease (with no
obligation on the part of Lessee to acquire the Leased Property as a result
thereof) as of the date when
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Lessee is required to surrender possession of the portion of the Leased Property
so taken if (X) such portion comprises more than thirty percent (30%) of the
Leased Property or of the residential buildings) located thereon or (Y)
possession thereof is to be surrendered within two years of the expiration of
the Term or (2) compel Lessee to keep the Lease in full force and effect and to
restore the Leased Property as provided in clause (a) above, but only if the
Leased Property may be operated for at least eighty percent (80%) of the
licensed unit capacity of the Facility in effect prior to the Taking. Lessee
shall exercise its election under this Section 14.3 by giving Lessor notice
thereof ("Lessee's Election Notice") within sixty (60) days after Lessee
receives notice of the Taking. Lessor shall exercise its option to overrule
Lessee's election under this Section 14.3 by giving Lessee notice of Lessor's
exercise of its rights under Section 14.3 within thirty (30) days after Lessor
receives Lessee's Election Notice. If, as the result of any such partial or
temporary Taking, this Lease is not terminated as provided above, Lessee shall
be entitled to an abatement of Rent, but only to the extent, if any, provided
for in Section 3.7, effective as of the date upon which the Leased Property is
rendered Unsuitable For Its Primary Intended Use.
14.4 RESTORATION. If there is a partial or temporary Taking of the
Leased Property and this Lease remains in full force and effect pursuant to
Section 14.3, Lessee shall accomplish all necessary restoration and Lessor shall
release the net proceeds of such Award to reimburse Lessee for the actual
reasonable costs and expenses thereof, subject to all of the conditions and
provisions set forth in Article 13 as though the Taking was a Casualty and the
Award was insurance proceeds. If the cost of the restoration exceeds the amount
of the Award (net of costs and expenses incurred in obtaining the Award), Lessee
shall be obligated to contribute any excess amount needed to restore the
Facility or pay for such costs and expenses. To the extent that the cost of
restoration is less than the amount of the Award (net of cost and expenses
incurred in obtaining the Award), the remainder of the Award shall be retained
by Lessor and Rent shall be abated as set forth in Section 3.7.
14.5 AWARD DISTRIBUTION. In the event Lessee completes the purchase of
the Leased Property, as described in Section 14.3, the entire Award shall, upon
payment of the purchase price and all Rent and other sums due under this Lease
and the other Lease Documents, belong to Lessee and Lessor agrees to assign to
Lessee all of Lessor's rights thereto or, to the extent Lessor has received
payment of the Award, the amount of such payment shall be credited against the
purchase price. In any other event, the entire Award (except for such portion
thereof which the Condemner designates as allocable to Lessee's loss of business
or Tangible Personal Property) shall belong to and be paid to Lessor.
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14.6 CONTROL OF PROCEEDINGS. Subject to the rights of any Fee
Mortgagee, unless and until Lessee completes the purchase of the Leased Property
as provided in Section 14.3, all proceedings involving any Taking and the
prosecution of claims arising out of any Taking against the Condemnor shall be
conducted, prosecuted and settled by Lessor; PROVIDED, HOWEVER, that Lessor
shall keep Lessee apprised of the progress of all such proceedings and shall
solicit Lessee's advice with respect thereto and shall give due consideration to
any such advice. In addition, Lessee shall reimburse Lessor (as an Additional
Charge) for all costs and expenses, including reasonable attorneys' fees,
appraisal fees, fees of expert witnesses and costs of litigation or dispute
resolution, in relation to any Taking, whether or not this Lease is terminated;
PROVIDED, HOWEVER, if this Lease is terminated as a result of a Taking, Lessee's
obligation to so reimburse Lessor shall be diminished by the amount of the
Award, if any, received by Lessor which is in excess of the Meditrust
Investment.
ARTICLE 15
PERMITTED CONTESTS
15.1 LESSEE'S RIGHT TO CONTEST. To the extent of the express
references made to this Article 15 in other Sections of this Lease, Lessee, any
Sublessee or any Manager on their own or on Lessor's behalf (or in Lessor's
name), but at their sole cost and expense, may contest, by appropriate legal
proceedings conducted in good faith and with due diligence (until the resolution
thereof), the amount, validity or application, in whole or in part, of any
Imposition, Legal Requirement, the decision of any Governmental Authority
related to the operation of the Leased Property for its Primary Intended Use
and/or, if applicable, any of the Other Permitted Uses or any Lien or claim
relating to the Leased Property not otherwise permitted by this Agreement;
PROVIDED, THAT (a) prior written notice of such contest is given to Lessor, (b)
in the case of an unpaid Imposition, Lien or claim, the commencement and
continuation of such proceedings shall suspend the collection thereof from
Lessor and/or compliance by any applicable member of the Leasing Group with the
contested Legal Requirement or other matter may be legally delayed pending the
prosecution of any such proceeding without the occurrence or creation of any
Lien, charge or liability of any kind against the Leased Property, (c) neither
the Leased Property nor any rent therefrom would be in any immediate danger of
being sold, forfeited, attached or lost as a result of such proceeding, (d) in
the case of a Legal Requirement, neither Lessor nor any member of the Leasing
Group would be in any immediate danger of civil or criminal liability for
failure to comply therewith pending the outcome of such proceedings, (e) in the
event that any such contest shall involve
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a sum of money or potential loss in excess of TWENTY FIVE THOUSAND DOLLARS
($25,000), Lessee shall deliver to Lessor an Officer's Certificate and opinion
of counsel, if Lessor deems the delivery of an opinion to be appropriate,
certifying or opining, as the case may be, as to the validity of the statements
set forth to the effect set forth in clauses (b), (c) and (d), to the extent
applicable, (f) Lessee shall give such cash security as may be demanded in good
faith by Lessor to insure ultimate payment of any fine, penalty, interest or
cost and to prevent any sale or forfeiture of the affected portion of the Leased
Property by reason of such non-payment or non-compliance, (g) if such contest is
finally resolved against Lessor or any member of the Leasing Group, Lessee
shall promptly pay, as Additional Charges due hereunder, the amount required to
be paid, together with all interest and penalties accrued thereon and/or comply
(and cause any Sublessee and any Manager to comply) with the applicable Legal
Requirement, and (H) no state of facts or circumstance exists which constitutes,
or with the passage of time and/or the giving of notice, could constitute a
Lease Default; PROVIDED, HOWEVER, but without limiting any other right Lessee
may have under the Lease Documents to contest the payment of Rent, the
provisions of this Article 15 shall not be construed to permit Lessee to contest
the payment of Rent or any other sums payable by Lessee to Lessor under any of
the Lease Documents. If such contest is finally resolved in favor of Lessee,
Lessee shall be entitled to any refund resulting therefrom.
15.2 LESSOR'S COOPERATION. Lessor, at Lessee's sole cost and expense,
shall execute and deliver to Lessee such authorizations and other documents as
may reasonably be required in any such contest, so long as the same does not
expose Lessor to any civil or criminal liability, and, if reasonably requested
by Lessee or if Lessor so desires, Lessor shall join as a party therein.
15.3 LESSEE'S INDEMNITY. Lessee, as more particularly provided for in
Section 12.2, shall indemnify, defend (with counsel acceptable to Lessor) and
save Lessor harmless against any liability, cost or expense of any kind,
including, without limitation, attorneys' fees and expenses that may be imposed
upon Lessor in connection with any such contest and any loss resulting therefrom
and in the enforcement of this indemnification.
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ARTICLE 16
DEFAULT
16.1 EVENTS OF DEFAULT. Each of the following shall constitute an
"Event of Default" hereunder and shall entitle Lessor to exercise its remedies
hereunder and under any of the other Lease Documents:
(a) any failure of Lessee to pay any amount due hereunder or under
any of the other Lease Documents within ten (10) days following the date
when such payment was due;
(b) any failure in the observance or performance of any other
covenant, term, condition or warranty provided in this Lease or any of the
other Lease Documents, other than the payment of any monetary obligation
and other than as specified in subsections (c) through (v) below (a
"Failure to Perform"), continuing for thirty (30) days after the giving of
notice by Lessor to Lessee specifying the nature of the Failure to Perform;
except as to matters not susceptible to cure within thirty (30) days,
provided that with respect to such matters, (i) Lessee commences the cure
thereof within thirty (30) days after the giving of such notice by Lessor
to Lessee, (ii) Lessee continuously prosecutes such cure to completion,
(iii) such cure is completed within one hundred twenty (120) days after the
giving of such notice by Lessor to Lessee and (iv) such Failure to Perform
does not impair the value of, or Lessor's rights with respect to, the
Leased Property or otherwise impair the Collateral or Lessor's security
interest therein;
(c) the occurrence of any default or breach of condition continuing
beyond the expiration of the applicable notice and grace periods, if any,
under any of the other Lease Documents, including, without limitation, the
Agreement Regarding Related Transactions;
(d) if any representation, warranty or statement contained herein or
in any of the other Lease Documents proves to be untrue in any material
respect as of the date when made or at any time during the Term if such
representation or warranty is a continuing representation or warranty
pursuant to Section 10.2;
(e) if any member of the Leasing Group shall (i) voluntarily be
adjudicated a bankrupt or insolvent, (ii) seek or consent to the
appointment of a receiver or trustee for itself or for the Leased Property,
(iii) file a petition seeking relief under the bankruptcy or other similar
laws of the United States, any state or any jurisdiction, (iv) make a
general assignment for the benefit
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of creditors, (v) make or offer a composition of its debts with its
creditors or (vi) be unable to pay its debts as such debts mature;
(f) if any court shall enter an order, judgment or decree appointing,
without the consent of any member of the Leasing Group, a receiver or
trustee for such member or for any of its property and such order, judgment
or decree shall remain in force, undischarged or unstayed, ninety (90) days
after it is entered;
(g) if a petition is filed against any member of the Leasing Group
which seeks relief under the bankruptcy or other similar laws of the United
States, any state or any other jurisdiction, and such petition is not
dismissed within ninety (90) days after it is filed;
(h) in the event that:
i. all or any portion of the interest of any partner, shareholder,
member in any member of the Leasing Group (other than Guarantor)
shall be, on any one or more occasions, directly or indirectly,
sold, assigned, hypothecated or otherwise transferred (whether by
operation of law or otherwise), if such member of the Leasing
Group shall be a partnership, joint venture, syndicate or other
group, without the prior written consent of Lessor, in each
instance, which consent may be withheld by Lessor in its
reasonable discretion with respect to a sale, assignment,
hypothecation or other transfer to a Meditrust/Emeritus
Transaction Affiliate and in all other cases, in its sole and
absolute discretion;
ii. the shares of the issued and outstanding capital stock of any
member of the Leasing Group (other than Guarantor) shall be, on
any one or more occasions, directly or indirectly, sold,
assigned, hypothecated or otherwise transferred (whether by
operation of law or otherwise), if such member of the Leasing
Group shall be a corporation, without the prior written consent
of Lessor, in each instance, which consent may be withheld by
Lessor in its reasonable discretion with respect to a sale,
assignment, hypothecation or other transfer to a
Meditrust/Emeritus Transaction Affiliate and in all other cases,
in its sole and absolute discretion; or
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iii. all or any portion of the beneficial interest in any member of
the Leasing Group (other than Guarantor) shall be, directly or
indirectly, sold or otherwise transferred (whether by operation
of law or otherwise), if such member of the Leasing Group shall
be a trust, without the prior written consent of Lessor, in each
instance, which consent may be withheld by Lessor in its
reasonable discretion with respect to a sale, assignment,
hypothecation or other transfer to a Meditrust/Emeritus
Transaction Affiliate and in all other cases, in its sole and
absolute discretion;
Notwithstanding the foregoing, no consent of Lessor to a pledge by Lessee
of its stock to the lender of a Working Capital Loan satisfying the
requirements of Section 6.1.3 shall be required la "Working Capital Stock
Pledge").
(i) the death, incapacity, liquidation, dissolution or termination of
existence of any member of the Leasing Group or the merger or consolidation
of any member of the Leasing Group with any other Person except as
expressly permitted by the terms of this Lease Agreement;
(j) except as provided in Section 19.1 hereof, if, without the prior
written consent of Lessor, in each instance, which consent may be withheld
by Lessor in its sole and absolute discretion, Lessee's or any interest of
a Sublessee which is an Affiliate of Lessee in the Leased Property shall
be, directly or indirectly, mortgaged, encumbered (by any voluntary or
involuntary Lien other than the Permitted Encumbrances), subleased, sold,
assigned, hypothecated or otherwise transferred (whether by operation of
law or otherwise);
(k) the occurrence of a default or breach of condition continuing
beyond the expiration of the applicable notice and grace periods, if any,
in connection with the payment or performance of any other material
obligation of Lessee or any Sublessee which is an Affiliate of Lessee, if
the applicable creditor or obligee elects to declare the obligations of
Lessee or the applicable Sublessee under the applicable agreement due and
payable or to exercise any other right or remedy available to such creditor
or obligee, or, whether or not such creditor or obligee has so elected or
exercised, such creditor's or obligee's rights and remedies, if exercised,
may involve or result in the taking of possession of, or the creation of a
Lien on, the Leased Property; PROVIDED, HOWEVER, that in any event, the
election by the applicable creditor or obligee to declare the
obligations of Lessee under the applicable agreement due and
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payable or to exercise any other right or remedy available to such creditor
or obligee shall be an Event of Default hereunder only if such obligations,
individually or in the aggregate, are in excess of TWO HUNDRED FIFTY
THOUSAND DOLLARS ($250,000);
(l) the occurrence of a Related Party Default;
(m) the occurrence of any default or breach of condition which is not
cured within any applicable cure period under a Working Capital Loan
secured by a Working Capital Stock Pledge (or any documents executed in
connection therewith) or the exercise of any ownership rights by the lender
of a Working Capital Loan secured by a Working Capital Stock Pledge;
(n) except as a result of Casualty or a partial or complete
Condemnation (including a temporary taking), if Lessee or any Sublessee
ceases operation of the Facility for a period in excess of thirty (30) days
(a "Failure to Operate");
(o) if one or more judgments against Lessee or any Sublessee which is
an Affiliate of Lessee or attachments against Lessee's interest or any such
Sublessee's interest in the Leased Property, which in the aggregate exceed
TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) or which may materially and
adversely interfere with the operation of the Facility, remain unpaid,
unstayed on appeal, undischarged, unbonded or undismissed for a period of
thirty (30) days;
(p) if any malpractice award or judgment exceeding any applicable
professional liability insurance coverage by more than FIVE HUNDRED
THOUSAND DOLLARS ($500,000) shall be rendered against any member of the
Leasing Group and either (i) enforcement proceedings shall have been
commenced by any creditor upon such award or judgment or (ii) such award or
judgment shall continue unsatisfied and in effect for a period of ten (10)
consecutive days without an insurance company satisfactory to Lessor (in
its sole and absolute discretion) having agreed to fund such award or
judgment in a manner satisfactory to Lessor (in its sole and absolute
discretion) and in either case such award or judgment shall, in the
reasonable opinion of Lessor, have a material adverse affect on the ability
of Lessee or any Sublessee to operate the Facility;
(q) if any Provider Agreement material to the operation or financial
condition of the Leased Property shall be terminated prior to the
expiration of the term thereof or, without the prior written consent of
Lessor, in each instance, which consent may be withheld in Lessor's
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reasonable discretion, shall not be renewed or extended upon the expiration
of the stated term thereof;
(r) if, after Lessee or any Sublessee has obtained approval for
Medicare and/or Medicaid funding, a final unappealable determination is
made by the applicable Governmental Authority that Lessee or any Sublessee
shall have failed to comply with applicable Medicare and/or Medicaid
regulations in the operation of the Facility, as a result of which failure
Lessee or such Sublessee is declared ineligible to continue
its participation in the Medicare and/or Medicaid programs and such
determination could reasonably be expected to have a material adverse
effect on the operation or financial condition of the Leased Property;
(s) if any member of the Leasing Group receives notice of a final
unappealable determination by applicable Governmental Authorities of the
revocation of any Permit required for the lawful construction or operation
of the Facility in accordance with the Primary Intended Use and, if
applicable, the Other Permitted Uses or the loss of any Permit under any
other circumstances under which any member of the Leasing Group is required
to permanently cease the construction or operation of the Facility in
accordance with the Primary Intended Use and the Other Permitted Uses; and
(t) any failure to maintain the insurance required pursuant to
Section 13 of this Lease in force and effect at all times until the Lease
Obligations are fully paid and performed;
(u) the appointment of a temporary manager (or operator) for the
Leased Property by any Governmental Authority;
(v) the entry of an order by a court with jurisdiction over the
Leased Property to close the Facility, to transfer one or more residents
the Facility as a result of an allegation of abuse or neglect or to take
any action to eliminate an emergency situation then existing at the
Facility, if such order has not been stayed pending appeal within ten (10)
following such entry; or
(w) the occurrence of any default or breach of condition continuing
for more than thirty (30) days under any credit agreement, loan agreement
or other agreement establishing a major line of credit (including, without
limitation, a major line of credit or a Working Capital Loan which is not
secured by a Working Capital Stock Pledge)(or any documents executed in
connection with such lines of credit) on behalf of Guarantor without regard
to whether the applicable creditor has elected to declare the indebtedness
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due and payable under such line of credit or to exercise any other right or
remedy available to it or the occurrence of any such default or breach of
condition if the applicable creditor has elected to declare the
indebtedness due and payable under such line of credit or to exercise any
other right or remedy available to it. For the purpose of this provision,
a major line of credit shall mean and include any line of credit
established in an amount equal to or greater than ONE MILLION DOLLARS
($1,000,000) with respect to a line of credit for which Guarantor is an
obligor, endorser, surety or guarantor.
16.2 REMEDIES.
(a) If any Lease Default shall have occurred, Lessor may at its option
terminate this Lease by giving Lessee not less than ten (10) days' notice of
such termination, or exercise any one or more of its rights and remedies under
this Lease or any of the other Lease Documents, or as available at law or in
equity and upon the expiration of the time fixed in such notice, the Term shall
terminate (but only if Lessor shall have specifically elected by a written
notice to so terminate the Lease) and all rights of Lessee under this Lease
shall cease. Notwithstanding the foregoing, in the event of Lessee's failure to
pay Rent, if such Rent remains unpaid beyond ten (10) days from the due
date thereof, Lessor shall not be obligated to give ten (10) days notice of such
termination or exercise of any of its other rights and remedies under this
Lease, or the other Lease Documents, or otherwise available at law or in equity,
and Lessor shall be at liberty to pursue any one or more of such rights or
remedies without further notice. No taking of possession of the Leased Property
by or on behalf of Lessor, and no other act done by or on behalf of Lessor,
shall constitute an acceptance of surrender of the Leased Property by Lessee or
reduce Lessee's obligations under this Lease or the other Lease Documents,
unless otherwise expressly agreed to in a written document signed by an
authorized officer or agent of Lessor.
(b) To the extent permitted under applicable law, Lessee shall pay as
Additional Charges all costs and expenses (including, without limitation,
attorneys' fee and expenses) reasonably incurred by or on behalf of Lessor as a
result of any Lease Default.
(c) If any Lease Default shall have occurred, whether or not this Lease
has been terminated pursuant to Paragraph (a) of this Section, Lessee shall, to
the extent permitted under applicable law, if required by Lessor so to do, upon
not less than ten (10) days' prior notice from Lessor, immediately surrender to
Lessor the Leased Property pursuant to the provisions of Paragraph (a) of this
Section and quit the same, and Lessor may enter upon and repossess the Leased
Property by
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reasonable force, summary proceedings, ejectment or otherwise, and may remove
Lessee and all other Persons and any and all of the Tangible Personal Property
from the Leased Property, subject to the rights of any residents of the Facility
and any Sublessees who are not Affiliates of any member of the Leasing Group and
to any requirements of applicable law, or Lessor may claim ownership of the
Tangible Personal Property as set forth in Section 5.2.3 hereof or Lessor may
exercise its rights as secured party under the Security Agreement. Lessor shall
use reasonable, good faith efforts to relet the Leased Property or otherwise
mitigate damages suffered by Lessor as a result of Lessee's breach of this
Lease.
(d) In addition to all of the rights and remedies of Lessor set forth in
this Lease and the other Lease Documents, if Lessee shall fail to pay any rental
or other charge due hereunder (whether denominated as Base Rent, Additional
Rent, Additional Charges or otherwise) within ten (10) days after same shall
have become due and payable, then and in such event Lessee shall also pay to
Lessor (i) a late payment service charge (in order to partially defray Lessor's
administrative and other overhead expenses) equal to TWO HUNDRED FIFTY DOLLARS
($250) and (ii) to the extent permitted by applicable law, interest on such
unpaid sum at the Overdue Rate; it being understood, however, that nothing
herein shall be deemed to extend the due date for payment of any sums required
to be paid by Lessee hereunder or to relieve Lessee of its obligation to pay
such sums at the time or times required by this Lease.
16.3 DAMAGES. None of (a) the termination of this Lease pursuant to
Section 16.2, (b) the eviction of Lessee or the repossession of the Leased
Property, (c) the inability after reasonable diligence of Lessor,
notwithstanding reasonable good faith efforts, to relet the Leased Property, (d)
the reletting of the Leased Property or (e) the failure of Lessor to collect or
receive any rentals due upon any such reletting, shall relieve Lessee of its
liability and obligations hereunder, all of which shall survive any such
termination, repossession or reletting. In any such event, Lessee shall
forthwith pay to Lessor all Rent due and payable with respect to the Leased
Property to and including the date of such termination, repossession or
eviction. Thereafter, Lessee shall forthwith pay to Lessor, at Lessor's option,
either:
(i) the sum of: (x) all Rent that is due and unpaid at later to occur
of termination, repossession or eviction, together with interest
thereon at the Overdue Rate to the date of payment, PLUS (y) the
worth (calculated in the manner stated below) of the amount by
which the unpaid Rent for the balance of the Term after the later
to occur of the termination, repossession or eviction exceeds the
fair market rental
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value of the Leased Property for the balance of the Term, PLUS (z) any
other amount necessary to compensate Lessor for all damage proximately
caused by Lessee's failure to perform the Lease Obligations or which
in the ordinary course would be likely to result therefrom and LESS
the amount of rent that has actually been received by Lessor following
the termination of this Lease from a Person other than an Affiliate of
Lessor (which for purposes hereof shall include the net income
received by Lessor or an Affiliate of Lessor from its own operation of
the Leased Property in the event it elects to resume operation thereof
in lieu of hiring a third party manager or re-letting the Leased
Property); or
(ii) each payment of Rent as the same would have become due and payable if
Lessee's right of possession or other rights under this Lease had not
been terminated, or if Lessee had not been evicted, or if the Leased
Property had not been repossessed which Rent, to the extent permitted
by law, shall bear interest at the Overdue Rate from the date when due
until the date paid, and Lessor may enforce, by action or otherwise,
any other term or covenant of this Lease. There shall be accredited
against Lessee's obligation under this Clause (ii) amounts actually
collected by Lessor from another tenant to whom the Leased Property
may have actually been leased or, if Lessor is operating the Leased
Property for its own account, the actual Cash Flow of the Leased
Property.
In making the determinations described in subparagraph (i) above, the
"worth" of unpaid Rent shall be determined by a court having jurisdiction
thereof using the lowest rate of capitalization (highest present worth)
reasonably applicable at the time of such determination and allowed by
applicable law and the Additional Rent shall be deemed to be the same as the
average Additional Rent of the preceding five (5) full calendar years, or if
shorter, the average Additional Rent for the calendar years or portions thereof
since the date that Additional Rent commenced to accrue or such other amount as
either party shall prove reasonably could have been earned during the remainder
of the Term or any portion thereof.
16.4 LESSEE WAIVERS. If this Lease is terminated pursuant to Section
16.2, Lessee waives, to the extent not prohibited by applicable law, (a) any
right of redemption, re-entry or repossession, (b) any right to a trial by jury
in the event of summary proceedings to enforce the remedies set forth in this
Article 16, and (c) the benefit of any laws now or hereafter in force exempting
property from liability for rent or for debt.
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16.5 APPLICATION OF FUNDS. Any payments otherwise payable to Lessee
which are received by Lessor under any of the provisions of this Lease during
the existence or continuance of any Lease Default shall be applied to the Lease
Obligations in the order which Lessor may reasonably determine or as may be
required by the laws of the State.
16.6 FAILURE TO CONDUCT BUSINESS. For the purpose of determining
rental loss damages or Additional Rent, in the event Lessee fails to conduct
business upon the Leased Property, exact damages or the amount of Additional
Rent being unascertainable, it shall be deemed that the Additional Rent for such
period would be equal to the average annual Additional Rent during the five (5)
preceding calendar years or such shorter period of time as may have existed
between the date Additional Rent commenced to accrue and the date of
computation.
16.7 LESSOR'S RIGHT TO CURE. If Lessee shall fail to make any
payment, or to perform any act required to be made or performed under this Lease
and to cure the same within the relevant time periods provided in Section 16.1,
Lessor, after five (5) Business Days' prior notice to Lessee (except in an
emergency when such shorter notice shall be given as is reasonable under the
circumstances), and without waiving or releasing any obligation or Event of
Default, may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of Lessee,
and may, to the extent permitted by law, enter upon the Leased Property for such
purpose and take all such action thereon as, in Lessor's opinion, may be
necessary or appropriate therefor. No such entry shall be deemed an eviction of
Lessee. All sums so paid by Lessor and all costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses, in each case, to
the extent permitted by law) so incurred shall be paid by Lessee to Lessor on
demand as an Additional Charge. The obligations of Lessee and rights of Lessor
contained in this Article shall survive the expiration or earlier termination of
this Lease.
16.8 NO WAIVER BY LESSOR. Lessor shall not by any act, delay, omission
or otherwise including, without limitation, the exercise of any right or remedy
hereunder) be deemed to have waived any of its rights or remedies hereunder or
under any of the other Lease Documents unless such waiver is in writing and
signed by Lessor, and then, only to the extent specifically set forth therein.
No waiver at any time of any of the terms, conditions, covenants,
representations or warranties set forth in any of the Lease Documents
(including, without limitation, any of the time periods set forth therein for
the performance of the Lease Obligations) shall be construed as a waiver of any
other term, condition, covenant, representation or warranty of any of the Lease
Documents, nor shall such a waiver in any one instance
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or circumstances be construed as a waiver of the same term, condition, covenant,
representation or warranty in any subsequent instance or circumstance. No such
failure, delay or waiver shall be construed as creating a requirement that
Lessor must thereafter, as a result of such failure, delay or waiver, give
notice to Lessee or any Guarantor, or any other Person that Lessor does not
intend to, or may not, give a further waiver or to refrain from insisting upon
the strict performance of the terms, conditions, covenants, representations and
warranties set forth in the Lease Documents before Lessor can exercise any of
its rights or remedies under any of the Lease Documents or before any Lease
Default can occur, or as establishing a course of dealing for interpreting the
conduct of and agreements between Lessor and Lessee, the Guarantor or any other
Person.
The acceptance by Lessor of any payment that is less than payment in full
of all amounts then due under any of the Lease Documents at the time of the
making of such payment shall not: (a) constitute a waiver of the right to
exercise any of Lessor's remedies at that time or at any subsequent time, (b)
constitute an accord and satisfaction or (c) nullify any prior exercise of any
remedy, without the express written consent of Lessor. Any failure by Lessor to
take any action under this Lease or any of the other Lease Documents by reason
of a default hereunder or thereunder, acceptance of a past due installment, or
indulgences granted from time to time shall not be construed as a novation of
this Lease or any of the other Lease Documents or as a waiver of such right or
of the right of Lessor thereafter to insist upon strict compliance with the
terms of this Lease or any of the other Lease Documents, or (d) prevent the
exercise of such right of acceleration or any other right granted hereunder or
under applicable law for purposes of obtaining the damages set forth in Section
16.3, specific performance or equitable remedies; and to the maximum extent not
prohibited by applicable law, Lessee hereby expressly waives the benefit of any
statute or rule of law or equity now provided, or which may hereafter be
provided, which would produce a result contrary to or in conflict with the
foregoing.
16.9 RIGHT OF FORBEARANCE. Whether or not for consideration paid or
payable to Lessor and, except as may be otherwise specifically agreed to by
Lessor in writing, no forbearance on the part of Lessor, no extension of the
time for the payment of the whole or any part of the Obligations, and no other
indulgence given by Lessor to Lessee or any other Person, shall operate to
release or in any manner affect the original liability of Lessee or such other
Persons, or to limit, prejudice or impair any right of Lessor, including,
without limitation, the right to realize upon any collateral, or any part
thereof, for any of the Obligations evidenced or secured by the Lease Documents;
notice of any such extension, forbearance or
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indulgence being hereby waived by Lessee and all those claiming by, through or
under Lessee.
16.10 CUMULATIVE REMEDIES. The rights and remedies set forth under this
Lease are in addition to all other rights and remedies afforded to Lessor under
any of the other Lease Documents or at law or in equity, all of which are hereby
reserved by Lessor, and this Lease is made and accepted without prejudice to any
such rights and remedies. All of the rights and remedies of Lessor under each
of the Lease Documents shall be separate and cumulative and may be exercised
concurrently or successively in Lessor's sole and absolute discretion.
ARTICLE 17
SURRENDER OF LEASED PROPERTY OR LEASE; HOLDING OVER
17.1 SURRENDER. Lessee shall, upon the expiration or prior termination
of the Term (unless occasioned by Lessee's purchase of the Leased Property
pursuant to the terms of this Lease Agreement), vacate and surrender the Leased
Property to Lessor in good repair and condition, in compliance with all
applicable Legal Requirements, all Insurance Requirements, and in compliance
with the provisions of Article 8, except for: (a) ordinary wear and tear
(subject to the obligation of Lessee to maintain the Leased Property in good
order and repair during the entire Term of the Lease), (b) damage caused by the
gross negligence or willful acts of Lessor, and (c) any damage or destruction
resulting from a Casualty or Taking that Lessee is not required by the terms of
this Lease to repair or restore.
17.2 TRANSFER OF CONTRACTS AND PERMITS. In connection with the
expiration or any earlier termination of this Lease (unless occasioned by
Lessee's purchase of the Leased Property pursuant to the terms of this Lease
Agreement), upon any request made from time to time by Lessor, Lessee shall (a)
promptly and diligently use its best efforts to (i) transfer and assign all
Permits and Contracts necessary or desirable for the operation of the Leased
Property in accordance with its Primary Intended Use to Lessor or its designee
to the extent the same are assignable under applicable Legal Requirements and/or
(ii) arrange for the transfer or assignment of such Permits and Contracts to
Lessor or its designee and (b) cooperate in every respect (and to the fullest
extent possible) and assist Lessor or its designee in obtaining such Permits and
Contracts (whether by transfer, assignment or otherwise) provided, however, that
unless a termination is the result of a Lease Default, Casualty or Condemnation,
Lessee's efforts and cooperation shall not require Lessee to pay the costs and
expenses incurred by Lessor or Lessor's designated transferee of the Contracts
and Permits. Such efforts and cooperation on the part of Lessee shall include,
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without limitation, the execution, delivery and filing with appropriate
Governmental Authorities and Third Party Payors of any applications, petitions,
statements, notices, requests, assignments and other documents or instruments
requested by Lessor. Furthermore, Lessee shall not take any action or refrain
from taking any action which would defer, delay or jeopardize the process of
Lessor or its designee obtaining said Permits and Contracts (whether by
transfer, assignment or otherwise). Without limiting the foregoing, Lessee
shall not seek to transfer or relocate any of said Permits or Contracts to any
location other than the Leased Property. The provisions of this Section 17.2
shall survive the expiration or earlier termination of this Lease.
Lessee hereby appoints Lessor as its attorney-in-fact, with full power of
substitution to take such actions, in the event that Lessee fails to comply with
any request made by Lessor hereunder, as Lessor (in its sole absolute
discretion) may deem necessary or desirable to effectuate the intent of this
Section 17.2. The power of attorney conferred on Lessor by the provisions of
this Section 17.2, being coupled with an interest, shall be irrevocable until
the Obligations are fully paid and performed and shall not be affected by any
disability or incapacity which Lessee may suffer and shall survive the same.
Such power of attorney is provided solely to protect the interests of Lessor and
shall not impose any duty on the Lender to exercise any such power and neither
Lessor-nor such attorney-in-fact shall be liable for any act, omission, error in
judgment or mistake of law, except as the same may result from its gross
negligence or willful misconduct.
17.3 NO ACCEPTANCE OF SURRENDER. Except at the expiration of the Term
in the ordinary course, no surrender to Lessor of this Lease or of the Leased
Property or any interest therein shall be valid or effective unless agreed to
and accepted in writing by Lessor and no act by Lessor or any representative or
agent of Lessor, other than such a written acceptance by Lessor, shall
constitute an acceptance of any such surrender.
17.4 HOLDING OVER. If, for any reason, Lessee shall remain in
possession of the Leased Property after the expiration or any earlier
termination of the Term, such possession shall be as a tenant at sufferance
during which time Lessee shall pay as rental each month, one and one-half times
the aggregate of (I) one-twelfth of the aggregate Base Rent, and Additional Rent
payable at the time of such expiration or earlier termination of the Term; (II)
all Additional Charges accruing during the month and (III) all other sums, if
any, payable by Lessee pursuant to the provisions of this Lease with respect to
the Leased Property. During such period of tenancy, Lessee shall be obligated
to perform and observe all of the terms, covenants and conditions of this Lease,
but shall have no rights hereunder other than the
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right, to the extent given by law to tenants at sufferance, to continue its
occupancy and use of the Leased Property. Nothing contained herein shall
constitute the consent, express or implied, of Lessor to the holding over of
Lessee after the expiration or earlier termination of this Lease.
ARTICLE 18
PURCHASE OF THE LEASED PROPERTY
18.1 PURCHASE OF THE LEASED PROPERTY. In the event Lessee purchases
the Leased Property from Lessor pursuant to any of the terms of this Lease,
Lessor shall, upon receipt from Lessee of the applicable purchase price,
together with full payment of any unpaid Rent due and payable with respect to
any period ending on or before the date of the purchase, deliver to Lessee a
deed with covenants only against acts of Lessor conveying the entire interest of
Lessor in and to the Leased Property to Lessee subject to all applicable Legal
Requirements, all of the matters described in clauses (a), (b), (e) and (g) of
Section 11.5.2, Impositions, any Liens created BY Lessee, any Liens created in
accordance with the terms of this Lease (except to the extent specifically
excluded by the terms hereof) or consented to by Lessee, the claims of all
Persons claiming by, through or under Lessee, any other matters assented to by
Lessee and all matters for which Lessee has responsibility under any of the
Lease Documents, but otherwise not subject to any other Lien created by Lessor
from and after the Commencement Date (other than an Encumbrance permitted under
Article 20 which Lessee elects to assume). The applicable purchase price shall
be paid in cash to Lessor, or as Lessor may direct, in federal or other
immediately available funds except as otherwise mutually agreed by Lessor and
Lessee. All expenses of such conveyance, including, without limitation, the
cost of title examination or standard or extended coverage title insurance,
attorneys' fees incurred by Lessor in connection with such conveyance, recording
and transfer taxes and recording fees and similar charges and specifically
excluding any prepayment penalties, if any, due Lessor's mortgagee, shall be
paid by Lessee.
18.2 APPRAISAL.
18.2.1 DESIGNATION OF APPRAISERS. In the event that it becomes
necessary to determine the Fair Market Value of the Leased Property for any
purpose of this Lease, the party required or permitted to give notice of
such required determination shall include in the notice the name of a
Person selected to act as appraiser on its behalf. Within ten (10) days
after receipt of any such notice, Lessor (or Lessee, as the case may be)
shall by notice to Lessee (or Lessor, as the case may be) either accept
such Person to be
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the sole appraiser to determine the Fair Market Value of the Leased
Property or appoint a second Person as appraiser on its behalf.
18.2.2 APPRAISAL PROCESS. The appraisers thus appointed, each of
whom must be a member of the American Institute of Real Estate Appraisers
(or any successor organization thereto), shall, within forty-five (45) days
after the date of the notice appointing the first appraiser, proceed to
appraise the Leased Property to determine the Fair Market Value of the
Leased Property as of the relevant date (giving effect to the impact, if
any, of inflation from the date of their decision to the relevant date);
provided, however, that if only one appraiser shall have been so appointed,
or if two appraisers shall have been so appointed but only one such
appraiser shall have made such determination within fifty (50) days after
the making of Lessee's or Lessor's request, then the determination of such
appraiser shall be final and binding upon the parties. If two appraisers
shall have been appointed and shall have made their determinations within
the respective requisite periods set forth above and if the difference
between the amounts so determined shall not exceed ten percent (10%) of the
lesser of such amounts, then the Fair Market Value of the Leased Property
shall be an amount equal to fifty percent (50%) of the sum of the amounts
so determined. If the difference between the amounts so determined shall
exceed ten percent (10%) of the lesser of such amounts, then such two
appraisers shall have twenty (20) days to appoint a third appraiser, but if
such appraisers fail to do so, then either party may request the American
Arbitration Association or any successor organization thereto to appoint an
appraiser within twenty (20) days of such request, and both parties shall
be bound by any Appointment so made within such twenty (20) day period. If
no such appraiser shall have been appointed within such twenty (20) days or
within ninety (90) days of the original request for a determination of Fair
Market Value of the Leased Property, whichever is earlier, either Lessor or
Lessee may apply to any court having jurisdiction to have such appointment
made by such court. Any appraiser appointed by the original appraisers, by
the American Arbitration Association or by such court shall be instructed
to determine the Fair Market Value of the Leased Property within thirty
(30) days after appointment of such Appraiser. The determination of the
appraiser which differs most in terms of dollar amount from the
determinations of the other two appraisers shall be excluded, and fifty
percent (50%) of the sum of the remaining two determinations shall be final
and binding upon Lessor and Lessee as the Fair Market Value of the Leased
Property.
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18.2.3 SPECIFIC ENFORCEMENT AND COSTS. This provision for
determination by appraisal shall be specifically enforceable to the extent
such remedy is available under applicable law, and any determination
hereunder shall be final and binding upon the parties except as otherwise
provided by applicable law. Lessor and Lessee shall each pay the fees and
expenses of the appraiser appointed by it and each shall pay one-half of
the fees and expenses of the third appraiser and one-half of all other cost
and expenses incurred in connection with each appraisal.
18.3 LESSEE'S OPTION TO PURCHASE.
18.3.1 CONDITIONS TO OPTION. On the conditions (which conditions
Lessor may waive, at its sole option, by notice to Lessee at any time) that
(A) at the time of exercise of the Purchase Option and on the applicable
Purchase Option Date, there then exists no Lease Default, nor any state of
facts or circumstance which constitutes, or with the passage of time and/or
the giving of notice, would constitute a Lease Default and (b) Lessee
strictly complies with the provisions of this Section 18.3, then Lessee
shall have the option to purchase the Leased Property, at the price and
upon the terms hereinafter set forth (the "Purchase Option").
18.3.2 EXERCISE OF OPTION; DEPOSIT. Such Purchase Option shall
permit Lessee to purchase the Leased Property (a) on the last day of the
Initial Term or (b) on the last day, of any Extended Term effectively
exercised by Lessee (each of such dates are referred to herein as a
"Purchase Option Date") and shall be exercised by notice given by Lessee to
Lessor (the "Lessee's Purchase Option Notice") at least one hundred eighty
(180) days (but not more than three hundred sixty (360) days) prior to the
relevant Purchase Option Date. Notwithstanding anything to the contrary
set forth in this Lease, Lessee's right to purchase the Leased Property is
subject to the further conditions that (i) concurrently with the exercise
of the option set forth under this Section 18.3, the Lessee shall have
exercised its right to purchase the premises demised under each of the
Related Leases in accordance with the provisions of Section 18.3 of each of
the Related Leases, (ii) the conveyance of the Leased Property pursuant to
the provisions of this Section 18.3 shall occur simultaneously with the
conveyance of the premises demised under each of the Related Leases
pursuant to Section 18.3 of each of the Related Leases and (iii) all
conditions contained in the Agreement Regarding Related Transactions
pertaining to the Purchase Option are satisfied. Lessee shall have no
right to rescind Lessee's Purchase Option Notice once given unless (a) a
notice of
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such rescission is given (i) within ten (10) days following receipt of the
final determination of the Fair Market Value of the Leased Property or (ii)
within thirty (30) days following an event of Casualty or Condemnation as
to which Lessee has waived any right of termination set forth in Section
13.2.2 hereof and (b) simultaneously with such notice of rescission,
Lessee, by notice given pursuant to Section 1.3 hereof extends the Term.
18.3.3 CONVEYANCE. If the Purchase Option is exercised by Lessee in
accordance with the terms hereof, the Leased Property shall be conveyed by
a good and sufficient deed with covenants only against acts of Lessor (the
"Deed") running to Lessee or to such grantee as Lessee may designate by
notice to Lessor at least seven (7) days before the Time of Closing.
18.3.4 CALCULATION OF PURCHASE PRICE. The price to be paid by
Lessee for the acquisition of the Leased Property pursuant to this Purchase
Option (the "Purchase Price") shall be equal to the greater of (a) the
Meditrust Investment or (b) an amount equal to the then Fair Market Value
of the Leased Property minus the Fair Market Added Value, subject to the
terms of the Agreement Regarding Related Transactions.
18.3.5 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid
by Lessee at the Time of Closing by certified, cashier's, treasurer's or
bank check(s) or wire transfer pursuant to instructions received from
Lessor in accordance with the terms of the Agreement Regarding Related
Transactions as reduced by the principal balance of any Fee Mortgage which
Lessee has elected to, and has the right to, assume in accordance with the
terms hereof.
18.3.6 PLACE AND TIME OF CLOSING. If this Purchase Option is
exercised, the closing shall occur and the Deed shall be delivered (the
"Closing") at the office of Lessor at 12:00 o'clock noon (E.S.T.) on the
applicable Purchase Option Date (such time, as the same may be extended by
mutual written agreement of Lessor and Lessee, being hereinafter referred
to as the "Time of Closing") in accordance with the terms of the Agreement
Regarding Related Transactions. It is agreed that time is of the essence
of this Purchase Option.
18.3.7 CONDITION OF LEASED PROPERTY. The Leased Property is to be
purchased "AS IS" and "WHERE IS" as of the Time of Closing.
18.3.8 QUALITY OF TITLE. If Lessor shall be unable to give title or
to make conveyance, as stipulated in this
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Section 18.3, then, at Lessor's option, Lessor shall use reasonable efforts
to remove all defects in title and the applicable Purchase Option Date and
Time of Closing shall be extended for period of thirty (30) days other than
with respect to any Encumbrances which Lessor has caused to exist. Lessor
shall not be required to expend more than FIFTY THOUSAND DOLLARS ($50,000)
(inclusive of attorney's fees) in order to have used "reasonable efforts."
18.3.9 LESSOR'S INABILITY to PERFORM. If at the expiration of the
extended time Lessor shall have failed so to remove any such defects in
title, then all other obligations of all parties hereto under Section 18.3
shall cease and Section 18.3 shall be void and without recourse to the
parties hereto. Notwithstanding the foregoing, Lessee shall have the
election, at either the original or extended Purchase Option Date and Time
of Closing, to accept such title as Lessor can deliver to the Leased
Property in its then condition and to pay therefor the Purchase Price
without reduction, in which case Lessor shall convey such title; PROVIDED,
THAT, in the event of such conveyance, if any portion of the Leased
Property shall have been taken by Condemnation prior to the applicable
Purchase Option Date and Time of Closing, Lessor shall pay over or assign
to Lessee at the Time of Closing, all Awards recovered on account of such
Taking, less any amounts reasonably expended by Lessor in obtaining such
Award and less any amounts expended for restoration pursuant to the
provisions of Article 14 hereof, or, to the extent such Awards have not
been recovered as of the applicable Purchase Option Date and Time of
Closing, Lessor shall assign to Lessee all its rights with respect to any
claim therefor and FURTHER PROVIDED, THAT in the event of such conveyance,
if any portion of the Leased Property shall have suffered a Casualty prior
to the applicable Purchase Option Date and Time of Closing, Lessor shall
pay over or assign to Lessee at the Time of Closing, all insurance proceeds
recovered on account of such Casualty, less any amounts reasonably expended
by Lessor in obtaining such proceeds and less any amounts expended for
restoration pursuant to the provisions of Article 13 hereof, or, to the
extent such proceeds have not been recovered as of the applicable Purchase
Option Date and Time of Closing, Lessor shall assign to Lessee all its
rights with respect to any claim therefor.
18.3.10 MERGER BY DEED. The acceptance of the Deed by Lessee or the
grantee designated by Lessee, as the case may be, shall be deemed to be a
full performance and discharge of every agreement and obligation to be
performed by Lessor contained or expressed in this Lease.
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18.3.11 USE OF PURCHASE PRICE TO CLEAR TITLE. To enable Lessor to
make conveyance as provided in this Section, Lessor may, at the Time of
Closing, use the Purchase Price or any portion thereof to clear the title
of any Lien, provided that all instruments so procured are recorded
contemporaneously with the Closing or reasonable arrangements are made for
a recording subsequent to the Time of Closing in accordance with customary
conveyancing practices.
18.3.12 LESSEE'S DEFAULT. If Lessee delivers Lessee's Purchase
Option Notice and fails to consummate the purchase of the Leased Property
in accordance with the terms. hereof for any reason other than Lessor's
willful and unexcused refusal to deliver the Deed or exercise of the right
of rescission in Section 18.3.2 hereof, (a) Lessee shall thereafter have no
further right to purchase the Leased Property pursuant to this Section,
although this Lease shall otherwise continue in full force and effect and
(b) Lessor shall have the right to sue for specific performance of Lessee's
obligations to purchase the Leased Property provided such suit for specific
performance is commenced within one (1) year after the applicable Purchase
Option Date on which such sale was supposed to occur.
ARTICLE 19
SUBLETTING AND ASSIGNMENT
19.1 SUBLETTING AND ASSIGNMENT. Lessee may not, without the prior
written consent of Lessor, which consent may be withheld in Lessor's sole and
absolute discretion, assign or pledge all or any portion of its interest in this
Lease or any of the other Lease Documents (whether by operation of law or
otherwise) or sublet all or any part of the Leased Property. For purposes of
this Section 19.1, the term "assign" shall be deemed to include, but not be
limited to, any one or more sales, pledges, hypothecations or other transfers
(including, without limitation, any transfer by operation of law) of any of the
capital stock of or partnership interest in Lessee or sales, pledges,
hypothecations or other transfers (including, without limitation, any transfer
by operation of law) of the capital or the assets of Lessee. Any such
assignment, pledge, sale, hypothecation or other transfer made without Lessor's
consent shall be void and of no force and effect. Notwithstanding the
foregoing, Lessors consent shall not be unreasonably withheld with respect to an
assignment or pledge of an interest of Lessee in this Lease or a sublet of all
or a part of the Leased Property to a Meditrust/Emeritus Transaction Affiliate.
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19.2 ATTORNMENT. Lessee shall insert in each (a) Sublease approved by
Lessor, provisions to the effect that (b) and such Sublease is subject and
subordinate to all of the terms and provisions of this Lease and to the rights
of Lessor hereunder, (B) in the event this Lease shall terminate before the
expiration of such Sublease, the Sublessee thereunder will, at Lessor's option,
attorn to Lessor and waive any right the Sublessee may have to terminate the
Sublease or to surrender possession thereunder, as a result of the termination
of this Lease and (c) in the event the Sublessee receives a written notice from
Lessor stating that Lessee is in default under this Lease, the Sublessee shall
thereafter be obligated to pay all rentals accruing under said Sublease directly
to Lessor or as Lessor may direct. All rentals received from the Sublessee by
Lessor shall be credited against the amounts owing by Lessee under this Lease.
ARTICLE 20
TITLE TRANSFERS AND LIENS GRANTED BY LESSOR
20.1 NO MERGER OF TITLE. Except as otherwise provided in Section
18.3.10, there shall be no merger of this Lease or of the leasehold estate
created hereby with the fee estate in the Leased Property by reason of the fact
that the same Person may acquire, own or hold, directly or indirectly (a) this
Lease or the leasehold estate created hereby or any interest in this Lease or
such leasehold. estate and (b) the fee estate in the Leased Property.
20.2 TRANSFERS BY LESSOR. If the original Lessor named herein or any
successor in interest shall convey the Leased Property in accordance with the
terms hereof, other than as security for a debt, and the grantee or transferee
of the Leased Property shall expressly assume all obligations of Lessor
hereunder arising or accruing from and after the date of such conveyance or
transfer, the original Lessor named herein or the applicable successor in
interest so conveying the Leased Property shall thereupon be released from all
future liabilities and obligations of Lessor under this Lease arising or
accruing from and after the date of such conveyance or other transfer as to the
Leased Property and all such future liabilities and obligations shall thereupon
be binding upon the new owner.
20.3 LESSOR MAY GRANT LIENS. Without the consent of Lessee, but
subject to the terms and conditions set forth below in this Section 20.3, Lessor
may, from time to time, directly or indirectly, create or otherwise cause to
exist any lien, encumbrance or title retention agreement upon the Leased
Property or any interest therein ("Encumbrance"), whether to secure any
borrowing or other means of financing or refinancing, provided that Lessee shall
have no obligation to make payments under such
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Encumbrances. Lessee shall subordinate this Lease to the lien of any such
Encumbrance, on the condition that the beneficiary or holder of such Encumbrance
executes a non-disturbance agreement in conformity with the provisions of
Section 20.4. To the extent that any such Encumbrance consists of a mortgage or
deed of trust on Lessor's interest in the Leased Property the same shall be
referred to herein as a "Fee Mortgage" and the holder thereof shall be referred
to herein as a "Fee Mortgagee".
20.4 SUBORDINATION AND NON-DISTURBANCE. Concurrently with the
execution and delivery of any Fee Mortgage entered into after the date hereof,
provided that the Lessee executes and delivers an agreement of the type
described in the following paragraph, Lessor shall obtain and deliver to Lessee
an agreement by the holder of such Fee Mortgage, pursuant to which, (a) the
applicable Fee Mortgagee consents to this Lease and (b) agrees that,
notwithstanding the terms of the applicable Fee Mortgage held by such Fee
Mortgagee, or any default, expiration, termination, foreclosure, sale, entry or
other act or omission under or pursuant to such Fee Mortgage or a transfer in
lieu of foreclosure, (i) Lessee shall not be disturbed in peaceful enjoyment of
the Leased Property nor shall this Lease be terminated or cancelled at any time,
except in the event that Lessor shall have the right to terminate this Lease
under the terms and provisions expressly set forth herein, (ii) Lessee's option
to purchase the Leased Property shall remain in force and effect pursuant to the
terms hereof and (iii) in the event that Lessee elects its option to purchase
the Leased Property and performs all of its obligations hereunder in connection
with any such election., the holder of the Fee Mortgage shall release its Fee
Mortgage upon payment by Lessee of the purchase price required hereunder,
PROVIDED, THAT (1) such purchase price is paid to the holder of the Fee
Mortgage, in the event that the Indebtedness secured by the applicable Fee
Mortgage is equal to or greater than the purchase price or (2) in the event that
the purchase price is greater than the Indebtedness secured by the Fee Mortgage,
a portion of the purchase price equal to the Indebtedness secured by the Fee
Mortgage is paid to the Fee Mortgagee and the remainder of the purchase price is
paid to Lessor.
At the request from time to time by any Fee Mortgagee, Lessee shall (a)
subordinate this Lease and all of Lessee's rights and estate hereunder to the
Fee Mortgage held by such Fee Mortgagee and (b) agree that Lessee will attorn to
and recognize such Fee Mortgagee or the purchaser at any foreclosure sale or any
sale under a power of sale contained in any such Fee Mortgage as Lessor under
this Lease for the balance of the Term then remaining. To effect the intent and
purpose of the immediately preceding sentence, Lessee agrees to execute and
deliver such instruments in recordable from as are reasonably requested by
Lessor or the applicable Fee Mortgagee; PROVIDED, HOWEVER, that
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such Fee Mortgagee simultaneously executes, delivers and records a written
agreement of the type described in the preceding paragraph.
ARTICLE 21
LESSOR OBLIGATIONS
21.1 QUIET ENJOYMENT. As long as Lessee shall pay all Rent and all
other sums due under any of the Lease Documents as the same become due and shall
fully comply with all of the terms of this Lease and the other Lease Documents
and fully perform its obligations thereunder, Lessee shall peaceably and quietly
have, hold and enjoy the Leased Property throughout the Term, free of any claim
or other action by Lessor or anyone claiming by, through or under Lessor, but
subject to all the Permitted Encumbrances and such Liens as may hereafter be
consented to by Lessee. No failure by Lessor to comply with the foregoing
covenant shall give Lessee any right to cancel or terminate this Lease, or to
fail to perform any other sum payable under this Lease, or to fail to perform
any other obligation of Lessee hereunder. Notwithstanding the foregoing, Lessee
shall have the right by separate and independent action to pursue any claim it
may have against Lessor as a result of a breach by Lessor of the covenant of
quiet enjoyment contained in this Article 21.
21.2 MEMORANDUM OF LEASE. Lessor and Lessee shall, promptly upon the
request of either, enter into a short form memorandum of this Lease, in form
suitable for recording under the laws of the State, in which reference to this
Lease and all options contained herein shall be made. Lessee shall pay all
recording costs and taxes associated therewith.
21.3 DEFAULT BY LESSOR. Lessor shall be in default of its obligations
under this Lease only if Lessor shall fail to observe or perform any term,
covenant or condition of this Lease on its part to be performed and such failure
shall continue for a period of thirty (30) days after notice thereof from Lessee
(or such shorter time as may be necessary in order to protect the health or
welfare of any residents of the Facility or to ensure the continuing compliance
of the Facility with applicable Legal Requirements), unless such failure cannot
with due diligence be cured within a period of thirty (30) days, in which case
such failure shall not be deemed to continue if Lessor, within said thirty (30)
day period, proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof within one hundred twenty (120) days
after notice thereof.
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ARTICLE 22
NOTICES
Any notice, request, demand, statement or consent made hereunder or under
any of the other Lease Documents shall be in writing and shall be deemed duly
given if personally delivered, sent by certified mail, return receipt requested,
or sent by a nationally recognized commercial overnight delivery service with
provision for a receipt, postage or delivery charges prepaid, and shall be
deemed given when so personally delivered, three (3) business days following the
date postmarked or the next business day when placed in the possession of such
mail delivery service and addressed as follows:
If to Lessee: c/o Emeritus Corporation
Market Place One
2003 Western Avenue, Suite 660
Seattle, WA 98121-2162
Attention: Daniel R. Baty,
Chief Executive Officer
With a copy to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, WA 98101
Attn: Randi S. Nathanson, Esquire
If to the Guarantor: Emeritus Corporation
Market Place One
2003 Western Avenue, Suite 660
Seattle, WA 98121-2162
Attention: Daniel R. Baty,
Chief Executive Officer
With a copy to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, WA 98101
Attn: Randi S. Nathanson, Esquire
If to Lessor: Meditrust Acquisition Corporation I
197 First Avenue
Needham Heights, Massachusetts 02194
Attn: President
With copies to: Meditrust Acquisition Corporation I
197 First Avenue
Needham Heights, Massachusetts 02194
Attn: General Counsel
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and Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: Joshua Davis, Esquire
or such other address as Lessor, Lessee or the Guarantor shall hereinafter from
time to time designate by a written notice to the others given in such manner.
Any notice given to Lessee or the Guarantor by Lessor at any time shall not
imply that such notice or any further or similar notice was or is required.
ARTICLE 23
LIMITATION OF MEDITRUST LIABILITY
The Declaration of Trust establishing the sole shareholder of Lessor,
Meditrust, a Massachusetts business trust ("Meditrust"), dated August 6, 1985
(the "Declaration"), as amended, a copy of which is duly filed in the office of
the Secretary of State of the Commonwealth of Massachusetts, provides that the
name "Meditrust" refers to the trustees under the Declaration collectively as
trustees, but not individually or personally; and that no trustee, officer,
shareholder, employee or agent of Meditrust or any of its Subsidiaries shall be
held to any personal liability, jointly, or severally, for any obligation of, or
claim against Meditrust or any of its Subsidiaries. All Persons dealing with
Meditrust or Lessor, in any way, shall look only to the assets of Meditrust or
Lessor, as applicable, for the payment of any sum or the performance of any
obligation. Furthermore, in no event shall Meditrust or Lessor ever be liable
to Lessee or any other Person for any indirect or consequential damages incurred
by Lessee or such other Person resulting from any cause whatsoever.
Notwithstanding the foregoing, Lessee hereby acknowledges and agrees that
Meditrust is not a party to this Lease and, that Lessee shall look only to the
assets of Lessor for the payment of any sum or performance of any obligation due
by or from Lessor pursuant to the terms and provisions of the Lease Documents.
ARTICLE 24
MISCELLANEOUS PROVISIONS
24.1 BROKER'S FEE INDEMNIFICATION. Lessee and Lessor each shall and
hereby agrees to indemnify, defend (with counsel acceptable to the other) and
hold the other harmless from and against any and all claims for premiums or
other charges, finder's fees, taxes, brokerage fees or commissions and other
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similar compensation due to a broker or finder allegedly employed or retained by
it in connection with any of the transactions contemplated by the Lease
Documents. Notwithstanding the foregoing, the indemnified party shall have the
option of conducting its own defense against any such claims with counsel of
such party's choice, but at the expense of the indemnifying party, as aforesaid.
This indemnification shall include all reasonable attorneys' fees and expenses
and court costs reasonably incurred by the indemnified party in connection with
the defense against any such claims and the enforcement of this indemnification
agreement and shall survive the termination of this Lease.
24.2. NO JOINT VENTURE OR PARTNERSHIP. Neither anything contained in
any of the Lease Documents, nor the acts of the parties hereto, shall create, or
be construed to create, a partnership or joint venture between Lessor and
Lessee. Lessee is not the agent or representative of Lessor and nothing
contained herein or in any of the other Lease Documents shall make, or be
construed to make, Lessor liable to any Person for goods delivered to Lessee,
services performed with respect to the Leased Property at the direction of
Lessee or for debts or claims accruing against Lessee.
24.3 AMENDMENTS, WAIVERS AND MODIFICATIONS. None of the terms,
covenants, conditions, warranties or representations contained in this Lease or
in any of the other Lease Documents may be renewed, replaced, amended, modified,
extended, substituted, revised, waived, consolidated or terminated except by an
agreement in writing signed by all parties to this Lease or the other Lease
Documents, as the case may be, in the case of any renewal, replacement,
amendment, modification, extension, substitution, revisions, consolidation or
termination and by the Person against whom enforcement is sought in the case of
a waiver or except as otherwise expressly provided for herein or in any other
Lease Document. The provisions of this Lease and the other Lease Documents
shall extend and be applicable to all renewals, replacements, amendments,
extensions, substitutions, revisions, consolidations and modifications of any of
the Lease Documents, the Management Agreements, the Related Party Agreements,
the Permits and/or the Contracts. References herein and in the other Lease
Documents to any of the Lease Documents, the Management Agreements, the Related
Party Agreements, the Permits and/or the Contracts shall be deemed to include
any renewals, replacements, amendments, extensions, substitutions, revisions,
consolidations or modifications thereof.
Notwithstanding the foregoing, any reference contained in any of the Lease
Documents, whether express or implied, to any renewal, replacement, amendment,
extension, substitution, revisions, consolidation or modification of any of the
Lease Documents or any Management Agreement, Related Party Agreement,
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Permit and/or the Contract is not intended to constitute an agreement or consent
by Lessor to any such renewal, replacement, amendment, substitution, revision,
consolidation or modification; but, rather as a reference only to those
instances where Lessor may give, agree or consent to any such renewal,
replacement, amendment, extension, substitution, revision, consolidation or
modification as the same may be required pursuant to the terms, covenants and
conditions of any of the Lease Documents.
24.4 CAPTIONS AND HEADINGS. The captions and headings set forth in
this Lease and each of the other Lease Documents are included for convenience
and reference only, and the words contained therein shall in no way be held or
deemed to define, limit, describe, explain, modify, amplify or add to the
interpretation, construction or meaning of, or the scope or intent of, this
Lease, any of the other Lease Documents or any parts hereof or thereof.
24.5 TIME IS OF THE ESSENCE. Time is of essence of each and every
term, condition, covenant and warranty set forth herein and in the other Lease
Documents.
24.6 COUNTERPARTS. This Lease and the other Lease Documents may be
executed in one or more counterparts, each of which taken together shall
constitute an original and all of which shall constitute one in the same
instrument.
24.7 ENTIRE AGREEMENT. This Lease and the other Lease Documents set
forth the entire agreement of the parties with respect to the subject matter and
shall supersede in all respect the letter of intent, dated January 31, 1996 (and
all prior iterations thereof), from Meditrust to Lessee.
24.8 WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, LESSOR AND LESSEE HEREBY MUTUALLY, KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT WHICH ANY PARTY HERETO MAY NOW OR HEREAFTER HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THE LEASE OR ANY OF THE LEASE DOCUMENTS. Lessee hereby certifies
that neither Lessor nor any of Lessor's representatives, agents or counsel has
represented expressly or otherwise that Lessor would not, in the event of any
such suit, action or proceeding seek to enforce this waiver to the right of
trial by jury and acknowledges that Lessor has been induced by this waiver
(among other things) to enter into the transactions evidenced by this Lease and
the other Lease Documents and further acknowledges that Lessee (a) has read the
provisions of this Lease, and in particular, the paragraph containing this
waiver, (b) has consulted legal counsel, (c) understands the rights that it is
granting in this Lease and the rights that it waiving in this paragraph in
particular and (d) makes the waivers set forth herein knowingly, voluntarily and
intentionally.
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24.9 SUCCESSORS AND ASSIGNS. This Lease and the other Lease Documents
shall be binding upon and inure to the benefit of (A) Lessee and Lessee's legal
representatives and permitted successors and assigns and (B) Lessor and any
other Person who may now or hereafter hold the interest of Lessor under this
Lease and their respective successors and assigns.
24.10 NO THIRD PARTY BENEFICIARIES. This Lease and the other Lease
Documents are solely for the benefit of Lessor, its successors, assigns and
participants (if any), the Meditrust Entities, Lessee, the Guarantor, the other
members of the Leasing Group and their respective permitted successors and
assigns, and, except as otherwise expressly set forth in any of the Lease
Documents, nothing contained therein shall confer upon any Person other than
such parties any right to insist upon or to enforce the performance or
observance of any of the obligations contained therein. All conditions to the
obligations of Lessor to advance or make available proceeds of insurance or
Awards, or to release any deposits held for Impositions or insurance premiums
are imposed solely and exclusively for the benefit of Lessor, its successors and
assigns. No other Person shall have standing to require satisfaction of such
conditions in accordance with their terms, and no other Person shall, under any
circumstances, be a beneficiary of such conditions, any or all of which may be
freely waived in whole or in part by Lessor at any time, if, in Lessor's sole
and absolute discretion, Lessor deems it advisable or desirable to do so.
24.11 GOVERNING LAW. This Lease shall be construed and the rights and
obligations of Lessor and Lessee shall be determined in accordance with the laws
of the State.
Lessee hereby consents to personal jurisdiction in the courts of the State
and the United States District Court for the District in which the Leased
Property is situated as well as to the jurisdiction of all courts from which an
appeal may be taken from the aforesaid courts, for the purpose of any suit,
action or other proceeding arising out of or with respect to any of the Lease
Documents, the negotiation and/or consummation of the transactions evidenced by
the Lease Documents, the Lessor's relationship of any member of the Leasing
Group in connection with the transactions evidenced by the Lease Documents
and/or the performance of any obligation or the exercise of any remedy under any
of the Lease Documents and expressly waives any and all objections Lessee may
have as to venue in any of such courts.
24.12 GENERAL. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease or any of the other Lease
Documents shall survive such termination.
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If any provision of this Lease or any of the other Lease Documents or any
application thereof shall be invalid or unenforceable, the remainder of this
Lease or the other applicable Lease Document, as the case may be, and any other
application of such term or provision shall not be affected thereby.
Notwithstanding the foregoing, it is the intention of the parties hereto that if
any provision of any of this Lease is capable of two (2) constructions, one of
which would render the provision void and the other of which would render the
provision valid, then such provision shall be construed in accordance with the
construction which renders such provision valid.
If any late charges provided for in any provision of this Lease or any of
the other Lease Documents are based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges shall be fixed
at the maximum permissible rate.
Lessee waives all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and notices
of acceptance and waives all notices of the existence, creation, or incurring of
new or additional obligations, except as to all of the foregoing as expressly
provided for herein.
ARTICLE 25
SUBSTITUTION OF PROPERTY
25.1 SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY . Provided that
no Event of Default has occurred under this Lease (excluding any Event of
Default which has been waived, in writing, by the Lessor), nor any event which,
with the giving of notice or the passage of time or both, would constitute such
an Event of Default, Lessee shall have the right from time to time (referred to
herein as the "Substitution Right"), exercisable upon not less than ninety (90)
days' prior written notice to Lessor (referred to herein as a "Substitution
Notice") to substitute, on a date specified in such Substitution Notice (such
date, as the same may be extended by express written agreement of lessor, shall
be referred to herein as a "Substitution Date"), the Leased Property with a
Comparable Facility. As used herein, the term "Comparable Facility" shall be
defined as a health care facility or facilities which Lessor determines (a) has
an appraised Fair Market Value greater than or equal to-the greater of (i) the
appraised Fair Market Value of the Leased Property at the Commencement Date or
(ii) the appraised Fair Market Value of the Leased Property at the time that the
applicable Substitution Notice is furnished to Lessor (based on appraisal
criteria then in effect), (b) has a Facility Debt Coverage Ratio greater than or
equal to the greater of (i) the Facility Debt Coverage Ratio of the Leased
Property as of the
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second anniversary of the Commencement Date (ii) the Facility Debt Coverage
Ratio of the Leased Property at the time that the applicable Substitution Notice
is furnished to Lessor, (c) provides a mix of services similar to the Leased
Property and (d) is otherwise reasonably acceptable, in all respects, to Lessor
(based on Lessor's usual and customary property evaluation criteria then in
effect). Lessee may not exercise its Substitution Right more than once in any
calendar year.
25.2 CONDITIONS TO SUBSTITUTION. Without limiting the foregoing, as
conditions precedent to the consummation of any proposed substitution:
(a) as of the applicable Substitution Date, no Event of Default shall have
occurred under the Lease (excluding any Event of Default which has been waived,
in writing, by Lessor), nor any event which with the giving of notice or the
passage of time or both would constitute such an Event of Default;
(b) Lessor shall have received engineering and inspection reports relating
to the assisted living facility identified by Lessee in the applicable
Substitution Notice (referred to herein as a "Proposed Facility"), reasonably
satisfactory in all respects to Lessor;
(c) Lessee shall have delivered to Lessor (i) an MAI appraisal of the
Proposed Facility (prepared by an appraiser selected by Lessee and approved by
Lessor), in form and substance reasonably satisfactory to Lessor and (ii) an
instrument survey of the premises upon which the Proposed Facility is located
acceptable to Lessor and the title insurance company providing insurance with
respect to the Proposed Facility;
(d) Lessor shall be satisfied as to compliance of Lessee, the Proposed
Facility, the owner of the Proposed Facility (to the extent such owner is not
Lessee as provided in subsection (l) below) and/or the proposed substitution, as
the case may be, with (i) all applicable land use, zoning, subdivision and
environmental laws and regulations, (ii) all applicable assisted living
licensure laws and regulations and (iii) such other matters as Lessor reasonably
deems relevant (including, without limitation, whether the conveyance of the
property to Lessor in connection with the proposed substitution may be avoided
under the Bankruptcy Code);
(e) Lessee shall have delivered to Lessor a valid and binding owner's or
lessee's (as applicable) title insurance commitment issued by a title insurer
reasonably acceptable to Lessor (the "Title Company"), in an amount equal to the
Fair Market Value of the Proposed Facility, with such endorsements and
affirmative coverages, and in such form, as Lessor may reasonably require
insuring Lessor's fee title or leasehold title to the
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Proposed Facility, subject to no Liens except those approved or assumed by
Lessor and arrangements satisfactory to Lessor shall have been made for the
issuance of a title insurance policy on the Substitution Date in accordance with
such title insurance commitment;
(f) Lessee shall have delivered an environmental site assessment report
relating to the Proposed Facility, in form and substance reasonably acceptable
to Lessor and prepared by an environmental consultant reasonably acceptable to
Lessor;
(g) Lessor shall have obtained, at Lessee's cost, an opinion of Lessor's
counsel, in form and substance acceptable to Lessor, confirming that (i) the
substitution of the Proposed Facility for the Leased Property will qualify as an
exchange solely of property of a like-kind under Section 1031 of the Code, in
which, generally, except for "boot" such as cash needed to equalize exchange
values or discharge indebtedness, no gain or loss is recognized to Lessor, (ii)
the substitution or sale will not result in ordinary recapture income to Lessor
pursuant to Code Section 1250(d)(4) or any other Code provision, (iii) the
substitution or sale will result in income, if any, to Lessor of a type
described in Code Section 856(c)(2) or 13) and will not result in income of the
types described in Code Section 856(c)(4) or result in the tax imposed under
Code Section 857(b)(6) and (iv) the substitution or sale, together with all
other substitutions and sales made or requested by Lessee or any Affiliate of
Lessee or of any Guarantor pursuant to any other leases with Lessor (or any of
its Affiliates) or any other transfers of the Leased Property or the properties
leased under other such leases, during the relevant time period, will not
jeopardize the qualification of Lessor as a real estate investment trust under
Code Sections 856-860;
(h) Lessor shall have received opinions of Lessee's counsel as to (i) the
compliance of the Proposed Facility with land use, zoning, subdivision and
environmental laws and regulations, (ii) the compliance of Lessee, the owner of
the Proposed Facility (to the extent such owner is not Lessee as provided in
subsection (l) below), the proposed substitution and the Proposed Facility with
applicable assisted living laws and regulations, (iii) the due authorization,
execution and enforceability of the Substitution Documents and (iv) such other
matters as are reasonably requested; in form and substance reasonably acceptable
to Lessor;
(i) Lessee and each Guarantor shall have executed and delivered, or caused
to be executed and delivered, such documents as are reasonably required by
Lessor to effectuate the substitution (collectively, the "Substitution
Documents" including, without limitation, (i) a deed with full warranties or
assignment of a leasehold estate with full warranties (as applicable) conveying
to Lessor title to the Proposed Facility
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free and clear of all Liens, except those approved or assumed by Lessor, (ii) a
facility lease (the "Substitution Lease") duly executed, acknowledged and
delivered by Lessee, containing the same terms and conditions as are contained
herein except that (1) the legal description of the land shall refer to the
Proposed Facility, (2) the Minimum Repurchase Price of the Proposed Facility
shall be an amount equal to the Minimum Repurchase Price of the Leased Property
increased by any Cash Adjustment paid by Lessor, (3) the Rent under the
Substitution Lease in all respects shall provide Lessor with a substantially
equivalent yield at the time of the substitution (i.e., annual return on its
equity in such Proposed Facility) to that received (and reasonably expected to
be received thereafter) from the Leased Property, taking into account the Cash
Adjustment, if any, paid by Lessor and any other relevant factors and (4) such
other changes therein as may be necessary or appropriate under the circumstances
shall be made; (iii) a collateral assignment of permits, licenses, approvals and
contracts relating to the Proposed Facility, substantially in the form of the
Permits Assignment; (iv) UCC financing statements; (v) a guaranty substantially
in the form of the Guaranty of Lease Obligations shall be executed by Guarantor,
(vi) an affiliated party subordination agreement, substantially in the form of
the Affiliated Party Subordination Agreement, shall be executed by the Lessee,
and such other Affiliates of the Lessee as are deemed necessary or appropriate
by the Lessor and (vii) the Agreement Regarding Related Transactions shall be
amended to reflect the substitution of the Proposed Facility. The Substitution
Documents shall be based upon and contain the same terms and conditions as are
set forth in Lessee Documents in effect prior to the substitution, except that
such changes shall be made as may be necessary or reasonably appropriate under
the circumstances to effectuate the substitution and secure the protection and
priority of the property and security interests conveyed and/or granted to
Lessor;
(j) without limiting any other provision contained herein, Lessee shall
have delivered to Lessor such other information and materials relating to
Lessee, the owner of the Proposed Facility (to the extent that such owner is not
Lessee as provided in subsection (l) below) and the Proposed Facility as Lessor
may reasonably request, including, without limitation, leases, receipted bills,
management agreements and other Contracts, Provider Agreements, cost reports,
Permits, evidence of legal and actual access to the Proposed Facility, evidence
of the availability and sufficiency of utilities servicing the Proposed
Facility, historical and current operating statements, detailed budgets and
financial statements and Lessor shall have found the same to be satisfactory in
all respects;
(k) Lessee or an Affiliate of Lessee shall be the licensed operator of the
Proposed Facility as of the date of the consummation of the substitution;
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(l) the Proposed Facility shall be owned or leased by Lessee or an
Affiliate of Lessee; PROVIDED, HOWEVER that in the event that the Proposed
Facility is owned by any such Affiliate, (i) said Affiliate shall execute and
deliver to Lessor such Substitution Documents as may be reasonably required by
Lessor and (ii) Lessor shall be provided with such evidence as it may require to
determine that the conveyance of the Proposed Facility (or a leasehold interest
therein) to Lessor does not constitute a fraudulent conveyance (under applicable
federal or state law);
(m) Lessee shall have delivered to Lessor an insurance certificate
evidencing compliance with all of the insurance requirements set forth in the
Substitution Documents;
(n) Lessee shall have delivered to Lessor an Officer's Certificate
certifying as of the Substitution Date that (i) the Proposed Facility has been
accepted by Lessee for all purposes of the Substitution Lease and there has
been no material damage to the improvements located on the Proposed Facility,
nor is any condemnation or eminent domain proceeding pending with respect
thereto; (ii) all Permits (including, but not limited to, a permanent,
unconditional certificate of occupancy and all certificates of need, licenses
and Provider Agreements) which are necessary to permit the use of the Proposed
Facility in accordance with the provisions of the Substitution Lease have been
obtained and are in full force and effect; (iii) under applicable zoning and
use laws, ordinances, rules and regulations, the Proposed Facility may be used
for the purposes contemplated by Substitution Documents and all necessary
subdivision approvals have been obtained; (iv) to the best knowledge of
Lessee, there exists no Event of Default under this Lease, and no defense,
offset or claim exists with respect to any sums to be paid by Lessee
hereunder, and (v) any exceptions to Lessor's title to the Proposed Facility
do not materially interfere with the intended use of the Proposed Facility by
Lessee;
(o) Lessor shall have determined that the Proposed Facility constitutes a
Comparable Facility, and
(p) Lessor shall have received all Rent due and payable hereunder through
the Substitution Date.
In the event that the equity value of the Proposed Facility (i.e., the Fair
Market Value of the Proposed Facility minus the Liens to which Lessor will take
the Proposed Facility subject) as of the Substitution Date is greater than the
equity value of the Leased Property (i.e., the Fair Market Value of the Leased
Property MINUS the Liens to which Lessee will take the Leased Property subject
other than those Liens which Lessee is obligated to pay or discharge pursuant to
the terms of this Lease) as of the Substitution Date, subject to the limitation
set forth below,
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Lessor shall pay an amount equal to the difference to Lessee; PROVIDED, HOWEVER,
that Lessor shall not be obligated to consulate such substitution if Lessor
would be required to make a payment to Lessee of an amount equal to or in excess
of fifteen percent (15%) of said Fair Market Value of the Leased Property (the
amount of cash paid by Lessor to Lessee being referred to herein as the "Cash
Adjustment"). Without limiting the generality or effect of the preceding
sentence, in the event that, on the Substitution Date, Lessor is obligated to
pay a Cash Adjustment to Lessee and Lessor does not have sufficient funds
available, or elects not to make such payment in cash, Lessor shall provide
Lessee with (and Lessee shall accept) a purchase money note and mortgage for a
term not to exceed eighteen (18) months from the Substitution Date and bearing
interest, payable monthly, at the rate described in Section 10.2.
25.3 CONVEYANCE TO LESSEE. If the Lessor shall have determined that
the Proposed Facility constitutes a Comparable Facility, on the Substitution
Date, after the consummation of a substitution in accordance with the terms
hereof, Lessor will convey the Leased Property to Lessee in accordance with the
provisions of Article 18 (except as to payment of any expenses in connection
therewith which shall be governed by Section 22.4 below) and this Lease shall
thereupon terminate as to the Leased Property. Upon completion of the purchase
of the Leased Property, no Rent shall thereafter accrue with respect thereto.
25.4 EXPENSES. Whether or not any proposed substitution is
consummated, Lessee shall pay all of the out-of-pocket expenses and other costs
incurred or expended by Lessor in connection with any proposed substitution
(collectively referred to herein as "Substitution Closing Costs"), including,,
without limitation, reasonable attorneys' fees and expenses, engineering costs,
consultants' fees, appraisal costs, audit and tax review costs, out-of-pocket
travel expenses, inspection fees, title insurance premiums and other title fees,
survey expenses, mortgage taxes, transfer, documentary stamp and other taxes,
search charges of any nature, recording, registration and filing costs, broker's
fees and commissions, if any, escrow fees, fees and expenses, if any, incurred
in qualifying Lessor and maintaining its right to do business in the state where
the Proposed Facility is located, the cost of obtaining, preparing and recording
a release of the Leased Property from the lien of any Fee Mortgage on the
Facility (other than the amount necessary to payoff such Fee Mortgage) and any
other costs expended or incurred by Lessor in connection with the preparation
for and the documentation and/or the closing of the proposed substitution. The
Substitution Closing Costs shall be a demand obligation of Lessee to Lessor and,
if not paid within ten (10) days after demand, shall thereafter (to the extent
permitted by applicable law) bear interest at the Overdue Rate until the date of
payment.
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IN WITNESS WHEREOF, the parties have caused this Lease to be executed and
attested by their respective officers thereunto duly authorized.
WITNESS: LESSEE:
EMERITUS PROPERTIES I, INC., a
Washington corporation
/s/ Melissa L. Day By: /s/ Raymond R. Brandstrom
- ----------------------------- ------------------------------------
Name: Melissa L. Day Name: Raymond R. Brandstrom
Title: President
WITNESS: LESSOR:
MEDITRUST ACQUISITION CORPORATION
I, a Massachusetts corporation
/s/ Maureen McConville By: /s/ Michael S. Benjamin
- --------------------------------- ------------------------------------
Maureen McConville Name: Michael S. Benjamin, Esq.
Title: Senior Vice President
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PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (the "Agreement") is dated, for
reference purposes only, as of the 24th day of January, 1996, and is by and
between WESTERN BIOLOGICS INC., a California corporation ("Western"), and
NANCY F. FEINSTEIN, and JAY L. FEINSTEIN (collectively, "Feinsteins"), and
EMERITUS CORPORATION, a Washington corporation ("Purchaser"). Western is the
owner of the business enterprise operated from the "Facility" (as that term
is defined below) as well as all "Personal Property" (as that term is defined
below) used in connection therewith. Western is a corporation wholly owned
by Nancy F. Feinstein. The Feinsteins are the fee title owners of the "Real
Property" and the "Facility" (as such terms are defined below). Western and
the Feinsteins are collectively referred to herein as "Seller".
1. PURCHASE AND SALE
On the terms and conditions set forth herein, Seller agrees to sell to
Purchaser and Purchaser agrees to purchase from Seller, the following:
a. The real property situated in the City of San Bernardino, State
of California, which is more particularly described in Exhibit A attached
hereto (the "Real Property"), together with all of the improvements on the
Real Property, including that certain 72 unit congregate care retirement
facility commonly known as the "Golden Park Retirement Apartments" (the
"Facility").
b. All equipment, furniture, fixtures, inventory, vehicles,
supplies (including linens, dietary supplies and housekeeping supplies) and
other tangible and intangible personal property owned by Seller and located
on the Real Property or used in connection with the operation of the
Facility, including but not limited to, all licenses, permits and approvals
for the operation of the Facility, all entitlements, telephone numbers, any
right, title or interest which Seller may have in and to any service marks,
trademarks or trade names owned, used or employed by Seller in conjunction
with the operation of the Facility, specifically including the names "Golden
Park" and "Golden Park Retirement Apartments" and any trade marks related
thereto and goodwill associated therewith, but specifically excluding cash,
cash equivalents and accounts receivable for the period prior to the Closing
Date (as defined below) (collectively, the "Personal Property"), which
Personal Property is more particularly described in Exhibit B.
The Real Property, Facility, and Personal Property are sometimes hereinafter
collectively referred to as "Seller's Assets."
2. PURCHASE PRICE
The purchase price payable by Purchaser to Seller for Seller's Assets
shall be Two Million One Hundred Thousand and no/100 Dollars ($2,100,000)
(the "Purchase Price"), payable as follows:
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a. Twenty-Five Thousand and no/100 Dollars ($25,000) upon execution of
this Agreement (the "Earnest Money"), which Earnest Money shall be delivered
to Commonwealth Title Company (the "Escrow Agent") and shall be deposited
into an interest bearing account, with any interest earned thereon accruing
to the benefit of Purchaser;
b. Approximately One Million Five Hundred Four Thousand Dollars
($1,504,000.00) shall be paid by Purchaser's assumption of the outstanding
principal balance as of the Closing Date (as that term is defined below) of
that certain loan to Seller (the "Existing Loan") originally made by Encino
Savings Bank, a California corporation, and currently held by Liberty Lending
Services, Inc. (the "Existing Lender"), the repayment of which is secured by
that certain Deed of Trust dated July 21, 1992, recorded July 24, 1992, as
Instrument No. 92-308979 in the Official Records of San Bernardino County,
California encumbering the Real Property (the "Existing Deed of Trust");
c. The balance of the Purchase Price, which amount shall be equal to the
Purchase Price less the sum of (i) the amount of the Earnest Money and (ii)
the outstanding principal balance as of the Closing Date of the Existing
Loan, shall be due and payable either in cash, by certified check or by wire
transfer at Closing (the "Remaining Balance").
d. The Purchase Price shall be allocated among Seller's Assets in the
manner set forth in Exhibit C attached hereto.
Except as specifically provided in this Agreement, Purchaser does not
hereby or in connection herewith assume any liability of Seller whatsoever in
relation to Seller's Assets which relates to the period prior to Closing.
3. CLOSING
The closing for the purchase and sale of the Seller's Assets under this
Agreement (the "Closing") shall take place not later than forty-five (45)
days following the expiration of the "Feasibility Period" (as that term is
defined below) (provided all of the conditions to closing set forth in
Paragraphs 13 and 14 have been satisfied or waived) (the "Closing Date").
Closing shall occur at the offices of Escrow Agent or at such other place as
Purchaser and Seller may mutually agree. Time is of the essence hereto.
4. CONVEYANCE
Conveyance of the Seller's Assets to Purchaser shall be effected by a
grant deed and bill of sale in form and substance reasonably acceptable to
Purchaser. Fee simple insurable title to the Real Property and marketable
title to the Personal Property shall be conveyed from Seller to Purchaser
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free and clear of all liens, charges, easements and encumbrances of any kind,
other than the following:
a. Liens for real estate taxes not yet due and payable;
b. The lien of the Existing Deed of Trust;
c. Such items of record as described in the Title Report (as defined
below) which are not objected to by Purchaser in accordance with the terms of
Paragraph 13.f.
5. COSTS, PRORATIONS AND ADJUSTMENTS
The costs of the transaction and the expenses related to the ownership
and operation of the Seller's Assets shall be allocated among Seller and
Purchaser as follows:
a. Seller shall pay any State and County transfer, documentary and/or
excise taxes due on the sale of the Real Property and the Facility.
b. Seller shall pay any sales tax due on the sale of the Personal
Property.
c. Seller shall pay the cost for a CLTA owner's standard policy of title
insurance for coverage in the amount of the purchase price and, Purchaser
shall be responsible for the additional premium in order to obtain an owner's
ALTA extended coverage policy of title insurance.
d. Seller shall pay for the cost of an ALTA survey as required hereunder
to be delivered by Seller to Purchaser.
e. Seller shall pay for the cost of the Environmental Report (as defined
below) which Seller is required to deliver to Purchaser pursuant to Paragraph
10.a.(xvi) below.
f. All revenues (including but not limited to rent due from the tenants
of the Facility) and expenses (excluding all payroll and employee benefits
which have accrued through the Closing Date which shall be handled as
provided for in Paragraph 18 below) related to the ownership or operation of
the Seller's Assets shall be prorated as of the Closing Date, with Seller
responsible for amounts attributable to the period prior to the Closing Date
and with Purchaser responsible for amounts attributable to the period from
and after the Closing Date.
g. Real and Personal Property taxes and assessments shall be prorated as
of the Closing Date, with Seller responsible for taxes assessments
attributable to the period prior to the Closing Date and with Purchaser
responsible for taxes and assessments attributable to the period from and
after the Closing Date.
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h. Seller shall arrange for a final statement with respect to all
utilities serving the Real Property and the Facility as of the Closing Date
and shall pay all fees identified thereon and Purchaser shall arrange for all
such utilities to be billed in its name from and after the Closing Date and
shall pay all fees due therefor from and after the Closing Date.
i. Purchaser and Seller shall each pay their own attorney's fees.
j. Purchaser and Seller share all recording fees related to the
recording of the Grant Deed and any escrow fees on a 50-50 basis.
j. Seller shall pay the cost of obtaining and recording any releases
necessary to deliver title to the Seller's Assets in accordance with the
terms of this Agreement.
k. Purchaser shall pay all costs, expenses and fees which may be
assessed by any governmental authority in connection with Purchaser obtaining
any governmental approval or consent which may be required of Purchaser in
order to consummate the purchase and sale of Seller's Assets and the transfer
of operations of the Facility, excluding, however, any costs, expenses or
fees which may be assessed by any governmental authority in connection with
Seller's compliance with applicable law in the operation of the Facility
prior to the Closing Date.
6. POSSESSION
At Closing, Purchaser shall be entitled to possession of the Seller's
Assets, subject only to the rights of the tenants of the Facility under the
Facility Leases (as defined below).
7. SELLER'S REPRESENTATIONS AND WARRANTIES
Seller hereby warrants and represents to Purchaser that:
a. SELLER'S AUTHORITY. Seller has full power and authority to
execute and deliver this Agreement and all related documents, and to carry
out the transactions contemplated herein. This Agreement is valid, binding
and enforceable against Seller in accordance with its terms, except as such
enforceability may be limited by creditors' rights, laws and applicable
principles of equity. The execution of this Agreement and the consummation
of the transaction contemplated herein do not result in a breach of the terms
and conditions of nor constitute a default under or violation of, any law,
regulation, court order, mortgage, note, bond, indenture, agreement, license
or other instrument or obligation to which Seller is now a party or by which
Seller or any of the assets of Seller may be bound or affected.
b. TITLE. Seller has good and insurable fee simple title to the Real
Property and the Facility, subject only to the easements, reservations and
encumbrances, if any, permitted under Paragraph 4, and good and marketable
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title to the Personal Property free and clear of all leases, liens and
encumbrances. The Personal Property includes all of the furniture, fixtures
and equipment
necessary to operate the Facility at full capacity and all of such Personal
Property is, and at Closing will be, in good condition and repair, ordinary
wear and tear excepted.
c. THE REAL PROPERTY. The Facility is located on that certain parcel of
land more particularly described in Exhibit A attached hereto. The roof of
the Facility is and, as of the Closing Date, will be, in good and workable
condition and repair and does not leak (and shall not leak as of the
Closing Date) and all major mechanical systems at the Facility, including,
but not limited to, the air conditioning, electrical and heating and
ventilating systems are and, at Closing, shall be, in good and workable
condition and repair.
e. NECESSARY ACTION. Seller will proceed with all due diligence to take
all action and obtain all consents prior to Closing necessary for it to lawfully
enter into and carry out the terms of this Agreement.
f. TAXES AND TAX RETURNS. All tax returns, reports and filings of any
kind or nature required to be filed by Seller prior to Closing with respect
to its ownership and operation of the Facility and its ownership of the Real
Property and the Personal Property have been properly completed and timely
filed in material compliance with all applicable requirements and all taxes
or other obligations which are due and payable by Seller have been timely
paid.
g. LITIGATION. Except as provided in Exhibit D, there is no litigation,
investigation, or other proceeding pending or, to the best of Seller's
knowledge, threatened against or relating to Seller, its properties or
business, which is material to any of Seller's Assets or to this Agreement,
or which would prevent Seller from performing its obligations hereunder, and
the transaction contemplated herein has not been challenged by any
governmental agency or any other person, nor does Seller know or have
reasonable grounds to know, of any basis for any such litigation,
investigation or other proceeding.
h. BOOKS AND RECORDS. All of the books and records maintained by Seller
with respect to its ownership and/or operation of the Seller's Assets are
true, accurate and correct in all material respects.
i. THE FACILITY LEASES. Attached hereto as Exhibit E is a true and
correct copy of the form of lease utilized by Seller for the leasing of units
at the Facility. Prior to or concurrently with the execution of this
Agreement, Seller has provided to Purchaser copies of each of the leases with
the tenants of the Facility which are currently in effect (collectively the
"Facility Leases"). Each of the Facility Leases is in full force and effect
and none of the Facility Leases have been modified or amended except as set
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forth in any amendment provided to Purchaser. Seller is not in default of
any of its obligations under the Facility Leases nor is Seller aware of any
default or any action which, with the passage of time or the giving of notice
or both, would constitute a default under the Facility Leases by any of the
tenants who are parties thereto. At Closing, Seller shall deliver to
Purchaser duly executed assignments of the Facility Leases.
j. RENT ROLL. Attached hereto as Exhibit F is a true and correct rent
roll as of January 1, 1996, which identifies each of the tenants of the
Facility, the monthly rent currently being paid by each such tenant and the
date to which said rent has been paid and, in the event of any rent
delinquencies, an explanation of the reason therefor and the efforts being
undertaken by Seller to collect said rent. Seller shall update the rent roll
on a monthly basis between the date hereof and the Closing Date.
k. LIENS. There are no mechanics', materialmen's or similar claims or
liens presently claimed or, to the best of Seller's knowledge, which will be
claimed against the Seller's Assets for work performed or commenced prior to
the date hereof at the request of Seller or of which Seller has knowledge,
Seller having made or caused to be made arrangements for payment of all
those improvements now under construction or development.
l. ENVIRONMENTAL MATTERS. Except in accordance with and in full
compliance with, any and all applicable governmental laws, regulations and
requirements (collectively, the "Environmental Laws") relating to
environmental and occupational health and safety matters and hazardous
materials, substances or wastes (as defined from time to time under any
applicable federal, state or local laws, regulations or ordinances), Seller
has not released into the environment or discharged, placed or disposed of
any such hazardous materials, substances or wastes or caused the same to be
so released into the environment or discharged, placed or disposed of at, on
or under the Seller's Assets. No hazardous materials, substances or wastes
are located on the Real Property or the Facility or have been released into
the environment or discharged, placed or disposed of in, on or under the Real
Property or the Facility; no underground storage tanks are or have been
located on the Real Property; the Real Property has never been used as a dump
for waste material; and the Real Property and the Facility and their prior
uses comply with and at all times have complied with, all Environmental Laws.
m. EMPLOYEES; UNIONS. None of Seller's employees are member of a labor
union or subject to collective bargaining agreement with respect to their
employment with Seller. Seller is not a party to any labor dispute or
grievance, except as otherwise provided in Exhibit G.
n. COMPLIANCE WITH LAW
(i) The Seller's Assets are in compliance with all currently
applicable municipal, county, state and federal laws, regulations,
ordinances, standards and orders and with all municipal, health, building
and zoning by-laws and regulations (including, without limitation, the
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building and zoning codes) where the failure to comply therewith or to
obtain a waiver therefrom could have a material adverse effect on the
business, property, condition (financial or otherwise) or operation of
the Seller's Assets;
(ii) There are no outstanding deficiencies or work orders of any
authority having jurisdiction over the Seller's Assets requiring conformity
to any applicable statute, regulation, ordinance or by-law pertaining
thereto; and
(iii) Seller is not aware of any claim, requirement or demand of
any agency supervising or having authority over the Facility to rework or
redesign it or to provide additional furniture, fixtures or equipment so
as to conform to or comply with any existing law, code or standard which
has not been fully satisfied prior to the date hereof or which will not
be satisfied prior to the Closing Date.
o. OPERATING CONTRACTS. Prior to or concurrently with the execution of
this Agreement, Seller has provided to Purchaser true and correct copies of
all operating contracts to which Seller is a party in connection with its
operation of the Facility (the "Operating Contracts"). Each of the Operating
Contracts is in full force and effect and none of the Operating Contracts
have been modified or amended except as set forth in any amendment provided
to Purchaser. Seller is not in default of any of its obligations under the
Operating Contracts nor is Seller aware of any default or any action which,
with the passage of time or the giving of notice or both would constitute a
default, under the Operating Contracts by any other party thereto. Each of
the Operating Contracts is assignable without the requirement of obtaining
the consent of the contracting party and each such contract is terminable
upon not more than 30 days notice. At Closing, Seller shall deliver to
Purchaser duly executed assignments of any of the Operating Contracts which
Purchaser elects to assume pursuant to Paragraph 11.a.(iv).
p. THE FACILITY. The Facility is a congregate care retirement facility
with a total of 72 units. The Facility is a duly and properly licensed to
operate as a congregate care facility. There is no action pending or, to the
best knowledge of Seller, recommended by any state or federal agency having
jurisdiction thereof, or any action of any other type, which would have a
material adverse effect on the Facility, its operations or business.
q. INVENTORY. All inventories of housekeeping and other supplies
located at the Facility are, and shall be at the time of Closing, in
sufficient condition and quantity as is customarily maintained in the
ordinary course of business in order to properly operate the Facility at
normal capacity.
r. DISCLOSURE. No representation or warranty by Seller contained in
this Agreement and no statement contained in any certificate, list, exhibit,
or other instrument furnished or to be furnished to Purchaser pursuant
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hereto, or in connection with the transaction contemplated hereby, contains
or will contain any untrue statement of a material fact, or omits or will
omit to state any material facts which are necessary in order to make the
statements contained herein or therein not misleading.
8. SELLER'S REPRESENTATIONS AND WARRANTIES
Purchaser hereby warrants and represents to Seller that:
a. STATUS OF PURCHASER. Purchaser is a corporation duly organized and
validly existing under the laws of the State of Washington and is, or prior
to Closing will be, duly qualified to do business in the State of California.
b. AUTHORITY. Purchaser has full power and authority to execute and to
deliver this Agreement and all related documents, and to carry out the
transactions contemplated herein. This Agreement is valid, binding and
enforceable as against Purchaser in accordance with its terms, except as such
enforceability may be limited by creditors' rights laws and applicable
principles of equity. The execution of this Agreement and the consummation
of the transaction contemplated herein do not result in a breach of the
terms and conditions of nor constitute a default under or violation of
Purchaser's Articles of Incorporation or By-laws or any law, regulations,
court order, mortgage, note, bond, indenture, agreement, license or other
instrument or obligation to which Purchaser is a party or by which Purchaser
or any of the assets or Purchaser may be bound or affected.
c. LITIGATION. To the best of Purchaser's knowledge, there is no
litigation, investigation or other proceeding pending or threatened against
or relating to Purchaser, its properties or business which is material to
this Agreement, or which would prevent Purchaser from performing its
obligations hereunder, nor does Purchaser know or have reasonable grounds to
know of any basis for any such action.
d. NECESSARY ACTION. Purchaser will proceed with all due diligence to
take all action and obtain all consents prior to Closing necessary for it to
lawfully enter into and carry out the terms of this Agreement, including, but
not limited to, obtaining the consent of its Board of Directors.
e. DISCLOSURE. No representation or warranty by Purchaser contained in
this Agreement and no statement contained in any certificate, list, exhibit,
or other instrument furnished or to be furnished to Seller pursuant hereto,
or in connection with the transaction contemplated hereby, contains or will
contain any untrue statement of a material fact, or omits or will omit to
state any material facts which are necessary in order to make the statements
contained herein or therein not misleading.
9. BROKER
Seller hereby represents and warrants to Purchaser that the only real
estate broker involved in this transaction, including any negotiations
relating to this Agreement and any other agreements and documents
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contemplated hereby, is Marcus & Millichap (the "Broker"). Seller agrees that
any compensation due the Broker as a result of this Agreement or the Closing
is and shall be the sole and exclusive responsibility of Seller, and
Purchaser shall have no liability or responsibility therefor. Seller and
Purchaser represent and warrant to each other that they have employed no
broker and/or finder other than the Broker, whose real estate commission
shall be paid by Seller. In the event any claim, damage or cause of action
for brokerage and/or finder's fees is asserted against a party to this
Agreement who did not request such services, the party through whom the
broker and/or finder is making the claim shall indemnify, defend (with an
attorney of indemnitee's choice) and hold harmless the other party from and
against any and all such claims, demands and causes of action.
10. SELLER'S COVENANTS
a. PRE-CLOSING. Between the date hereof and the Closing Date, except as
contemplated by this Agreement or with the consent of Purchaser:
(i) Other than as set forth in Paragraph 4, Seller will satisfy and
discharge all claims, liens, security interests, tenancies (other than any
Operating Contracts which Purchaser elects to assume at Closing pursuant
to the terms hereof and the Facility Leases), and encumbrances on Seller's
Assets;
(ii) Seller will file all tax returns, reports and filings of any
kind or nature required to be filed by Seller and will timely pay all
taxes or other obligations which are due and payable with respect to
Seller's Assets;
(iii) Seller will not take any action inconsistent with its
obligations under this Agreement or which could hinder or delay the
consummation of the transactions contemplated by this Agreement, and
Seller will continue until the Closing to fulfill any obligations which
it may have under the Facility Leases;
(iv) Seller will operate the Facility only in the ordinary course
and with due regard to the proper maintenance and repair of the Facility
and the Personal Property;
(v) Seller will take all reasonable action to preserve the
goodwill of the tenants of the Facility;
(vi) Seller will make no material change in the operation of the
Facility nor sell or agree to sell any of the items which comprise the
Personal Property nor otherwise enter into an agreement materially
affecting any of the Seller's Assets;
(vii) Seller will use its reasonable efforts to retain the services
and goodwill of the employees of Seller located at or connected with the
operation of the Facility;
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(viii) Seller will maintain in force the existing hazard and
liability insurance policies, or comparable coverage, for the Seller's
Assets as now in effect;
(ix) Seller will not increase the compensation or other benefits or
bonuses payable or to become payable to any of the Seller's employees
connected with the operation of the Facility, except for increases
substantially in accordance with existing employment practices disclosed
to and approved by Purchaser, if any;
(x) Seller will not enter into any contract or commitment affecting
the Seller's Assets except in the ordinary course of business and any such
contract or commitment shall be terminable upon not more than 30 days
notice and Seller will advise Purchaser of any
contracts or commitments which it enters, whether in the ordinary course
of business or otherwise;
(xi) During normal business hours, Seller will provide Purchaser
and its agents with access on 24 hours notice to the Real Property and the
Facility, provided Purchaser does not unreasonably interfere with the
operation of the Facility and at such times Seller shall permit Purchaser
to inspect the books and records related to the Facility (which may be
unaudited) covering a period of not less than three years prior to the
date hereof and conduct an audit of said books and records (which may be
conducted by Purchaser or Purchaser's representative) and inspect the
physical and structural condition of the Facility, the Real Property and
the Personal Property. Said books and records shall include, but not be
limited to, leases, accounts payable records, rent rolls, operating
statements, inventory of personal property and all other contracts and
agreements which relate to Seller's Assets;
(xii) Seller will timely pay all obligations which are due and
payable with respect to the Seller's Assets;
(xiii) Seller will cause the Facility to be operated in substantial
compliance with all applicable municipal, county, state and federal laws,
regulations, ordinances, standards and orders as now in effect (including
without limitation, the building and zoning codes as currently applied with
respect thereto) and with the Environmental Laws, where the failure to
comply therewith could have a material adverse effect on the business,
property, condition (financial or otherwise) or operation of the Facility
or on the Seller's Assets;
(xiv) Seller will take all reasonable action to achieve substantial
compliance with any laws, regulations, ordinances, standards and orders
applicable to the Seller's Assets which are enacted after execution of this
Agreement and prior to Closing;
(xv) Seller will proceed with all due diligence to secure any
consents which may be necessary for the assignment of the Facility Leases;
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(xvi) Within fifteen (15) days following the mutual execution of
this Agreement, Seller will (a) deliver to Purchaser a UCC-1 search report
at both the county and state level covering the name of Seller and the name
of the Facility, (b) arrange with Commonwealth Title Insurance Company for
the issuance and delivery to Purchaser and to Purchaser's attorney of a
title report or commitment covering the Real property, together with copies
of all exception documents referenced therein (the "Title Report"),
(c) cause a survey firm acceptable to Purchaser to prepare and deliver to
Purchaser an ALTA/ACSM Survey of the Real Property and the Facility (the
"Survey") and (d) cause an environmental engineering firm acceptable to
Purchaser to prepare and deliver to Purchaser a Phase I environmental
assessment of the Real Property and Facility (the "Environmental Report");
and
(xvii) Seller will provide Purchaser within fifteen (15) days
following the mutual execution of this Agreement with copies of the
following documents relating the Real Property and the Facility to the
extent the same are in Seller's possession or reasonable control
(collectively, the "Property Documents"): all environmental reports,
structural reports and geological reports, governmental licenses,
permits and approvals, service and maintenance contracts not previously
delivered as part of the Operating Contracts, existing surveys of the
Real Property including any as-built surveys for the improvements,
wetland reports, soils reports, architectural drawings, plans and
specifications, engineering tests and reports, and all appraisals
prepared for the Real Property and the Facility.
(xviii) Seller shall cooperate in good faith with Purchaser in
obtaining the consent of the Existing Lender to Purchaser's assumption of
the Existing Loan.
b. CLOSING. On the Closing Date, Seller agrees that it will:
(i) Execute and deliver to Purchaser a good and sufficient Grant
Deed to the Real Property (including the Facility) and Bill of Sale with
respect to the Personal Property and such endorsements, assignments and
other instruments of transfer and conveyance as shall be necessary to
transfer and assign Seller's Assets to Purchaser as herein provided;
(ii) Execute and deliver to Escrow Agent such documents and
instruments as may be reasonably requested by the Existing Lender and
reasonably approved by Purchaser, in order to provide for Purchaser's
assumption of the Existing Loan, provided that such assumption documents
do not alter or amend any of the terms and conditions set forth in the
original loan documents which were executed by Seller in connection with
the Existing Loan;
(iii) Deliver to Purchaser a certificate dated as of the Closing
Date, certifying in such detail as Purchaser may reasonably specify the
fulfillment of the conditions set forth in Paragraph(s) 13.a. and b.;
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(iv) Deliver the Seller's Assets to Purchaser in good condition and
repair, ordinary wear and tear excepted;
(v) Deliver to Purchaser a duly executed assignment of the Facility
Leases in form and substance acceptable to Purchaser (the "Facility Lease
Assignment Agreement");
(vi) Pay its share of the Closing costs, including, but not limited
to, that portion of the premium for the issuance of the Title Policy
attributable to the cost for an owner's standard policy of title insurance
and the cost of the Survey described in Paragraph 10.a.(xvi);
(vii) Deliver to Purchaser an Assignment and Assumption Agreement
in form and substance acceptable to Purchaser with respect to any of the
Operating Contracts which
Purchaser elects to assume at Closing pursuant to Paragraph 11.a.(iv)
(the "Operating Contract Assumption Agreement");
(viii) Deliver to Purchaser the Resident Deposits, or at
Purchaser's option, receive a credit against the Purchase Price in the
amount of said Resident Deposits (as defined in Paragraph 19);
(ix) Deliver to Purchaser the Benefits Schedule (as defined in
Paragraph 18) and pay to the employees all of the Accrued Employee
Benefits, all in accordance with the provisions of Paragraph 18; and
(x) Deliver evidence to Purchaser of the designation of a duly
authorized representative to act with full power and authority on behalf
of Seller with respect to any post-closing obligations imposed on Seller
hereunder.
c. POST-CLOSING. After the Closing of this Agreement, Seller agrees
that, at Purchaser's sole cost and expense, it will take such actions and
properly execute and deliver to Purchaser such further instruments of
assignment, conveyance and transfer as, in the reasonable opinion of counsel
for Purchaser and Seller, may be reasonably necessary to assure, complete and
evidence the full and effective transfer and conveyance of Seller's Assets.
11. PURCHASER'S COVENANTS
a. PRE-CLOSING. Between the date hereof and the Closing Date, except as
contemplated by this Agreement or with the consent of Seller, Purchaser
agrees that:
(i) Purchaser will not take any action inconsistent with its
obligations under this Agreement or which could hinder or delay the
consummation of the transaction contemplated by this Agreement;
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(ii) Purchaser will proceed with all due diligence to obtain
all consents and approvals necessary to permit the consummation of the
transaction contemplated by this Agreement and/or necessary to permit
Purchaser to own and to operate the Facility.
(iii) Purchaser will proceed with all due diligence to conduct such
investigations with respect to Seller's Assets as it deems to be reasonably
necessary in connection with its purchase thereof, including, but not
limited to, zoning investigations, soil studies, environmental assessments,
seismic assessments, wetlands reports, review of all Property Documents
provided by Seller, investigations of Seller's and the Facility's operating
books and records and structural inspections, provided, however, no studies
or investigations conducted at the Real Property will be physically
intrusive on the Real Property or the Facility unless Seller consents
thereto, which consent shall not be unreasonably withheld (the "Feasibility
Review"); provided, however, nothing herein shall be construed as amending
or modifying in any manner the representations or warranties of Seller set
forth in this
Agreement, which representations and warranties shall be separate from and
unaffected by Purchaser's Feasibility Review; and provided, further, that
Purchaser shall maintain the confidentiality of any documents or
information obtained by it during the course of its Feasibility Review and
shall return the same to Seller in the event the transaction provided for
herein fails close for any reason whatsoever; and
(iv) On or before the expiration of the Feasibility Period (as
that term is defined below), Purchaser will advise Seller in writing which,
if any, of the Operating Contracts it elects to assume as of the Closing
Date.
b. CLOSING. On the Closing Date, Purchaser agrees that it will:
(i) Deposit with the Escrow Agent the remaining balance of the
Purchase Price;.
(ii) Deposit with the Escrow Agent Purchaser's share of the
Closing costs as herein provided;
(iii) Deliver to Seller a certificate of a responsible officer
dated as of the Closing Date, certifying in such detail as Seller
may reasonably specify the fulfillment of the conditions set forth in
Paragraph(s) 14.a. and b.;
(iv) Provide Seller with a resolution of Purchaser's Board of
Directors, certified by the Secretary of Purchaser as being true and
correct and in full force and effect, authorizing Purchaser to enter
into this Agreement, to execute the documents described herein and to
consummate the transaction provided for herein;
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(v) Execute and deliver to Seller or to Escrow Agent a counter-part
copy of the Operating Contract Assumption Agreement, if applicable;
(vi) Execute and deliver to Seller or to Escrow Agent a
counter-part of the Facility Lease Assignment Agreement; and
(vii) Execute and deliver to Escrow Agent such documents and
instruments as may be reasonably requested by the Existing Lender and
reasonably approved by Purchaser, in order to provide for Purchaser's
assumption of the Existing Loan, provided that such assumption documents do
not alter or amend any of the terms and conditions set forth in the
original loan documents which were executed by Seller in connection with
the Existing Loan.
C. POST-CLOSING. After the Closing of this Agreement, Purchaser agrees
that it will:
(i) Upon prior reasonable notice, provide Seller with access during
normal business hours to any books or records which Seller may need to file
or to defend tax returns or other filings filed prior or subsequent to the
Closing Date which relate to periods prior to the Closing Date; and
(ii) Take such actions and property execute and deliver such
further instruments as Seller may reasonably request to assure, complete
and evidence the transaction provided for in this Agreement.
12. MUTUAL
Following the execution of this Agreement, Purchaser and Seller agree:
a. If any event should occur, either within or without the knowledge or
control of Purchaser or Seller, which would prevent fulfillment of the
conditions to the obligations of any party hereto to consummate the
transaction contemplated by this Agreement, to use its or their reasonable
efforts to cure the same as expeditiously as possible; and
b. To cooperate fully with each other in preparing, filing, prosecuting,
and taking any other actions which are or may be reasonable and necessary to
obtain the consent of any governmental instrumentality or any third party or
to accomplish the transaction contemplated by this Agreement.
13. PURCHASER'S CONDITIONS
All obligations of Purchaser under this Agreement are subject to
fulfillment of each of the following conditions, any one or all or which may
be waived in writing by Purchaser:
a. SELLER'S REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Seller's
representations and warranties contained in this Agreement or in any
certificate or document delivered in connection with this Agreement or the
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transactions contemplated herein shall be true in all material respects at
and as of the date of Closing as though such representations and warranties
were then again made.
b. SELLER'S PERFORMANCE. Seller shall have performed all of its
obligations under this Agreement that are to be performed prior to or at
Closing to the extent the same have not been waived by Purchaser in
accordance with the terms hereof.
c. APPROVALS. On or before the Closing Date, Purchaser shall have
received all consents, approvals and licenses as may be necessary for it to
own and to operate the Facility.
d. NO DEFAULTS. Seller shall not be in default, where said default
cannot be cured by Closing, under any mortgage, contract, lease or other
agreement to which Seller is a party or by which Seller is bound and which
affects or relates to the Real Property, the Personal Property or the
Facility, including, but not limited to, the Facility Leases.
e. DUE DILIGENCE REVIEW. Purchaser shall be satisfied with the results
of its Feasibility Review, including but not limited to (i) Purchaser's
approval of the physical condition of the Real Property and the structural
condition of the Facility, including the results of the Environmental Report
required hereunder to be delivered by Seller to Purchaser, (ii) Purchaser's
review and
approval of all Property Documents and (iii) Purchaser's review of the zoning
for the Real Property to confirm that the Real Property and the operation and
development of the Facility is in compliance with all applicable zoning laws.
In the event Purchaser has not advised Seller in writing on or before the
date thirty (30) days following the mutual execution of this Agreement (the
"Feasibility Period") of its objections to the results of its due diligence
investigation and its election to terminate this Agreement, this condition
shall be deemed not satisfied as of the date thereof. Nothing herein shall
be construed as amending or modifying in any manner the representations or
warranties of Seller set forth in this Agreement, which representations and
warranties shall be separate from and unaffected by Purchaser's Feasibility
Review except as to any representations or warranties which, during the
course of Purchaser's Feasibility Review, Purchaser obtains knowledge of
falsity or inaccuracy and advises Seller in writing thereof. In the event
Purchaser elects to terminate this Agreement, the parties shall have no
further rights or obligations hereunder, other than Purchaser's right to the
return of its Earnest Money and Seller's obligation to pay any title
cancellation and UCC search fees incurred as a result of such termination.
f. TITLE REVIEW. Within fifteen (15) days following receipt of the
Title Report (together with legible copies of all of the recorded documents
referenced therein as exceptions) and the Survey, Purchaser shall have
reviewed and approved or disapproved those matters reflected on the Title
Report and the Survey. In the event Purchaser objects to any such matters,
Purchaser shall advise Seller in writing of its objections within said
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fifteen (15) day period; provided, however that such objections shall not
include those items specifically excluded in Paragraph 4. Within ten (10)
days of Seller's receipt of Purchaser's objections, Seller shall advise
Purchaser in writing as to whether it intends to correct the defects to which
Purchaser has objected. If Seller fails to notify Purchaser within said ten
(10) day period or timely notifies Purchaser of its refusal to correct some
or all of such defects, Purchaser shall have ten (10) days following the
earlier of (i) the expiration of said Seller's ten (10) day response period
or (ii) the date Purchaser receives Seller's notice of refusal, to advise
Seller of its decision to close, notwithstanding the defects, or to terminate
this Agreement. In the event of any such termination, neither party shall
have any further rights or obligations hereunder, other than Seller's
obligation to return or to direct the return of Purchaser's Earnest Money.
Any matter reflected in the Title Report or the Survey not objected to in
accordance with the terms hereof shall be deemed accepted by Purchaser;
g. TITLE POLICY. The Title Insurer shall issue to Purchaser as of the
date of Closing, an ALTA Owner's extended coverage policy of title insurance
for the Real Property and the Facility (the "Title Policy") with a value of
not less than the amount of the Purchase Price insuring Purchaser's interest
in the Real Property and the Facility, and subject to no exceptions other
than those of the usual printed exceptions which are acceptable to Purchaser
(the survey, parties in possession and mechanics lien exceptions being
specifically unacceptable to Purchaser), the Existing Deed of Trust, and
those exceptions to which Purchaser has not objected as provided for in
Paragraph 13 f. above.
h. UCC SEARCH. On or before the Closing Date, Purchaser shall be
satisfied with the results of the UCC search conducted by Seller pursuant to
Paragraph 10.a.(xvi).
i. BOARD APPROVAL. On or before the expiration of the Feasibility
Period, Purchaser shall have obtained the approval of its Board of Directors
to the acquisition of the Seller's Assets pursuant to the terms of this
Agreement.
j. ASSUMPTION OF EXISTING LOAN. On or before the Closing Date,
Purchaser shall have received the written consent of the Existing Lender to
Purchaser's assumption of the Existing Loan, which consent shall not be
subject to any terms or conditions which have not been approved by Purchaser.
In the event any of the foregoing conditions are not satisfied or are
not otherwise waived by Purchaser prior to the applicable period for
satisfaction or waiver, Purchaser shall have the right to terminate this
Agreement in accordance with the provisions of Paragraph 17 and in such event
Purchaser shall receive a full refund of its Earnest Money together with
all interest earned thereon.
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14. SELLER'S CONDITIONS
All obligations of Seller under this Agreement are subject to the
fulfillment, prior to or at Closing, of each of the following conditions, any
one or all of which may be waived by Seller in writing:
a. PURCHASER'S REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING.
Purchaser's representations and warranties contained in this Agreement or in
any certificate or document delivered in connection with this Agreement or
the transactions contemplated herein shall be true in all material respects
at and as of the date of Closing as though such representations and
warranties were then again made.
b. PURCHASER'S PERFORMANCE. Purchaser shall have performed its
obligations under this Agreement that are to be performed prior to or at
Closing to the extent the same have not been waived by Seller in accordance
with the terms hereof.
15. SELLER'S INDEMNIFICATION
Seller shall indemnify, defend and hold Purchaser harmless from and
against:
a. Except as otherwise provided in this Agreement, any and all
obligations relating to the ownership of Seller's Assets and the operation of
the Facility which exist at the Closing Date, including, but not limited to
(i) any obligations under the Facility Lease or the Operating Contracts
which Purchaser elects to assume at Closing, (ii) any obligations with
respect to the Resident Deposits and (iii) any prior bankruptcy filed by
Seller or anyone else in connection with the Facility and any private
or judicial foreclosures commenced in connection with the Real Property and/or
the Facility;
b. Any and all damage, loss or liability arising from and after the
Closing Date under any of the Operating Contracts which Purchaser does not
elect to assume at Closing;
c. Any and all damage, loss, or liability resulting from any
misrepresentation of a material fact, breach of warranty or nonfulfillment of
any agreement on the part of Seller under this Agreement or from any
misrepresentation in any certificate furnished or to be furnished to Purchaser
hereunder;
d. Any and all liability or loss arising out of or relating to any
failure in connection with the transaction contemplated herein to comply with
the requirements of any laws or regulations relating to bulk sales or
transfers; and
e. Any and all actions, suits, proceedings, demands, assessments,
judgments, reasonable costs, and other reasonable expenses, including, but
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not limited to, reasonable attorney's fees, incident to any of the foregoing.
For purposes of Paragraph 15.a., an obligation shall be deemed to
"exist" as of the Closing Date if it relates to events which occurred prior
to the Closing Date even if it is not asserted until after the Closing Date.
16. PURCHASER'S INDEMNITY
Purchaser shall indemnify, defend and hold Seller harmless from and
against:
a. Except as otherwise provided in this Agreement, any and all
obligations relating to the ownership of the Seller's Assets and the operation
of the Facility from and after the Closing Date, including, but not limited
to, any obligations under any of the Facility Leases or Operating Contracts
which Purchaser elects to assume at Closing and any obligations with respect
to the Resident Deposits;
b. Any and all damage, loss or liability resulting from any
misrepresentation of a material fact, breach of warranty or nonfulfillment
of any agreement on the part of Purchaser under this Agreement or from any
misrepresentation in any certificate furnished or to be furnished to Seller
hereunder;
c. Any and all damage, loss or liability resulting from the conduct by
or the negligence or willful misconduct of Purchaser in performing its
Feasibility Review; and
d. Any and all actions, suits, proceedings, demands, assessments,
judgments, reasonable costs and other reasonable expenses, including, but not
limited to, reasonable attorney's fees, incident to any of the foregoing.
17. TERMINATION
a. This Agreement may be terminated and the transaction contemplated
herein abandoned at any time prior to Closing:
(i) By mutual agreement of the parties;
(ii) By Seller, if any of the conditions set forth in Paragraph
14 shall have become incapable of fulfillment prior to the Closing Date or
such earlier date as may be specifically provided for the performance
thereof (as the same may be extended) through no fault of Seller and the
same shall not have been waived by Seller;
(iii) By Purchaser, if any of the conditions set forth in
Paragraph 13 shall have become incapable of fulfillment prior to the
Closing Date or such earlier date as may be specifically provided for the
performance thereof (as the same may be extended) through no fault of
Purchaser and the same shall not have been waived by Purchaser;
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(iv) By either Seller or Purchaser in the event of a material
breach by the other party of its obligations hereunder; or
(v) If the Closing has not occurred by the Closing Date, unless
extended by mutual agreement of the parties.
b. In the event that prior to the Closing Date, a material portion of
the Real Property, the Facility or the Personal Property shall have been
damaged or destroyed by fire or other casualty, or shall have been taken or
condemned by any public or quasi-public authority under the power of eminent
domain, Purchaser shall have the right to terminate this Agreement on
written notice to Seller. In the event Purchaser elects not to terminate its
rights hereunder, then Seller shall assign to Purchaser all of its rights to
any insurance proceeds or condemnation award and all claims in the connection
therewith. In the event Purchaser exercises its termination rights
hereunder, the parties shall have no further rights or obligations hereunder
other than Purchaser's right to the return of its Earnest Money.
c. Neither party to this Agreement may claim termination or pursue any
other remedy referred to in Paragraph 17.a. on account of a breach of a
condition, covenant or warranty by the other, without first giving such other
party written notice of such breach and not less than ten (10) days within
which to cure such breach. The Closing Date shall be postponed, if
necessary, to afford such opportunity to cure; provided, however, in no event
shall the Closing Date be postponed beyond April 26, 1996.
d. In the event of the termination of this Agreement by Seller under
Paragraphs 17.a.(ii) or (iv) or under Paragraph 17(a)(v), and any such
termination is due to the Closing having failed to occur as a result of a
material breach by Purchaser of its obligations hereunder, Seller's sole
remedy shall be to terminate this Agreement and to receive, as full and
complete liquidated damages, the sum of (i) the Purchaser's Earnest Money and
(ii) an amount equal to the actual total costs incurred by Seller in
connection with the procurement of the Environmental Report, the preparation
of the Survey, the cancellation of the escrow established with Escrow Agent
hereunder, the cancellation of the title commitment and all reasonable fees
charged to Seller by the Existing Lender in connection with procuring the
consent of the Existing Lender to the assumption of the Existing Loan,
except that the total amount for all such costs under this item "(ii)" shall
not exceed Ten Thousand Dollars ($10,000.00) (the "Additional Liquidated
Damages"). The parties acknowledge and agree that the amount of damages which
Seller may incur as a result of such termination may be difficult to
ascertain and that the amount of the Earnest Money, together with the
Additional Liquidated Damages, is a reasonable and fair estimate thereof,
after which the parties shall have no further rights or obligations hereunder.
e. In the event of the termination of this Agreement by Purchaser under
Paragraphs 17.a.(iii), (iv) or (v) as a result of the Closing failing to
occur due to a material breach by Seller of its obligations hereunder,
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Purchaser shall have the right either to (i) terminate this Agreement and
demand the return of its Earnest Money after which neither party shall have
any further rights or obligations hereunder or (ii) seek specific performance
of Seller's obligations hereunder or damages for Seller's breach of its
obligations hereunder.
18. EMPLOYEE BENEFITS
On or before the Closing, Seller shall deliver to Purchaser a schedule
(the "Benefits Schedule") setting forth all of the earned and accrued
vacation, holiday and sick pay, and retirement and severance benefits and
earned bonuses (the "Accrued Employee Benefits") which have accrued and are
due to the employees of the Facility as of the Closing Date. At Closing,
Seller shall terminate all of the Facility employees effective as of the
Closing Date and pay to all such employees the full amount of the Accrued
Employee Benefits. Upon the request of Purchaser, Seller agrees to provide
to Purchaser written evidence that all such Accrued Employee Benefits have
been fully paid to the employees of the Facility.
19. RESIDENT SECURITY DEPOSITS
At Closing, Seller shall provide Purchaser with an accounting of all
resident security deposits being held by Seller as of the Closing Date (the
"Resident Deposits"). Such accounting shall set forth the names of the
residents or prospective residents for whom such funds are held, the amounts
held on behalf of each resident or prospective resident and the Seller's
warranty that the accounting is true, correct and complete.
20. TRANSFER OF RESIDENT SECURITY DEPOSITS
On the Closing Date, Seller shall do either of the following, the
election of which shall be made by Purchaser: (i) transfer the Resident
Deposits to the bank account designated by the Purchaser or (ii) grant to
Purchaser a credit in the amount of said Resident Deposits against the
payment of the remaining balance due on the Purchase Price. In either event,
Purchaser shall in writing acknowledge receipt of and expressly assume all
Seller's financial and custodial obligations with respect thereto, it being
the intent and purpose of this provision that, at Closing, Seller will be
relieved of all fiduciary and custodial obligations with respect to said
Resident Deposits, and that Purchaser will assume all such obligations and be
directly accountable to the residents and prospective residents of the
Facility, with respect thereto. Following the Closing, Purchaser shall
be responsible for notifying each of the residents of the Facility of the
Closing hereunder and the transfer of the Resident Deposits to Purchaser,
which notice shall include the name, address and telephone number of
Purchaser, all in accordance with applicable California law.
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21. INDEMNITY FOR RESIDENT SECURITY DEPOSITS
Notwithstanding the foregoing, Seller will indemnify and hold Purchaser
harmless from all liabilities, claims and demands in the event the amount of
the Resident Deposits transferred to the Purchaser's bank account or the
credit for said Resident Deposits which has been applied against the Purchase
Price, as provided in Paragraph 20, did not represent the full amount of
such Resident Deposits then or thereafter shown to have been delivered to
Seller by the current residents or prospective residents of the Facility.
22. NOTICES
Any notice, request or other communication to be given by any party
hereunder shall be in writing and shall be sent by registered or certified
mail, postage prepaid, by overnight courier guaranteeing overnight delivery
or by facsimile transmission (if confirmed verbally or in writing by mail as
aforesaid), to the following address:
To Seller: Ms. Nancy F. Feinstein and
Western Biologics Inc.
7665 East Silver Dollar Lane
Anaheim, California 92808
Telephone No.: (714) 637-0037
Facsimile No.: (714) 637-3626
Mr. Jay Feinstein
c/o Environmental Refrigeration, Inc.
14175 Telephone Avenue, Suite A
Chino, California 91710
Telephone No.: (909) 591-0859
Facsimile No.: (909) 591-0850
To Purchaser: Emeritus Corporation
Market One
2001 Western Avenue, Suite 669
Seattle, WA 98121
Telephone No.: (206) 443-4313
Facsimile No.: (206) 443-5432
With a copy to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, Washington 98121
Attention: V. Anthony Unan, Esq.
Telephone No.: (206) 623-6239
Facsimile No.: (206) 623-1738
Notice shall be deemed given three (3) business days after deposit in
the mail, on the next day if sent by overnight courier and on receipt if
sent by facsimile (and confirmed verbally or by mail as aforesaid).
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23. SOLE AGREEMENT
This Agreement may not be amended or modified in any respect whatsoever
except by instrument in writing signed by the parties hereto. This Agreement
constitutes the entire agreement between the parties hereto and supersedes
all prior negotiations, discussions, writings and agreements between them.
24. SUCCESSORS
The terms of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by and against the heirs and successors of the
parties hereto, it being specifically understood and agreed that Purchaser
shall have the right to assign in whole or in part its rights and obligations
hereunder to any affiliated entity or any entity which is sponsored by
Purchaser; provided no such assignment shall relieve Purchaser of its
obligations hereunder.
25. CAPTIONS
The captions of this Agreement are for convenience of reference only and
shall not define or limit any of the terms or provisions hereof.
26. SURVIVAL
All covenants, warranties and representations of Purchaser and Seller
herein shall survive for two years after Closing other than Seller's
representation and warranty in Paragraph 7.1., which shall survive for the
applicable statute of limitations period.
27. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of California.
28. SEVERABILITY
Should any one or more of the provisions of this Agreement be determined
to be invalid, unlawful or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions hereof shall not in
any way be affected or impaired thereby.
29. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be an original; but such counterparts shall together constitute
but one and the same instrument.
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30. THIRD PARTY BENEFICIARY
The provisions of this Agreement are not intended to confer any
benefits upon any person or entity not a party to this Agreement.
31. ACCOUNTS RECEIVABLE
Within ten days prior to the Closing Date, Seller shall provide
Purchaser with a detailed listing of Seller's accounts receivable which are
anticipated to be outstanding on the Closing Date.
32. RESPONSIBILITY FOR COLLECTIONS
From and after the Closing Date, Purchaser shall assume responsibility
for the billing for and collection of payments on account of services
rendered or goods sold by it on and after the Closing Date and Seller shall
retain all right, title and interest in and to and all responsibility for the
collection of its accounts receivable for services rendered or goods sold
prior to the Closing Date.
33. APPLICATION OF PAYMENTS
Any payments received by Purchaser after the Closing Date from residents
with balances due for the period prior to and after the Closing Date, shall
be applied by Purchaser first to reduce any post-Closing Date balances, with
the excess, if any, remitted to Seller to reduce any pre-Closing Date
balances due.
34. INSPECTION RIGHTS
Seller shall have the right during normal business hours and on
reasonable notice to Purchaser to inspect Purchaser's books and records with
respect to the accounts receivable received by it after the Closing Date from
residents with balances due as of the Closing Date.
35. ATTORNEY'S FEES
Should either party institute any action or proceeding to enforce or
interpret this Agreement or any provision hereof, for damages by reason of
any alleged breach of this Agreement or of any provision hereof, or for a
declaration of rights hereunder, the prevailing party in any such action or
proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' and other fees, incurred by the
prevailing party in connection with such action or proceeding. The term
"attorneys' and other fees" shall mean and include attorneys' fees,
accountants' fees, and any and all other similar fees incurred in connection
with the action or proceeding and the preparations therefor. The term
"action or proceeding" shall mean and include actions, proceedings, suits,
arbitrations, appeals and other similar proceedings.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the
day and year set forth opposite each party's signature below with the last
date constituting the date of mutual execution of this Agreement.
Dated: PURCHASER:
----------------
EMERITUS CORPORATION,
a Washington corporation
By: /s/ Raymond R. Brandstrom
-------------------------
Its: President
-------------------------
SELLER:
Dated: Jan. 24, 1996 /s/ Nancy F. Feinstein
------------- -----------------------
NANCY F. FEINSTEIN
Dated: Jan. 24, 1996 /s/ Jay L. Feinstein
------------- -----------------------
JAY L. FEINSTEIN
Dated: Jan. 24, 1996 WESTERN BIOLOGICS INC.,
------------- a California corporation
By: Nancy F. Feinstein
----------------------
Its: President
----------------------
24
THE FOLLOWING AGREEMENT IS SUBSTANTIALLY THE SAME FOR THE FOLLOWING PROPERTIES
EXCEPT FOR THE FOLLOWING:
Lakewood Inn: Lease Term commences April 15, 1996 and ends March 31, 2009
Evergreen Lodge: Lease Term commences April 1, 1996 and ends March 31, 2009
Greenville: Lease Term commences June 14, 1996 and ends March 31, 2009
Grand Terrace: Lease Term commences August 1, 1996 and ends March 31, 2008
Ridge Wind: Lease Term commences August 1, 1996 and ends March 31, 2008
Ocean Shores: Lease Term commences August 1, 1996 and ends March 31, 2010
ALL THE ABOVE MENTIONED COMMUNITIES HAVE FOUR FIVE-YEAR RENEWAL OPTIONS.
<PAGE>
F A C I L I T Y L E A S E A G R E E M E N T
MEDITRUST ACQUISITION CORPORATION I
(A Massachusetts corporation)
as
Lessor
AND
EMERITUS PROPERTIES I, INC.
(A Washington corporation)
as
Lessee
Dated as of 1996
For Premises Located At
<PAGE>
FACILITY LEASE AGREEMENT
This FACILITY LEASE AGREEMENT ("Lease") is dated as of the Day of
1996 and is between MEDITRUST ACQUISITION CORPORATION I ("Lessor"), a
Massachusetts corporation having its principal office at 197 First Avenue,
Needham Heights, Massachusetts 02194, and EMERITUS PROPERTIES I, INC.
("Lessee"), a Washington corporation, having its principal office at c/o
Emeritus Corporation, Market Place One, 2003 Western Avenue, Suite 660,
Seattle, Washington 98121-2162.
ARTICLE 1
LEASED PROPERTY; TERM; CONSTRUCTION; EXTENSIONS
1.1 LEASED PROPERTY. Upon and subject to the terms and conditions
hereinafter set forth, Lessor leases to Lessee and Lessee rents and leases from
Lessor all of Lessor's rights and interests in and to the following real and
personal property (collectively, the "Leased Property"):
(a) the real property described in EXHIBIT A attached hereto (the
"Land");
(b) all buildings, structures, Fixtures (as hereinafter defined) and
other improvements of every kind including, but not limited to, alleyways
and connecting tunnels, sidewalks, utility pipes, conduits and lines, and
parking areas and roadways appurtenant to such buildings and structures
presently or hereafter situated upon the Land (collectively, the "Leased
Improvements");
(c) all easements, rights and appurtenances of every nature and
description now or hereafter relating to or benefiting any or all of the
Land and the Leased Improvements;
(d) all equipment, machinery, building fixtures, and other items of
property (whether realty, personalty or mixed), including all components
thereof, now or hereafter located in, on or used in connection with, and
permanently affixed to or incorporated into the Leased Improvements,
including, without limitation, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling
and air-conditioning systems and apparatus, sprinkler systems and fire and
theft protection equipment, and built-in oxygen and vacuum systems, all of
which, to the greatest extent permitted by law, are hereby deemed by the
parties hereto to constitute real estate, together with all replacements,
<PAGE>
modifications, alterations and additions thereto, but specifically
excluding all items included within the category of Tangible Personal
Property (as hereinafter defined) which are not permanently affixed to or
incorporated in the Leased Property (collectively, the "Fixtures"); and
The Leased Property is leased in its present condition, AS IS, without
representation or warranty of any kind, express or implied, by Lessor and
subject to: (i) the rights of parties in possession; (ii) the existing state of
title including all covenants, conditions, Liens (as hereinafter defined) and
other matters of record (including, without limitation, the matters set forth in
EXHIBIT B); (iii) all applicable laws and (iv) all matters, whether or not of a
similar nature, which would be disclosed by an inspection of the Leased Property
or by an accurate survey thereof.
1.2 TERM. The term of this Lease shall consist of: the "Initial Term",
which shall commence on April , 1996 (the "Commencement Date") and end on March
31, 2009 (the "Expiration Date"); PROVIDED, HOWEVER, that this Lease may be
sooner terminated as hereinafter provided. In addition, Lessee shall have the
option(s) to extend the Term (as hereinafter defined) as provided for in Section
1.3.
1.3 EXTENDED TERMS. Provided that this Lease has not been previously
terminated, and as long as there exists no Lease Default (as hereinafter
defined) at the time of exercise and on the last day of the Initial Term or the
then current Extended Term (as hereinafter defined), as the case may be, Lessee
is hereby granted the option to extend the Initial Term of this Lease for four
(4) additional periods (collectively, the "Extended Terms") as follows: four (4)
successive five (5) year periods for a maximum Term, if all such options are
exercised, which ends on March 31, 2029. Lessee's extension option rights shall
be exercised by Lessee by giving written notice to Lessor of each such extension
at least one hundred-eighty (180) days, but not more than three hundred sixty
(360) days, prior to the termination of the Initial Term or the then current
Extended Term, as the case may be. Lessee shall have no right to rescind any
such notice once given. Lessee may not exercise its option for more than one
Extended Term at a time. During each effective Extended Term, all of the terms
and conditions of this Lease shall continue in full force and effect, except
that the Base Rent (as hereinafter defined) for each such Extended Term shall be
adjusted as set forth in Section 3.1(a).
Notwithstanding anything to the contrary set forth herein, Lessee's rights
to exercise the options granted in this Section 1.3 are subject to the further
condition that concurrently with
2
<PAGE>
the exercise of any extension option hereunder, Lessee shall have exercised its
option to extend the terms of all of the Related Leases in accordance with the
provisions of the Agreement Regarding Related Transactions and the provisions of
Section 1.3 of each of the Related Leases.
ARTICLE 2
DEFINITIONS AND RULES OF CONSTRUCTION
2.1 DEFINITIONS. For all purposes of this Lease and the other Lease
Documents (as hereinafter defined), except as otherwise expressly provided or
unless the context otherwise requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular and (ii) all references in this Lease or any of the other
Lease Documents to designated "Articles", "Sections", and other subdivisions are
to the designated Articles, Sections and other subdivisions of this Lease or the
other applicable Lease Document.
ACCOUNTS: As defined in the UCC.
ACCREDITATION BODY: Any person, including any Person having or claiming
jurisdiction over the accreditation, certification, evaluation or operation of
the Facility.
ADDED VALUE PERCENTAGE: The proportion of the Fair Market Added Value of
Capital Additions paid for or financed by Lessee to the Fair Market Value of the
entire Leased Property, expressed as a percentage.
ADDITIONAL CHARGES: As defined in Article 3.
ADDITIONAL LAND: As defined in Section 9.3.
ADDITIONAL RENT: As defined in Article 3.
ADDITIONAL RENT COMMENCEMENT DATE: As defined in Article 3.
AFFILIATE: With respect to any Person (i) any other Person which,
directly or indirectly, controls or is controlled by or is under common control
with such Person, (ii) any other Person that owns, beneficially, directly or
indirectly, five percent (5%) or more of the outstanding capital stock, shares
or equity interests of such Person or (iii) any officer, director, employee,
general partner or trustee of such Person, or any other Person controlling,
controlled by, or under common control with, such Person excluding trustees and
Persons serving in a fiduciary or similar capacity who are not otherwise an
Affiliate of such Person). For the purposes of this definition, "control"
3
<PAGE>
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests provided,
however, that, (a) for purposes of determining a Related Party Default, the
percentage of outstanding capital stock, shares or equity interests referenced
in (ii) above shall be fifty percent (50%) and (b) any Person who is an
Affiliate by virtue of the ownership thereof by Daniel R. Baty or his status
therein as an officer or director shall not be deemed an Affiliate for purposes
of determining a Related Party Default.
AFFILIATED PARTY SUBORDINATION AGREEMENT: That certain Affiliated Party
Subordination Agreement of even date by and among Lessee, the Guarantor, various
Affiliates of Lessee and various Affiliates of Lessor.
AGREEMENT REGARDING RELATED TRANSACTIONS (DEVELOPMENT): The Amended and
Restated Agreement Regarding Related Transactions (Development) of even date, as
amended from time to time, between Lessee, Lessor and any Related Party that is
party to any Related Lease or Related Party Agreement. Lessor and Lessee
anticipate that the Agreement Regarding Related Transactions (Development) will
be amended from time to time to include Affiliates of Lessor and Lessee as
parties thereto in connection with future transactions and acknowledge and agree
that for all purposes under this Lease Agreement such amendments shall be deemed
to be included in this definition.
ANNUAL FACILITY UPGRADE EXPENDITURE: An aggregate annual amount equal to
the product of TWO HUNDRED DOLLARS ($200)(as increased as of the first day of
each Lease Year in which the Annual Facility Upgrade Expenditure is to be made
by an amount equal to the product of the CPI Increase multiplied by TWO HUNDRED
DOLLARS ($200)) times the number of units in the Facility, such amount to be
spent on Upgrade Renovations. The term "CPI Increase" means a fraction, the
numerator of which is the Price Index in effect as of the first day of the Lease
Year in which the Annual Facility Upgrade Expenditure is to be made and the
denominator of which is the Price Index in effect as of the date hereof. The
term "Price Index" means the Consumer Price Index for Urban Wage Earners and
Clerical Workers, All Items-Series A (1982-84=100), published by the Bureau of
Labor Statistics, U.S. Department of Labor. If the Bureau of Labor Statistics
should cease to publish such Price Index in its present form and calculated on
the present basis, then the most similar index published by the same Bureau
shall be used for the same purpose. If there is no such similar index, a
substitute index which is then generally recognized as being similar to such
4
<PAGE>
Price Index, such substitute index to be reasonably selected by Lessor.
APPURTENANT AGREEMENTS: Collectively, all instruments, documents and
other agreements that now or hereafter create any utility, access or other
rights or appurtenances benefiting or relating to the Leased Property.
AWARD: All compensation, sums or anything of value awarded, paid or
received on a total or partial Condemnation.
BASE GROSS REVENUES: The annualized Gross Revenues of the Facility for
the second twelve month period following the Conversion Date, initially as shown
by Lessee's certified Consolidated Financial Statements and as later verified by
Lessee's Consolidated Financial Statements.
BASE RENT: Pre-Conversion Base Rent and/or Post-Conversion Base Rent, as
the context permits.
BUSINESS DAY: Any day which is not a Saturday or Sunday or a public
holiday under the laws of the United States of America, the Commonwealth of
Massachusetts, the State or the state in which Lessor's depository bank is
located.
CAPITAL ADDITIONS: Collectively, all new buildings and additional
structures annexed to any portion of any of the Leased Improvements and material
expansions of any of the Leased Improvements which are constructed on any
portion of the Land during the Term, including, without limitation, the
construction of a new wing or new story, the renovation of any of the Leased
Improvements on the Leased Property and any expansion, construction, renovation
or conversion in connection therewith (a) in order to provide a functionally new
facility that is needed or used to provide services not previously offered or
(b) in order to (i) increase the bed capacity of a Facility, (ii) change the
purpose for which such beds are utilized and/or (iii) change the utilization of
any material portion of any of the Leased Improvements provided that for the
purposes of Article 9 hereof the Project shall not be treated as a Capital
Addition.
CAPITAL ADDITION COST: The cost of any Capital Addition made by Lessee
whether paid for by Lessee or Lessor. Such cost shall include all costs and
expenses of every nature whatsoever incurred directly or indirectly in
connection with the development, permitting, construction and financing of a
Capital Addition as reasonably determined by, or to the reasonable satisfaction
of, Lessor.
CASH COLLATERAL: As defined in the Deposit Pledge Agreement.
5
<PAGE>
CASH FLOW: The Consolidated Net Income (or Consolidated Net Loss) before
federal and state income taxes for any period PLUS (i) the amount of the
provision for depreciation and amortization actually deducted on the books of
the applicable Person for the purposes of computing such Consolidated Net Income
(or Consolidated Net Loss) for the period involved, PLUS (ii) Rent and interest
on all other Indebtedness which is fully subordinated to the Lease Obligations,
PLUS (iii) any indebtedness which is fully subordinated to the Lease Obligations
pursuant to the Affiliated Party Subordination Agreement or the Management
Subordination Agreement.
CASUALTY: As defined in Section 13.1.
CHATTEL PAPER: As defined in the UCC.
CLOSING: As defined in Section 18.3.6.
CODE: The Internal Revenue Code of 1986, as amended.
COLLATERAL: All of the property in which security interests are granted
to Lessor and the other Meditrust Entities pursuant to the Lease Documents and
the Related Party Agreements to secure the Lease Obligations, including, without
limitation, the Cash Collateral.
COMPETITIVE ACTIVITY: As defined in Section 11.5.
COMPLETION DATE: As defined in the Leasehold Improvement Agreement.
COMPLETION OF THE PROJECT: As defined in the Leasehold Improvement
Agreement.
CONDEMNATION: With respect to the Leased Property or any interest
therein or right accruing thereto or use thereof (i) the exercise of any
governmental authority, whether by legal proceedings or otherwise, by a
Condemnor or (ii) a voluntary sale or transfer by Lessor to any Condemnor,
either under threat of Condemnation or Taking or while legal proceedings for
Condemnation or Taking are pending.
CONDEMNOR: Any public or quasi-public authority, or private corporation
or individual, having the power of condemnation.
CONSOLIDATED: The consolidated accounts of the relevant Person and its
Subsidiaries consolidated in accordance with GAAP.
CONSOLIDATED FINANCIALS: For any fiscal year or other accounting period
for any Person and its consolidated Subsidiaries, statements of earnings and
retained earnings and of changes in financial position for such period and for
the period
6
<PAGE>
from the beginning of the respective fiscal year to the end of such period and
the related balance sheet as at the end of such period, together with the notes
thereto, all in reasonable detail and setting forth in comparative form the
corresponding figures for the corresponding period in the preceding fiscal year,
and prepared in accordance with GAAP, and disclosing all liabilities of such
Person and its consolidated Subsidiaries, including, without limitation,
contingent liabilities.
CONSULTANTS: Collectively, the architects, engineers, inspectors,
surveyors and other consultants that are engaged from time to time by Lessor to
perform services for Lessor in connection with this Lease.
CONTRACTS: All agreements (including, without limitation, Provider
Agreements, to the extent applicable, and any Residence Agreement), contracts
(including without limitation, construction contracts, subcontracts, and
architects' contracts), contract rights, warranties and representations,
franchises, and records and books of account benefiting, relating to or
affecting the Leased Property or the ownership, construction, development,
maintenance, management, repair, use, occupancy, possession, or operation
thereof, or the operation of any programs or services in conjunction with the
Facility and all renewals, replacement and substitutions therefor, now or
hereafter issued to any member of the Leasing Group by, or entered into by any
member of the Leasing Group with, any Governmental Authority, Accreditation Body
or Third Party Payor or maintained or used by any member of the Leasing Group or
entered into by any member of the Leasing Group with any third Person.
CONVERSION DATE: The earlier to occur of (a) the Completion Date, (b) the
Completion of the Project and (c) the occupancy of the Facility by a resident.
CURRENT ASSETS: All assets of any Person which would, in accordance with
GAAP, be classified as current assets.
CURRENT LIABILITIES: All liabilities of any Person which would, in
accordance with GAAP, be classified as current liabilities.
DATE OF TAKING: The date the Condemnor has the right to possession of the
property being condemned.
DEBT COVERAGE RATIO: The ratio of (i) Cash Flow for each applicable
period to (ii) the total of all Rent (excluding Additional Rent due under this
Lease) paid or payable during such period or accrued for such period.
DECLARATION: As defined in Article 23.
7
<PAGE>
DEED: As defined in Section 18.3.
DEPOSIT: As defined in Section 18.3.
DEPOSIT PLEDGE AGREEMENT: The pledge and security agreement so captioned
and dated as of even date herewith between Lessee and Lessor.
DOCUMENTS: As defined in the UCC.
ENCUMBRANCE: As defined in Section 20.3.
ENVIRONMENTAL INDEMNITY AGREEMENT: The Environmental Indemnity Agreement
of even date herewith by and among Lessee the Guarantor and Lessor.
ENVIRONMENTAL LAWS: As defined in the Environmental Indemnity Agreement.
ERISA: The Employment Retirement Income Security Act of 1974, as amended.
EVENT OF DEFAULT: As defined in Article 16.
EXCESS GROSS REVENUES: Gross Revenues less Base Gross Revenues.
EXPIRATION DATE: As defined in Section 1.2.
EXTENDED TERMS: As defined in Section 1.4.
FACILITY: The 48 unit, 54 bed, fully licensed assisted living facility
known as The Woodway Inn of Coeur d' Alene on the Land (together with related
parking and other amenities), together with (after the Completion Date) the 62
unit, 80 bed fully licensed assisted living facility addition and the 12-unit, 6
bed cottage addition (the assisted living facility addition and the cottage
addition are collectively defined as the Project under the Leasehold Improvement
Agreement) to be constructed on the Land (together with related parking and
other amenities).
FAILURE TO OPERATE: As defined in Article 16.
FAILURE TO PERFORM: As defined Article 16.
FAIR MARKET ADDED VALUE: The Fair Market Value of the Leased Property
(including-all Capital Additions) MINUS the Fair Market Value of the Leased
Property determined as if no Capital Additions paid for by Lessee had been
constructed.
FAIR MARKET VALUE OF THE CAPITAL ADDITION: The amount by which the Fair
Market Value of the Leased Property upon the
8
<PAGE>
completion of a particular Capital Addition exceeds the Fair Market Value of the
Leased Property just prior to the construction of the particular Capital
Addition.
FAIR MARKET VALUE OF THE LEASED PROPERTY: The fair market value of the
Leased Property, including all Capital Additions, and including the Land and all
other portions of the Leased Property, and (a) assuming the same is unencumbered
by this Lease, (b) determined in accordance with the appraisal procedures set
forth in Section 18.2 or in such other manner as shall be mutually acceptable to
Lessor and Lessee and not taking into account any reduction in value resulting
from any Lien to which the Leased Property is subject and which Lien Lessee or
Lessor is otherwise required to remove at or prior to closing of the
transaction. However, the positive or negative effect on the value of the
Leased Property attributable to the interest rate, amortization schedule,
maturity date, prepayment provisions and other terms and conditions of any Lien
on the Leased Property which is not so required or agreed to be removed shall be
taken into account in determining the Fair Market Value of the Leased Property.
The Fair Market Value shall be determined as the overall value based on due
consideration of the "income" approach, the "comparable sales" approach, and the
"replacement cost" approach.
FEE MORTGAGE: As defined in Section 20.3.
FEE MORTGAGEE: As defined in Section 20.3.
FINANCING PARTY: Any Person who is or may be participating with Lessor in
any way in connection with the financing of any Capital Addition.
FINANCING STATEMENTS: Uniform Commercial Code financing statements
evidencing the security interests granted to Lessor in connection with the Lease
Documents.
FISCAL QUARTER: Each of the three (3) month periods commencing on January
1st, April 1st, July 1st and October 1st.
FISCAL YEAR: The twelve (12) month period from January 1st to December
31st.
FIXTURES: As defined in Article 1.
GAAP: Generally accepted accounting principles, consistently applied
throughout the relevant period.
GENERAL INTANGIBLES: As defined in the UCC.
GOVERNMENTAL AUTHORITIES: Collectively, all agencies, authorities,
bodies, boards, commissions, courts,
9
<PAGE>
instrumentalities, legislatures, and offices of any nature whatsoever of any
government, quasigovernment unit or political subdivision, whether with a
federal, state, county, district, municipal, city or otherwise and whether
now or hereinafter in existence.
GROSS REVENUES: Collectively, all revenues generated by reason of the
operation of the Leased Property (including any Capital Additions), directly or
indirectly received or to be received by Lessee or any Affiliate of Lessee,
including, without limitation, all resident revenues received or receivable for
the use of, or otherwise by reason of, all rooms, units and other facilities
provided, meals served, services performed, space or facilities subleased or
goods sold on or from the Leased Property and further including, without
limitation, except as otherwise specifically provided below, any consideration
received under any subletting, licensing, or other arrangements with any Person
relating to them possession or use of the Leased Property and all revenues from
all ancillary services provided at or relating to the Leased Property; PROVIDED,
HOWEVER, that Gross Revenues shall not include non-operating revenues such as
interest income or gain from the sale of assets not sold in the ordinary course
of business; and PROVIDED, FURTHER, that there shall be excluded or deducted (as
the case may be) from such revenues:
(i) all applicable contractual allowances (relating to any period
during the Term of this Lease and thereafter until the Rent hereunder is
paid in full), if any, for billings not paid by or received from the
appropriate Governmental Agencies or Third Party Payors,
(ii) all applicable allowances according to GAAP for uncollectible
accounts,
(iii) all proper resident billing credits and adjustments according to
GAAP, if any, relating to health care accounting,
(iv) federal, state or local sales, use, gross receipts and excise
taxes and any tax based upon or measured by said Gross Revenues which is
added to or made a part of the amount billed to the resident or other
recipient of such services or goods, whether included in the billing or
stated separately,
(v) provider discounts for hospital or other medical facility
utilization contracts, if any,
(vi) the cost, if any, of any federal, state or local governmental
program imposed specially to provide or finance indigent resident care
(other than Medicare, Medicaid and the like),
10
<PAGE>
(vii) deposits refundable to residents of the Facility, and
(viii) payments received on behalf of, and paid to, Persons who are not
Affiliates of Lessee.
To the extent that the Leased Property is subleased or occupied by an
Affiliate of Lessee, Gross Revenues calculated for all purposes of this Lease
(including, without limitation, the determination of the Additional Rent
payable under this Lease) shall include the Gross Revenues of such Sublessee
with respect to the premises demised under the applicable Sublease (i.e., the
Gross Revenues generated from the operations conducted on such subleased
portion of the Leased Property) and the rent received or receivable from such
Sublessee pursuant to such Subleases shall be excluded from Gross Revenues
for all such purposes. As to any Sublease between Lessee and a non-Affiliate
of Lessee, only the rental actually received by Lessee from such
non-Affiliate shall be included in Gross Revenues.
GROUP ONE DEVELOPMENT FACILITIES: As defined in the Agreement Regarding
Related Transactions.
GUARANTOR: Emeritus Corporation, a Washington corporation, and its
successors and assigns.
GUARANTY OF LEASE OBLIGATIONS: The Guaranty of Lease Obligations of even
date executed by Guarantor in favor of Lessor, relating to the Lease
Obligations.
HAZARDOUS SUBSTANCES: As defined in the Environmental Indemnity
Agreement.
IMPOSITIONS: Collectively, all taxes (including, without limitation, all
capital stock and franchise taxes of Lessor, all ad valorem, property, sales and
use, single business, gross receipts, transaction privilege, rent or similar
taxes), assessments (including, without limitation, all assessments for public
improvements or benefits, whether or not commenced or completed prior to the
date hereof and whether or not to be completed within the Term), ground rents,
water and sewer rents, water charges or other rents and charges, excises, tax
levies, fees (including, without limitation, license, permit, inspection,
authorization and similar fees), transfer taxes and recordation taxes imposed as
a result of this Lease or any extensions hereof, and all other governmental
charges, in each case whether general or special, ordinary or extraordinary, or
foreseen or unforeseen, of every character in respect of either or both of the
Leased Property and the Rent (including all interest and penalties thereon due
to any failure in payment by Lessee), which at any time prior to, during or in
respect of the Term hereof and thereafter until the Leased Property is
surrendered to Lessor as
11
<PAGE>
required by the terms of this Lease, may be assessed or imposed on or in respect
of or be a Lien upon (a) Lessor or Lessor's interest in the Leased Property, (b)
the Leased Property or any rent therefrom or any estate, right, title or
interest therein, or (c) any occupancy, operation, use or possession of, sales
from, or activity conducted on, or in connection with, the Leased Property or
the leasing or use of the leased Property. Notwithstanding the foregoing,
nothing contained in this Lease shall be construed to require Lessee to pay (1)
any tax based on net income (whether denominated as a franchise or capital stock
or other tax) imposed on Lessor or any other Person, except Lessee or its
successors, (2) any net revenue tax of Lessor or any other Person, except Lessee
and its successors, (3) any tax imposed with respect to the sale, exchange or
other disposition by Lessor of the Leased Property or the proceeds thereof, or
(4) except as expressly provided elsewhere in this Lease, any principal or
interest on any Encumbrance on the Leased Property; PROVIDED, HOWEVER, the
provisos set forth in clauses (1) and (2) of this sentence shall not be
applicable to the extent that any real or personal property tax, assessment, tax
LEVY or charge which Lessee is obligated to pay pursuant to the first sentence
of this definition and which is in effect at any time during the Term hereof is
totally or partially repealed, and a tax assessment, tax levy or charge set
forth in clause (1) or (2) is levied, assessed or imposed expressly in lieu
thereof. In computing the amount of any franchise tax or capital stock tax
which; may be or become an Imposition, the amount payable by Lessee shall be
equitably apportioned based upon all properties owned by Lessor that are located
within the particular jurisdiction subject to any such tax.
INDEBTEDNESS: The total of all obligations of a Person, whether current
or long-term, which in accordance with GAAP would be included as liabilities
upon such Person's balance sheet at the date as of which Indebtedness is to
be determined, and shall also include (i) all capital lease obligations and
(ii) all guarantees, endorsements (other than for collection of instruments
in the ordinary course of business), or other arrangements whereby
responsibility is assumed for the obligations of others, whether by agreement
to purchase or otherwise acquire the obligations of others, including any
agreement contingent or otherwise to furnish funds through the purchase of
goods, supplies or services for the purpose of payment of the obligations of
others.
INDEMNIFIED PARTIES: As defined in Section 12.2.2.
INDEX: The rate of interest of actively traded marketable United States
Treasury Securities bearing a fixed rate of interest adjusted for a constant
maturity of ten (10) years as calculated by the Federal Reserve Board.
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<PAGE>
INITIAL TERM: As defined in Section 1.2.
INSTRUMENTS: As defined in the UCC.
INSURANCE REQUIREMENTS: All terms of any insurance policy required by
this Lease, all requirements of the issuer of any such policy with respect to
the Leased Property and the activities conducted thereon and the requirements of
any insurance board, association or organization or underwriters, regulations
pertaining to the Leased Property.
LAND: As defined in Article 1.
LEASE: As defined in the preamble of this Lease.
LEASE DEFAULT: The occurrence of any default or breach of condition
continuing beyond any applicable notice and/or grace periods under this Lease
and/or any of the other Lease Documents.
LEASE DOCUMENTS: Collectively, this Lease, the Guaranty of Lease
Obligations, the Agreement Regarding Related Transactions, the Leasehold
Improvement Agreement, the Security Agreement, the Deposit Pledge Agreement, the
Negative Pledge Agreement, the Permits Assignment, the Financing Statements, the
Affiliated Party Subordination Agreement, the Environmental Indemnity Agreement,
and any and all other instruments, documents, certificates or agreements
executed or furnished by any member of the Leasing Group in connection with the
transactions evidenced by the Lease and/or any of the foregoing documents.
LEASE OBLIGATIONS: Collectively, all indebtedness, covenants,
liabilities, obligations, agreements and undertakings (other than Lessor's
obligations) under this Lease and the other Lease Documents.
LEASE YEAR: A twelve month period ending on March 31st of each year;
PROVIDED, THAT the first Lease Year shall begin on the Commencement Date and
shall end on March 31, 1997.
LEASED Improvements: As defined in Article 1.
LEASED PROPERTY: As defined in Article 1.
LEASEHOLD IMPROVEMENT AGREEMENT: The Leasehold Improvement Agreement of
even date by and between Lessee and Lessor.
LEASING GROUP: Collectively, Lessee, the Guarantor, the General Partner,
any Sublessee which is an Affiliate of Lessee and any Manager which is an
Affiliate of Lessee.
LEGAL REQUIREMENTS: Collectively, all statutes, ordinances, by-laws,
codes, rules, regulations, restrictions,
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orders, judgments, decrees and injunctions (including, without limitation, all
applicable building, health code, zoning, subdivision, and other land use and
assisted living licensing statutes, ordinances, by-laws, codes, rules and
regulations), whether now or hereafter enacted, promulgated or issued by any
Governmental Authority, Accreditation Body or Third Party Payor affecting
Lessor, any member of the Leasing Group or the Leased Property or the ownership,
construction, development, maintenance, management, repair, use, occupancy,
possession or operation thereof or the operation of any programs or services in
connection with the Leased Property, including, without limitation, any of the
foregoing which may (i) require repairs, modifications or alterations in or to
the Leased Property, (ii) in any way affect (adversely or otherwise) the use and
enjoyment of the Leased Property or (iii) require the assessment, monitoring,
clean-up, containment, removal, remediation or other treatment of any Hazardous
Substances on, under or from the Leased Property. Without limiting the
foregoing, the term Legal Requirements includes all Environmental Laws and shall
also include all Permits and Contracts issued or entered into by any
Governmental Authority, any Accreditation Body and/or any Third Party Payor and
all Permitted Encumbrances.
LESSEE: As defined in the preamble of this Lease and its successors and
assigns.
LESSEE'S ELECTION NOTICE: As defined in Section 14.3.
LESSEE'S PURCHASE ELECTION NOTICE: As defined in Section 18.3.
LESSOR: As defined in the preamble of this Lease and its successors and
assigns.
LIEN: With respect to any real or personal property, any mortgage,
easement, restriction, lien, pledge, collateral assignment, hypothecation,
charge, security interest, title retention agreement, levy, execution, seizure,
attachment, garnishment or other encumbrance of any kind in respect of such
property, whether or in or inchoate, vested or perfected.
LIMITED PARTIES: As defined in Section 11.5.4; PROVIDED, HOWEVER, in no
event shall the term Limited Parties include any Person in its capacity as a
shareholder of a public entity, unless such shareholder is a member of the
Leasing Group or an Affiliate thereof.
MANAGED CARE PLANS: All health maintenance organizations, preferred
provider organizations, individual practice associations, competitive medical
plans, and similar arrangements.
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MANAGEMENT AGREEMENT: Any agreement, whether written or oral, between
Lessee or any Sublessee and any other Person pursuant to which Lessee or such
Sublessee provides any payment, fee or other consideration to any other Person
to operate or manage the Facility.
MANAGEMENT SUBORDINATION AGREEMENT: The Management Subordination
Agreement as of even date herewith between Lessee and Lessor.
MANAGER: Any Person who has entered into a Management Agreement with
Lessee or any Sublessee.
MATERIAL STRUCTURAL WORK: Any (i) structural alteration, (ii) structural
repair or (iii) structural renovation to the Leased Property, which would
customarily require or which require the design and/or involvement of a
structural engineer or architect or which would require the issuance of a
Permit.
MEDICAID: The medical assistance program established by Title XIX of
the Social Security Act (42 USC Sections 1396 ET SEQ.) and any statute
succeeding thereto.
MEDICARE: The health insurance program for the aged and disabled
established by Title XVIII of the Social Security Act (42 USC Sections 1395 ET
SEQ.) and any statute succeeding thereto.
MEDITRUST: As defined in Article 23.
MEDITRUST/EMERITUS TRANSACTION AFFILIATE: An Affiliate of Lessee, the
business and activities of which are limited to those subject to
Meditrust/Emeritus Transaction Documents (other than the Affiliated Party
Subordination Agreement, the Agreement Regarding Related Transactions and
comparable agreement now or hereafter in effect among Affiliates of Lessee and
of Lessor) to which such Affiliate is a party.
MEDITRUST/EMERITUS TRANSACTION DOCUMENTS: As defined in the Agreement
Regarding Related Transactions.
MEDITRUST ENTITIES: Collectively, Meditrust, Lessor and any other
Affiliate of Lessor which may now or hereafter be a party to any Related Party
Agreement.
MEDITRUST INVESTMENT: The sum of (i) the Original Meditrust Investment
PLUS (ii) the aggregate amount of all Subsequent Investments PLUS (iii) so much
of the Project Funds as Lessor has expended from time to time LESS the sum of
any Net Award Amounts and/or Net Proceeds Amounts.
MONTHLY DEPOSIT DATE: As defined in Section 4.6.
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NEGATIVE PLEDGE AGREEMENT: The Negative Pledge Agreement of even date by
and between Guarantor, Lessee and Lessor.
NET AWARD AMOUNT: As defined in Section 3.7.
NET INCOME (OR NET LOSS): The net income (or net loss, expressed as a
negative number) of a Person for any period, after all taxes actually paid or
accrued and all expenses and other charges determined in accordance with GAAP.
NET PROCEEDS AMOUNT: As defined in Section 3.7.
NET WORTH: An amount determined in accordance with GAAP equal to the
total assets of any Person, minus the total liabilities of such Person.
OBLIGATIONS: Collectively, the Lease Obligations and the Related Party
Obligations.
OFFICER'S CERTIFICATE: A certificate of Lessee signed on behalf of Lessee
by the Chairman of the Board of Directors, the President, any Vice President or
the Treasurer of Lessee, or another officer authorized to so sign by the Board
of Directors or By-Laws of Lessee, or any other Person whose power and authority
to act has been authorized by delegation in writing by any of the Persons
holding the foregoing offices.
ORIGINAL MEDITRUST INVESTMENT: The sum of SEVEN MILLION FIFTY-TWO
THOUSAND SEVENTY-ONE DOLLARS ($7,052,071.00).
ORIGINAL RATE: As defined in Section 3.1.
OTHER PERMITTED USES: To the extent permitted under applicable Legal
Requirements and under Insurance Requirements, and so long as the same do not
detract in any material manner from the Primary Intended Use and do not occupy
more than ten percent (10%) of the useable floor area of the building comprising
the Facility, such uses as Lessee reasonably determines are appropriate and
incidental to the Primary Permitted Use.
OVERDUE Rate: On any date, a rate of interest per annum equal to the
greater of: (i) a variable rate of interest per annum equal to one hundred
twenty percent (120%) of the Prime Rate, or (ii) eighteen percent (18%) per
annum; PROVIDED, HOWEVER, in no event shall the Overdue Rate be greater than
the maximum rate then permitted under applicable law to be charged by Lessor.
PBGC: Pension Benefit Guaranty Corporation.
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PERMITS: Collectively, all permits, licenses, approvals, qualifications,
rights, variances, permissive uses, accreditation, certificates, certifications,
consents, agreements, contracts, contract rights, franchises, interim licenses,
permits and other authorizations of every nature whatsoever required by, or
issued under, applicable Legal Requirements relating or affecting the Leased
Property or the construction, development, maintenance, management, use or
operation thereof, or the operation of any programs or services in conjunction
with the Facility and all renewals, replacements and substitutions therefor, now
or hereafter required or issued by any Governmental Authority, Accreditation
Body or Third Party Payor to any member of the Leasing Group, or maintained or
used by any member of the Leasing Group, or entered into by any member of the
Leasing Group with any third Person with respect to the Leased Property.
PERMITS ASSIGNMENT: The Collateral Assignment of Permits, Licenses and
Contracts of even date granted by Lessee to Lessor.
PERMITTED ENCUMBRANCES: As defined in Section 10.1.18.
PERMITTED PRIOR SECURITY INTERESTS: As defined in Section 6.1.2.
PERSON: Any individual, corporation, general partnership, limited
partnership, joint venture, stock company or association, company, bank, trust,
trust company, land trust, business trust, unincorporated organization,
unincorporated association, Governmental Authority or other entity of any kind
or nature.
PLANS AND SPECIFICATIONS: As defined in Section 13.1.3.
POST-CONVERSION BASE RENT: As defined in Section 3.1.
PRE-CONVERSION BASE RENT: As defined in Section 3.1.
PRE-CONVERSION RENT ADJUSTMENT RATE: 175 basis points over the Prime Rate.
PRIMARY INTENDED USE: The use of the Facility as an assisted living
facility with forty-eight (48) units, fifty-four (54) beds prior to the
Completion Date, and one hundred ten (110) units, one hundred twenty-eight (128)
beds after the Completion Date consisting of (i) an existing facility with
forty-eight (48) units fifty-four (54) beds; (ii) an assisted living addition
with fifty-six (56) units sixty-two (62) beds; and (iii) a cottage addition with
six (6) units twelve (12) beds, or such additional number of units or beds as
may hereafter be permitted under this Lease, and such ancillary uses as are
permitted by law and may be necessary in connection therewith or incidental
thereto.
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PRIME RATE: The variable rate of interest per annum from time to time
announced by the Reference Bank as its prime rate of interest and in the event
that the Reference Bank no longer announces a prime rate of interest, then the
Prime Rate shall be deemed to be the variable rate of interest per annum which
is the prime rate of interest or base rate of interest from time to time
announced by any other major bank or other financial institution reasonably
selected by Lessor.
PRINCIPAL PLACE OF BUSINESS: As defined in Section 10.1.28.
PROCEEDS: As defined in the UCC.
PROJECT: As defined in the Leasehold Improvement Agreement.
PROJECT FUNDS: As defined in the Leasehold Improvement Agreement.
PROVIDER AGREEMENTS: All participation, provider and reimbursement
agreements or arrangements, if any, now or hereafter in effect for the benefit
of Lessee or any Sublessee in connection with the operation of the Facility
relating to any right of payment or other claim arising out of or in connection
with Lessee's or such Sublessee's participation in any Third Party Payor
Program.
PURCHASE OPTION: As defined in Section 18.3.
PURCHASE OPTION DATE: As defined in Section 18.3.
PURCHASE OPTION PURCHASE PRICE: As defined in Section 18.3.
PURCHASER: As defined in Section 11.5.
RECEIVABLES: Collectively, (i) all rights to payment for goods sold or
leased or services rendered by Lessee or any other party, whether now in
existence or arising from time to time hereafter and whether or not yet earned
by performance, including, without limitation, obligations evidenced by an
account, note, contract, security agreement, chattel paper, or other evidence of
indebtedness, including Accounts and Proceeds, and (ii) a license to use such
Instruments, Documents, Accounts, Proceeds, General Intangibles and Chattel
Paper as are reasonably required for purposes of exercising the rights set forth
in (i) above.
REFERENCE BANK: Fleet Bank of Connecticut, N.A.
RELATED Leases: The Group One Development Facility Leases (as defined in
the Agreement Regarding Related Transactions), together with such other new
leases identified from time to time in the Agreement Regarding Related
Transactions.
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RELATED PARTIES: Collectively, each Person that may now or hereafter be a
party to any Related Party Agreement other than the Meditrust Entities.
RELATED PARTY AGREEMENT: Any agreement, document or instrument now or
hereafter evidencing or securing any Related Party Obligation, including,
without limitation, the Related Leases.
RELATED PARTY DEFAULT: The occurrence of a default or breach of condition
continuing beyond the expiration of any applicable notice and grace periods, if
any, under the terms of any Related Party Agreement.
RELATED PARTY OBLIGATIONS: Collectively, all indebtedness, covenants,
liabilities, obligations, agreements and undertakings due to, or made for the
benefit of, Lessor or any of the other Meditrust Entities by Lessee or any other
member of the Leasing Group or any of their respective Affiliates in connection
with any of the properties described in EXHIBIT E to the Agreement Regarding
Related Transactions, as the same may be modified and amended from time to time;
whether such indebtedness, covenants, liabilities, obligations, agreements
and/or undertakings are direct or indirect, absolute or contingent, liquidated
or unliquidated, due or to become due, joint, several or joint and several,
primary or secondary, now existing or hereafter arising.
RENT: Collectively, the Base Rent, Additional Rent, the Additional
Charges and all other sums payable under this Lease and the other Lease
Documents.
RENT ADJUSTMENT DATE: The first day of any of the Extended Terms.
RENT ADJUSTMENT RATE: 325 basis points over the Index
RENT INSURANCE PROCEEDS: As defined in Section 13.8.
RESIDENCE AGREEMENT: All contracts, agreements and consents executed by
or on behalf of any resident or other Person seeking services at the Facility,
including, without limitation, assignments of benefits and guarantees.
RETAINAGE: As defined in Section 13.1.3.
SECURITY AGREEMENT: The Security Agreement as of even date herewith
between Lessee and Lessor.
SELLER: Coeur d' Alene Retirement Associates Management Co.
STATE: The state or commonwealth in which the Leased Property is
located.
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SUBLEASE: Collectively, all subleases, licenses, use agreements,
concession agreements, tenancy at will agreements and other occupancy agreements
of every kind and nature (but excluding any Residency Agreement), whether oral
or in writing, now in existence or subsequently entered into by Lessee,
encumbering or affecting the Leased Property.
SUBLEASES: Any sublessee, licensee, concessionaire, tenant or other
occupant under any of the Subleases.
SUBSEQUENT INVESTMENTS: The aggregate amount of all sums expended and
liabilities incurred by Lessor in connection with Capital Additions.
SUBSIDIARY OR SUBSIDIARIES: With respect to any Person, any corporation or
other entity of which such Person, directly, or indirectly, through another
entity or otherwise, owns, or has the right to control or direct the voting of,
fifty percent (50%) or more of the outstanding capital stock or other ownership
interest having general voting power (under ordinary circumstances).
TAKING: A taking or voluntary conveyance during the Term of the Leased
Property, or any interest therein or right accruing thereto, or use thereof, as
the result of, or in settlement of, any Condemnation or other eminent domain
proceeding affecting the Leased Property whether or not the same shall have
actually been commenced.
TANGIBLE PERSONAL PROPERTY: All machinery, equipment, furniture,
furnishings, movable walls or partitions, computers or trade fixtures, goods,
inventory, supplies, and other personal property owned or leased pursuant to
equipment leases) by Lessee and used in the operation of the Leased Property.
TERM: Collectively, the Initial Term and each Extended Term which has
become effective pursuant to Section 1.4, as the context may require, unless
earlier terminated pursuant to the provisions hereof.
THIRD PARTY PAYOR PROGRAMS: Collectively, all third party payor programs
in which Lessee or any Sublessee presently or in the future may participate,
including without limitation, Medicare, Medicaid, Blue Cross and/or Blue Shield,
Managed Care Plans, other private insurance plans and employee assistance
programs.
THIRD PARTY PAYORS: Collectively, Medicare, Medicaid, Blue Cross and/or
Blue Shield, private insurers and any other Person which presently or in the
future maintains Third Party Payor Programs.
TIME OF CLOSING: As defined in Section 18.3.
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UCC: The Uniform Commercial Code as in effect from time to time in the
State.
UNITED STATES TREASURY SECURITIES: The uninsured treasury securities
issued by the United States Federal Reserve Bank.
UNSUITABLE FOR ITS PRIMARY INTENDED USE: As used anywhere in this Lease,
the term "Unsuitable For Its Primary Intended Use" shall mean that, by reason of
Casualty, or a partial or temporary Taking by Condemnation, in the good faith
judgment of Lessor, the Facility cannot be operated on a commercially
practicable basis for the Primary Intended Use, taking into account, among other
relevant factors, the number of usable units or beds affected by such Casualty
or partial or temporary Taking.
UNAVOIDABLE DELAYS: Delays due to strikes, lockouts, inability to procure
materials, power failure, acts of God, governmental restrictions, enemy action,
civil commotion, fire, unavoidable casualty or other causes beyond the control
of the party responsible for performing an obligation hereunder, provided that
lack of funds shall not be deemed a cause beyond the control of either party
hereto.
UPGRADE RENOVATIONS: Repair and refurbishing other than normal
janitorial, cleaning and maintenance activities.
WORK: As defined in Section 13.1.1.
WORK CERTIFICATES: As defined in Section 13.1.3.
WORKING CAPITAL LOAN: As defined in Section 6.1.3.
WORKING CAPITAL STOCK PLEDGE: As defined in Section 16.1(h).
2.2 RULES OF CONSTRUCTION. The following rules of construction shall
apply to the Lease and each of the other Lease Documents: (a) references to
"herein", "hereof" and "hereunder" shall be deemed to refer to this Lease
or the other applicable Lease Document, and shall not be limited to the
particular text or section or subsection in which such words appear; (b)
the use of any gender shall include all genders and the singular number
shall include the plural and vice versa as the context may require; (c)
references to Lessor's attorneys shall be deemed to include, without
limitation, special counsel and local counsel for Lessor; (d) reference to
attorneys fees and expenses shall be deemed to include all costs for
administrative, paralegal and other support staff and to exclude any fees
and expenses of attorneys who are employees of an Affiliate of Lessor; (e)
references to Leased Property shall be deemed to include references to all
of the Leased Property and references to any portion thereof; (f)
references to the Lease Obligations shall be
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deemed to include references to all of the Lease Obligations and references
to any portion thereof; (g) references to the obligations shall be deemed
to include references to all of the Obligations and references to any
portion thereof; (h) the term "including", when following any general
statement, will not be construed to limit such statement to the specific
items or matters as provided immediately following the term "including"
(whether or not non-limiting language such as "without limitation" or "but
not limited to" or words of similar import are also used), but rather will
be deemed to refer to all of the items or matters that could reasonably
fall within the broadest scope of the general statement; (i) any
requirement that financial statements be Consolidated in form shall apply
only to such financial statements as relate to a period during any portion
of which the relevant Person has one or more Subsidiaries; (j) all
accounting terms not specifically defined in the Lease Documents shall be
construed in accordance with GAAP and (k) all exhibits annexed to any of
the Lease Documents as referenced therein shall be deemed incorporated in
such Lease Document by such annexation and/or reference.
ARTICLE 3
RENT
3.1 RENT FOR LAND, LEASED IMPROVEMENTS, RELATED RIGHTS AND FIXTURES.
Lessee will pay to Lessor, in lawful money of the United States of America, at
Lessor's address set forth herein or at such other place or to such-other Person
as Lessor from time to time may designate in writing, rent for the Leased
Property, as follows.
3.1.1 BASE RENT: (a) PRE-CONVERSION BASE RENT: From and after the
Commencement Date and until the Conversion Date, Lessee shall pay to Lessor,
commencing on May 1, 1996, and on the first day of each calendar month
thereafter and on the Conversion Date, a base rent (the "Pre-Conversion Base
Rent") in arrears which is equal to the product of (i) the Original Meditrust
Investment PLUS so much of the Project Funds as Lessor has expended from time
to time MULTIPLIED BY (ii) the Pre-Conversion Rent Adjustment Rate in effect
from time to time, calculated on a daily basis.
(b) POST-CONVERSION BASE RENT: From and after the Conversion Date, Lessee
shall pay a base rent (the "Post-Conversion Base Rent") per annum which is equal
to the product of (i) the Original Meditrust Investment PLUS the aggregate
amount of the Project Funds as Lessor has expended as of the Conversion Date
MULTIPLIED BY (ii) the Rent Adjustment Rate which is in effect or calculated on
the Conversion Date, payable in advance in-equal, consecutive
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monthly installments due on the first day of each calendar month; PROVIDED,
HOWEVER, that on each Rent Adjustment Date, the Base Rent shall be adjusted
to equal the greater of (i) the then current Post-Conversion Base Rent or
(ii) an amount equal to Original Meditrust Investment PLUS the aggregate
amount of the Project Funds as Lessor has expended as of the Conversion
Date plus the Subsequent Advances multiplied by the Rent Adjustment Rate
then in effect on such subsequent Rent Adjustment Date and FURTHER,
PROVIDED, HOWEVER, that on the Conversion Date, Lessee shall pay to Lessor
the proportionate share of the Post-Conversion Base Rent due for the period
from (and including) such date through the end of the calendar month during
which such date occurred.
3.1.2 ADDITIONAL RENT: In addition to the Base Rent, Lessee shall also
pay to Lessor additional rent (the "Additional Rent") in an amount equal to five
percent (5%) of Excess Gross Revenues. Additional Rent shall accrue commencing,
on the second anniversary of the Conversion Date (in each case, an "Additional
Rent Accrual Date") and shall be payable during the Term, quarterly in arrears,
commencing on the first day of the first fiscal quarter occurring following the
Additional Rent Accrual Date and there shall be an annual reconciliation as
provided in Section 3.2 below.
3.2 CALCULATION AND PAYMENT OF ADDITIONAL RENT; ANNUAL RECONCILIATION.
3.2.1 OFFICER'S CERTIFICATE AND PRORATION. Each quarterly payment of
Additional Rent shall be delivered to Lessor, together with an Officer's
Certificate setting forth the calculation thereof, within thirty (30) days after
the end of the corresponding quarter. Additional Rent due for any portion of
any calendar year shall be prorated accordingly.
3.2.2 ANNUAL STATEMENT. In addition, on or before the first day of
April of each year following any calendar year for which Additional Rent is
payable hereunder, Lessee shall deliver to Lessor an Officer's Certificate,
reasonably acceptable to Lessor and certified by the chief financial officer of
Lessee, setting forth the Gross Revenues for the immediately preceding calendar
year.
3.2.3 DEFICITS. If the Additional Rent, as finally determined for any
calendar year (or portion thereof), exceeds the sum of the quarterly payments of
Additional Rent previously paid by Lessee with respect to said calendar year,
within thirty (30) days after such determination is required to be made
hereunder, Lessee shall pay such deficit to Lessor and, if the deficit exceeds
five percent (5%) of
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the Additional Rent which was previously paid to Lessor with respect to
said calendar year, then Lessee shall also pay Lessor interest on such
deficit at the Overdue Rate from the date that such payment should have
been made by Lessee to the date that Lessor receives such payment.
3.2.4 OVERPAYMENTS. If the Additional Rent, as finally determined for
any calendar year (or portion thereof), is less than the amount previously paid
with respect thereto by Lessee, Lessee shall notify Lessor either (a) to pay to
Lessee an amount equal to such difference or (b) to grant Lessee a credit
against Additional Rent next coming due in the amount of such difference.
3.2.5 FINAL DETERMINATION. The obligation to pay Additional Rent shall
survive the expiration or earlier termination of the Term (as to Additional Rent
payments that are due and payable prior to the expiration or earlier termination
of the Term and during any periods that Lessee remains in possession of the
Leased Property), and a final reconciliation, taking into account, among other
relevant adjustments, any contractual allowances which related to Gross Revenues
that accrued prior to the date of such expiration or earlier termination, but
which have been determined to be not payable and Lessee's good faith best
estimate of the amount of any unresolved contractual allowances, shall be made
not later than two (2) years after said expiration or termination date. Within
sixty (60) days after the expiration or earlier termination of the Term, Lessee
shall advise Lessor of Lessee's best estimate of the approximate amount of such
adjustments, which estimate shall not be binding on Lessee or have any legal
effect whatsoever.
3.2.6 BEST EFFORTS TO MAXIMIZE. Lessee further covenants that the
operation of the Facility shall be conducted in a manner consistent with the
prevailing standards and practices recognized in the assisted living industry as
those customarily utilized by reputable business operations. Subject to any
applicable Legal Requirements, the members of the Leasing Group shall use their
best efforts to maximize the Facility's Gross Revenues.
3.3 CONFIRMATION AND AUDIT OF ADDITIONAL RENT.
3.3.1 MAINTAIN ACCOUNTING SYSTEMS. Lessee shall utilize, or cause to be
utilized, an accounting system for the Leased Property in accordance with usual
and customary practices in the assisted living industry and in accordance with
GAAP which will accurately record all Gross Revenues. Lessee shall retain, for
at least three (3) years after the expiration of each calendar year (and in any
event until the
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final reconciliation described in Section 3.2 above has been made),
adequate records conforming to such accounting system showing all Gross
Revenues for such calendar year.
3.3.2 AUDIT BY LESSOR. Lessor, at its own expense except as provided
hereinbelow, shall have the right from time to time to have its accountants or
representatives audit the information set forth in the Officer's Certificate
referred to in Section 3.2 and in connection with such audits, to examine
Lessee's records with respect thereto (including supporting data, income tax and
sales tax returns), subject to any prohibitions or limitations on disclosure of
any such data under applicable law or regulations.
3.3.3 DEFICIENCIES AND OVERPAYMENTS. If any such audit discloses a
deficiency in the reporting of Gross Revenues, and either Lessee agrees with the
result of such audit or the matter is compromised, Lessee shall forthwith pay to
Lessor the amount of the deficiency in Additional Rent which would have been
payable by it had such deficiency in reporting Gross Revenues not occurred, as
finally agreed or determined, together with interest on the Additional Rent
which should have been payable by it, calculated at the Overdue Rate, from the
date when said payment should have been made by Lessee to the date that Lessor
receives such payment. Notwithstanding anything to the contrary herein, with
respect to any audit that is commenced more than two (2) years after the date
Gross Revenues for any calendar year are reported by Lessee to Lessor, the
deficiency, if any, with respect to Additional Rent shall bear interest as
permitted herein only from the date such determination of deficiency is made,
unless such deficiency is the result of gross negligence or willful misconduct
on the part of Lessee (or any Affiliate thereof). If any audit conducted for
Lessor pursuant to the provisions hereof discloses that (a) the Gross Revenues
actually received by Lessee for any calendar year exceed those reported by
Lessee by more than five percent (5%), Lessee shall pay the reasonable cost of
such audit and examination or (b) Lessee has overpaid Additional Rent, Lessor
shall so notify Lessee and Lessee shall direct Lessor either (i) to refund the
overpayment to Lessee or (ii) grant a credit against Additional Rent next coming
due in the amount of such difference.
3.3.4 SURVIVAL. The obligations of Lessor and Lessee contained in this
Section shall survive the expiration or earlier termination of this Lease.
3.4 ADDITIONAL CHARGES. Subject to the rights to contest as set forth in
Article 15, in addition to the Base Rent and Additional Rent, (a) Lessee will
also pay and discharge as and
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when due and payable all Impositions, all amounts, liabilities and obligations
under the Appurtenant Agreements and all other amounts, liabilities and
obligations which Lessee assumes or agrees to pay under this Lease, and (b) in
the event of any failure on the part of Lessee to pay any of those items
referred to in clause (a) above, Lessee will also promptly pay and discharge
every fine, penalty, interest and cost which may be added for non-payment or
late payment of such items (the items referred to in clauses (a) and (b) above
being referred to herein collectively as the "Additional Charges"), and Lessor
shall have all legal, equitable and contractual rights, powers and remedies
provided in this Lease, by statute or otherwise, in the case of non-payment of
the Additional Charges, as well as the Base Rent and Additional Rent. To the
extent that Lessee pays any Additional Charges to Lessor pursuant to any
requirement of this Lease, Lessee shall be relieved of its obligation to pay
such Additional Charges to any other Person to which such Additional Charges
would otherwise be due.
3.5 NET LEASE. The Rent shall be paid absolutely net to Lessor, so that
this Lease shall yield to Lessor the full amount of the installments of Base
Rent, and the payments of Additional Rent and, if and to the extent payable to
Lessor, Additional Charges throughout the Term.
3.6 NO LESSEE TERMINATION OR OFFSET.
3.6.1 NO TERMINATION. Except as may be otherwise specifically and
expressly provided in this Lease, Lessee, to the extent not prohibited by
applicable law, shall remain bound by this Lease in accordance with its terms
and shall neither take any action without the consent of Lessor to modify,
surrender or terminate the same, nor seek nor be entitled to any abatement,
deduction, deferment or reduction of Rent, or set-off against the Rent, nor
shall the respective obligations of Lessor and Lessee be otherwise affected by
reason of (a) any Casualty or any Taking of the Leased Property, (b) the lawful
or unlawful prohibition of, or restriction upon, Lessee's use of the Leased
Property or the interference with such use by any Person (other than Lessor,
except to the extent permitted hereunder) or by reason of eviction by paramount
title; (c) any claim that Lessee has or might have against Lessor, (d) any
default or breach of any warranty by Lessor or any of the other Meditrust
Entities under this Lease, any other Lease Document or any Related Party
Agreement, (e) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other proceedings
affecting Lessor or any assignee or transferee of Lessor or (f) for any other
cause whether similar or dissimilar to any of the foregoing, other than a
discharge of Lessee from any of the Lease Obligations as a matter of law.
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3.6.2 WAIVER. Lessee to the fullest extent not prohibited by applicable
law, hereby specifically waives all rights, arising from any occurrence
whatsoever, which may now or hereafter be conferred upon it by law to (a)
modify, surrender or terminate this Lease or quit or surrender the Leased
Property or (b) entitle Lessee to any abatement, reduction, suspension or
deferment of the Rent or other sums payable by Lessee hereunder, except as
otherwise specifically and expressly provided in this Lease.
3.6.3 INDEPENDENT COVENANTS. The obligations of Lessor and Lessee
hereunder shall be separate and independent covenants and agreements and the
Rent and all other sums payable by Lessee hereunder shall continue to be payable
in all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Lease or (except in those instances
where the obligation to pay expressly survives the termination of this Lease) by
termination of this Lease other than by reason of an Event of Default.
3.7 ABATEMENT OF RENT LIMITED. There shall be no abatement of Rent on
account of any Casualty, Taking or other event, except that (a) in the event of
a partial Taking or a temporary Taking as described in Section 14.3, the Base
Rent shall be abated as follows: (i) in the case of such a partial Taking, the
Meditrust Investment shall be reduced for the purposes of calculating Base Rent
pursuant to Section 3.1 by subtracting therefrom, as applicable, the net amount
of the Award received by Lessor, and (ii) in the case of such a temporary
Taking, by reducing the Base Rent for the period of such a temporary Taking, by
the net amount of the Award received by Lessor and (b) in the event of a
Casualty, the Base Rent shall be abated as follows: the Meditrust Investment
shall be reduced for the purposes of calculating Base Rent pursuant to Section
3.1 by subtracting therefrom, as applicable, the net amount of the insurance
proceeds.
For the purposes of this Section 3.7, the "net amount of the Award received
by Lessor" shall mean the Award paid to Lessor or Lessor's mortgagee on account
of such Taking, minus all costs and expenses incurred by Lessor in connection
therewith, and minus any amounts paid to or for the account of Lessee to
reimburse for the costs and expenses of reconstructing the Facility following
such Taking in order to create a viable and functional Facility under all of the
circumstances ("Net Award Amount") and the "net amount of the insurance
proceeds" shall mean the insurance proceeds paid to Lessor or Lessor's mortgagee
on account of such Casualty, minus all costs and expenses incurred by Lessor in
connection therewith and minus any amounts paid to or for the account of Lessee
to reimburse for the costs and expenses of reconstructing the Facility following
such Casualty in order to
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create a viable and functional Facility under all of the circumstances ("Net
Proceeds Amount").
ARTICLE 4
IMPOSITIONS; TAXES; UTILITIES;
INSURANCE PAYMENTS
4.1 PAYMENT OF IMPOSITIONS.
4.1.1 LESSEE TO PAY. Subject to the provisions of Article 15, Lessee
will pay or cause to be paid all Impositions before any fine, penalty, interest
or cost may be added for non-payment, such payments to be made directly to the
taxing authority where feasible, and Lessee will promptly furnish Lessor copies
of official receipts or other satisfactory proof evidencing payment not later
than the last day on which the same may be paid without penalty or interest.
Subject to the provisions of Article 15 and Section 4.1.2, Lessee's obligation
to pay such Impositions shall be deemed absolutely fixed upon the date such
Impositions become a lien upon the Leased Property or any part thereof.
4.1.2 INSTALLMENT ELECTIONS. If any such Imposition may, at the option
of the taxpayer, lawfully be paid in installments (whether or not interest shall
accrue on-the unpaid balance of such Imposition), Lessee may exercise the option
to pay the same (and any accrued interest on the unpaid balance of such
Imposition) in installments and, in such event, shall pay such installments
during the Term hereof (subject to Lessee's right to contest pursuant to the
provisions of Section 4.1.5 below) as the same respectively become due and
before any fine, penalty, premium, further interest or cost may be added
thereto.
4.1.3 RETURNS AND REPORTS. Lessor, at its expense, shall, to the extent
permitted by applicable law, prepare and file all tax returns and reports as may
be required by Governmental Authorities in respect of Lessor's net income, gross
receipts, franchise taxes and taxes on its capital stock, and Lessee, at its
expense, shall, to the extent permitted by applicable laws and regulations,
prepare and file all other tax returns and reports in respect of any Imposition
as may be required by Governmental Authorities. Lessor and Lessee shall, upon
request of the other, provide such data as is maintained by the party to whom
the request is made with respect to the Leased Property as may be necessary to
prepare any required returns and reports. In the event that any Governmental
Authority classifies any property covered by this Lease as personal property,
Lessee
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shall file all personal property tax returns in such jurisdictions where it
may legally so file. Lessor, to the extent it possesses the same, and
Lessee, to the extent it possesses the same, will provide the other party,
upon request, with cost and depreciation records necessary for filing
returns for any portion of Leased Property so classified as personal
property. Where Lessor is legally required to file personal property tax
returns, if Lessee notifies Lessor of the obligation to do so in each year
at least thirty (30) days prior to the date any protest must be filed,
Lessee will be provided with copies of assessment notices so as to enable
Lessee to file a protest.
4.1.4 REFUNDS. If no Lease Default shall have occurred and be
continuing, any refund due from any taxing authority in respect of any
Imposition paid by Lessee shall be paid over to or retained by Lessee. If a
Lease Default shall have occurred and be continuing, at Lessor's option, such
funds shall be paid over to Lessor and/or retained by Lessor and applied toward
Lease Obligations which relate to the Leased Property in accordance with the
Lease Documents.
4.1.5 PROTEST. Upon giving notice to Lessor, at Lessee's option and
sole cost and expense, and subject to compliance with the provisions of Article
15, Lessee may contest, protest, appeal, or institute such other proceedings as
Lessee may deem appropriate to effect a reduction of any Imposition and Lessor,
at Lessee's cost and expense as aforesaid, shall fully cooperate in a reasonable
manner with Lessee in connection with such protest, appeal or other action.
4.2 NOTICE OF IMPOSITIONS. Lessor shall give prompt notice to Lessee of
all Impositions payable by Lessee hereunder of which Lessor at any time has
knowledge, but Lessor's failure to give any such notice shall in no way diminish
Lessee's obligations hereunder to pay such Impositions.
4.3 ADJUSTMENT OF IMPOSITIONS. Impositions imposed in respect of the
period during which the expiration or earlier termination of the Term occurs
shall be adjusted and prorated between Lessor and Lessee, whether or not such
Impositions are imposed before or after such expiration or termination, and
Lessee's obligation to pay its prorated share thereof shall survive such
expiration or termination.
4.4 UTILITY CHARGES. Lessee will pay or cause to be paid all charges for
electricity, power, gas, oil, water, telephone, cable television and other
utilities used in the Leased Property during the Term and thereafter until
Lessee surrenders the Leased Property in the manner required by this Lease.
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4.5 INSURANCE PREMIUMS. Lessee will pay or cause to be paid all premiums
for the insurance coverage required to be maintained pursuant to Article 12
during the Term, and thereafter until Lessee yields up the Leased Property in
the manner required by this Lease. All such premiums shall be paid annually in
advance and Lessee shall furnish Lessor with evidence satisfactory to Lessor
that all such premiums have been so paid prior to the commencement of the Term
and thereafter at least thirty (30) days prior to the due date of each premium
which thereafter becomes due. Notwithstanding the foregoing, Lessee may pay
such insurance premiums to the insurer in monthly installments so long as the
applicable insurer is contractually obligated to give Lessor not less than a
sixty (60) days notice of non-payment and so long as no Lease Default has
occurred and is continuing. In the event of the failure of Lessee either to
comply with the insurance requirements in Article 12, or to pay the premiums for
such insurance, or to deliver such policies or certificates thereof to Lessor at
the times required hereunder, Lessor shall be entitled, but shall have no
obligation, to effect such insurance and pay the premiums therefor, which
premiums shall be a demand obligation of Lessee to Lessor.
4.6 DEPOSITS.
4.6.1 LESSOR'S OPTION. At the option of Lessor upon the occurrence of
an event or circumstance which, with the giving of notice and/or the passage of
time, would constitute a Lease Default, which may be exercised at any time
thereafter, Lessee shall, upon written request of Lessor, on the first day on
the calendar month immediately following such request, and on the first day of
each calendar month thereafter during the Term (each of which dates is referred
to as a "Monthly Deposit Date"), pay to and deposit with Lessor a sum equal to
one-twelfth (1/12th) of the Impositions to be levied, charged, filed, assessed
or imposed upon or against the Leased Property within one (1) year after said
Monthly Deposit Date and a sum equal to one-twelfth (1/12th) of the premiums for
the insurance policies required pursuant to Article 12 which are payable within
one (1) year after said Monthly Deposit Date. If the amount of the Impositions
to be levied, charged, assessed or imposed or insurance premiums to be paid
within the ensuing one (1) year period shall not be fixed upon any Monthly
Deposit Date, such amount for the purpose of computing the deposit to be made by
Lessee hereunder shall be estimated by Lessor based upon the most recent
available information concerning said Impositions with an appropriate adjustment
to be promptly made between Lessor and Lessee as soon as such amount becomes
determinable. in addition, Lessor may, at its option, from time to time require
that any particular deposit be greater than one-twelfth (1/12th) of the
estimated amount payable within one (1) year after said
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Monthly Deposit Date, if such additional deposit is required in order to
provide to Lessor a sufficient fund from which to make payment of all
Impositions on or before the next due date of any installment thereof, or
to make payment of any required insurance premiums not later than the due
date thereof.
4.6.2 USE OF DEPOSITS. The sums deposited by Lessee under this Section
4.6 shall be held by Lessor and shall be applied in payment of the Impositions
or insurance premiums, as the case may be, when due. Any such deposits may be
commingled with other assets of Lessor, and shall be deposited by Lessor at such
bank as Lessor may, from time to time select, and, provided that Lessor has
invested such deposits in one or more of the investment vehicles described on
SCHEDULE 4.6.2 attached hereto and incorporated by reference, Lessor shall not
be liable to Lessee or any other Person (a) based on Lessor's (or such bank's)
choice of investment vehicles, (b) for any consequent loss of principal or
interest or (c) for any unavailability of funds based on such choice of
investment. Furthermore, Lessor shall bear no responsibility for the financial
condition of, nor any act or omission by, Lessor's depository bank. The income
from such investment or interest on such deposit shall be paid to Lessee on a
semi-annual basis as long as no Lease Default has occurred and is then
continuing, and as long as no fact or circumstance exists which, with the giving
of notice and/or the passage of time, would constitute a Lease Default. Lessee
shall give not less than ten (10) days prior written notice to Lessor in each
instance when an Imposition or insurance premium is due, specifying the
Imposition or premium to be paid and the amount thereof, the place of payment,
and the last day on which the same may be paid in order to comply with the
requirements of this Lease. If Lessor, in violation of its obligations under
this Lease, does not pay any Imposition or insurance premium when due, for which
a sufficient deposit exists, Lessee shall not be in default hereunder by virtue
of the failure of Lessor to pay such Imposition or such insurance premium and
Lessor shall pay any interest or fine assessed by virtue of Lessor's failure to
pay such Imposition or insurance premium.
4.6.3 DEFICITS. If for any reason any deposit held by Lessor under this
Section 4.6 shall not be sufficient to pay an Imposition or insurance premium
within the time specified therefor in this Lease, then, within ten (10) days
after demand by Lessor, Lessee shall deposit an additional amount with Lessor,
increasing the deposit held by Lessor so that Lessor holds sufficient funds to
pay such Imposition or premium in full (or in installments as otherwise provided
for herein), together with any penalty or interest due
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thereon. Lessor may change its estimate of any Imposition or insurance premium
for any period on the basis of a change in an assessment or tax rate or on the
basis of a prior miscalculation or for any other good faith reason; in which
event, within ten (10) days after demand by Lessor, Lessee shall deposit with
Lessor the amount in excess of the sums previously deposited with Lessor for the
applicable period which would theretofore have been payable under the revised
estimate.
4.6.4 OTHER PROPERTIES. If any Imposition shall be levied, charged,
filed, assessed, or imposed upon or against the Leased Property, and if such
Imposition shall also be a levy, charge, assessment, or imposition upon or for
any other real or personal property that does not constitute a part of the
Leased Property but for which a lien exists or can exist upon the Leased
Property, then, at Lessor's reasonable discretion, the computation of the
amounts to be deposited under this Section 4.6 shall be based upon the entire
amount of such Imposition and Lessee shall not have the right to apportion any
deposit with respect to such Imposition.
4.6.5 TRANSFERS. In connection with any assignment of Lessor's
interest under this Lease, the original Lessor named herein and each successor
in interest shall transfer all amounts deposited pursuant to the provisions of
this Section 4.6 and still in its possession to such assignee (as the subsequent
holder of Lessor's interest in this Lease) and upon such transfer, the original
Lessor named herein or the applicable successor in interest transferring the
deposits shall thereupon be completely released from all liability with respect
to such deposits so transferred and Lessee shall look solely to said assignee,
as the subsequent holder of Lessor's interest under this Lease, in reference
thereto.
4.6.6 SECURITY. All amounts deposited with Lessor pursuant to the
provisions of this Section 4.6 shall be held by Lessor as additional security
for the payment and performance of the Obligations and, upon the occurrence of
any Lease Default, Lessor may, in its sole and absolute discretion, apply said
amounts towards payment or performance of such Obligations.
4.6.7 RETURN. Upon the expiration or earlier termination of this
Lease, provided that all of the Lease Obligations relating to the Leased
Property have been fully paid and performed, any sums then held by Lessor under
this Section 4.6 shall be refunded to Lessee.
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4.6.8 RECEIPTS. Lessee shall deliver to Lessor copies of all notices,
demands, claims, bills and receipts in relation to the Impositions and insurance
premiums upon the earlier to occur of (a) ten (10) days following receipt
thereof by Lessee and (b) in the case of an invoice, demand or bill for the
payment of an Imposition, prior to the date when such Imposition is due and
payable.
ARTICLE 5
OWNERSHIP OF LEASED PROPERTY AND PERSONAL PROPERTY;
INSTALLATION, REMOVAL AND REPLACEMENT OF
PERSONAL PROPERTY;
5.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee acknowledges that the Leased
Property is the property of Lessor and that Lessee has only the right to the
exclusive possession and use of the Leased Property upon the terms and
conditions of this Lease.
5.2 PERSONAL PROPERTY; REMOVAL AND REPLACEMENT OF PERSONAL PROPERTY.
5.2.1 LESSEE TO EQUIP FACILITY. If and to the extent not included in
the Leased Property, Lessee, at its sole cost and expense, shall install, affix
or assemble or place on the Leased Property, sufficient items of Tangible
Personal Property, to enable the operation of the Facility in accordance with
the requirements of this Lease for the Primary Intended Use, and such Tangible
Personal Property and replacements thereof, shall be at all times the property
of Lessee.
5.2.2 SUFFICIENT PERSONAL PROPERTY. Lessee shall maintain, during the
entire Term, the Tangible Personal Property in good order and repair and shall
provide at its expense all necessary replacements thereof, as may be necessary
in order to operate the Facility in compliance with all applicable Legal
Requirements and Insurance Requirements and otherwise in accordance with
customary practice in the industry for the Primary Intended Use and, if
applicable, Other Permitted Uses. In addition, Lessee shall furnish all
necessary replacements of such obsolete items of the Tangible Personal Property
during the Term as are necessary to enable the operation of the Facility in
accordance with the requirements of this Lease for the Primary Intended Use.
5.2.3 REMOVAL AND REPLACEMENT; LESSOR'S OPTION TO PURCHASE. Lessee
shall not remove from the Leased Property any one or more items of Tangible
Personal Property (whether now owned or hereafter acquired), the fair market
value of
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which exceeds TWENTY-FIVE THOUSAND DOLLARS ($25,000), individually or ONE
HUNDRED THOUSAND DOLLARS ($100,000.00) collectively, if such Tangible
Personal Property is necessary to enable the operation of the Facility in
accordance with the requirements of this Lease for the Primary Intended
Use. At its sole cost and expense, Lessee shall restore the Leased
Property to the condition required by Article 8, including repair of all
damage to the Leased Property caused by the removal of the Tangible
Personal Property, whether effected by Lessee or Lessor. Upon the
expiration or earlier termination of this Lease, Lessor shall have the
option, which may be exercised by giving notice thereof within twenty (20)
days prior to such expiration or termination, of (a) acquiring the Tangible
Personal Property (pursuant to a bill of sale and assignments of any
equipment leases, all in such forms as are reasonably satisfactory to
Lessor) upon payment of its fair market value or (b) requiring Lessee to
remove the Tangible Personal Property. If Lessor exercises its option to
purchase the Tangible Personal Property, the price to be paid by Lessor
shall be (i) reduced by the amount of all payments due on any equipment
leases or any other Permitted Prior Security Interests assumed by Lessor
and (ii) applied to the Lease Obligations before any payment to Lessee. If
Lessor requires the removal of the Tangible Personal Property, then all of
the Tangible Personal Property that is not removed by Lessee within ten
(10) days following such request shall be considered abandoned by Lessee
and may be appropriated, sold, destroyed or otherwise disposed of by Lessor
without first giving notice thereof to Lessee, without any payment to
Lessee and without any obligation to account therefor.
ARTICLE 6
SECURITY FOR LEASE OBLIGATIONS
6.1 SECURITY FOR LESSEE'S OBLIGATIONS; PERMITTED PRIOR SECURITY INTERESTS.
6.1.1 SECURITY. In order to secure the payment and performance of all
of the Obligations, Lessee agrees to provide or cause there to be provided the
following security:
(a) a first lien and exclusive security interest in the Collateral, as
more particularly provided for in the Security Agreement;
(b) the Cash Collateral.
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(c) a first lien and exclusive pledge and assignment of, and security
interest in, all Permits and Contracts, as more particularly provided for in the
Collateral Assignment of Permits and Contracts; and
(d) in the event that, at any time during the Term, Lessee holds the fee
title to or a leasehold interest in any real property and/or personal property
which is used as an integral part of the operation of the Leased Property (but
is not subject to this Lease), Lessee shall (i) provide Lessor with prior notice
of such acquisition and (ii) shall take such actions and enter into such
agreements as Lessor shall reasonably request in order to grant Lessor a first
priority mortgage or other security interest in such real property and personal
property, subject only to the Permitted Encumbrances and other Liens reasonably
acceptable to Lessor. Without limiting the foregoing, it is acknowledged and
agreed that all revenues generated from the operation of such additional real
property shall be included in the determination of Gross Revenues (subject to
such adjustments as agreed upon hereunder).
Notwithstanding the foregoing, Lessor shall subordinate its security
interest in Receivables to a prior security interest to secure a working capital
line as provided in Section 6.1.3.
6.1.2 PURCHASE-MONEY SECURITY INTERESTS AND EQUIPMENT LEASES.
Notwithstanding any other provision hereof regarding the creation of Liens,
Lessee may (a) grant priority purchase money security interests in items of
Tangible Personal Property, (b) lease Tangible Personal Property from equipment
lessors as long as: (i) the aggregate value of such Tangible Personal Property
shall not exceed TWO HUNDRED THOUSAND DOLLARS ($200,000) or (ii) (A) the secured
party or equipment lessor enters into an intercreditor agreement with, and
satisfactory to, Lessor, pursuant to which, without limiting the foregoing, (1)
Lessor shall be afforded the option of curing defaults and the option of
succeeding to the rights of Lessee and (2) Lessor's security interest in
Tangible Personal Property shall be subordinated to the security interest
granted to such secured party, (B) all of the terms, conditions and provisions
of the financing, security interest or lease are reasonably acceptable to
Lessor, (C) Lessee provides a true and complete copy, as executed, of each such
purchase money security agreement, financing document and equipment lease and
all amendments thereto and (D) no such security interest, financing agreement
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or lease is cross-defaulted or cross-collateralized with any other
obligation. Security interests granted by Lessee in full compliance with
the provisions of this Section 6.1.2 are referred to as "Permitted Prior
Security Interests".
6.1.3 RECEIVABLES FINANCING. Notwithstanding any other provision hereof
regarding the creation of Liens, Lessee shall also be permitted to grant a prior
security interest in Receivables (with the Lessor retaining a junior security
interest therein) to an institutional lender which is providing a working
capital line of credit (a "Working Capital Loan") for the exclusive use of
Guarantor, Lessee and Affiliates of Lessee as long as such Lender enters into an
intercreditor agreement with, and satisfactory to, Lessor pursuant to which,
without limiting the foregoing, (1) Lessor shall be provided with notice with
respect to defaults under the Working Capital Loan simultaneously with the
delivery of such notice to Lessee and shall be afforded the option of curing
defaults thereunder, (2) such lender's use of Instruments, Documents, General
Intangibles and Chattel Paper shall be limited to a license only for the purpose
of collecting Receivables and (3) the subordination of Lessor's interest in the
Receivables shall be of no force and effect and Lessor's first priority security
interest shall be reinstated from and after the occurrence of an Event of
Default if, upon or following such Event of Default, Lessor either exercises any
of its remedies set forth in Article 16 or Lessor notifies in writing such
lender of Lessor's intention to invoke its right to reinstate its first priority
security interest in the Receivables.
6.2 GUARANTY. All of the Lease Obligations shall be unconditionally and
irrevocably guaranteed by the Guarantor pursuant to the Guaranty of Lease
Obligations.
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTY;
MANAGEMENT AGREEMENTS
7.1 CONDITION OF THE LEASED PROPERTY. Lessee acknowledges that Lessee has
caused the Leased Property to be sold to Lessor and has concurrently entered
into this Lease. Lessee acknowledges receipt and delivery of possession of the
Leased Property and that Lessee has examined and otherwise has acquired
knowledge of the condition of the Leased Property prior to the execution and
delivery of this Lease and has found the same to be
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in good order and repair and satisfactory for its purposes hereunder. Lessee is
leasing the Leased Property "AS-IS" in its present condition, provided, however,
that nothing herein contained in this Section 7.1 shall be deemed to modify the
terms and provisions of the Leasehold Improvement Agreement. Lessee waives any
claim or action against lessor in respect of the condition of the Leased
Property. LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH
RESPECT TO THE LEASED PROPERTY, EITHER AS TO ITS FITNESS FOR ANY PARTICULAR
PURPOSE OR USE, ITS DESIGN OR CONDITION OR OTHERWISE, OR AS TO DEFECTS IN THE
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT; IT BEING
AGREED THAT ALL RISKS RELATING TO THE DESIGN, CONDITION AND/OR USE OF THE LEASED
PROPERTY ARE TO BE BORNE BY LESSEE. LESSEE HEREBY ASSUMES ALL RISK OF THE
PHYSICAL CONDITION OF THE LEASED PROPERTY, THE SUITABILITY OF THE LEASED
PROPERTY FOR LESSEE'S PURPOSES, AND THE COMPLIANCE OR NON-COMPLIANCE OF THE
LEASED PROPERTY WITH ALL APPLICABLE REQUIREMENTS OF LAW, INCLUDING BUT NOT
LIMITED TO ENVIRONMENTAL LAWS AND ZONING OR LAND USE LAWS.
Upon the request of Lessor, at any time and from time to time during the
Term, Lessee shall engage one (1) or more independent professional consultants,
engineers and inspectors, qualified to do business in the State and acceptable
to Lessor to perform any environmental and/or structural investigations and/or
other inspections of the Leased Property and the Facility as Lessor may
reasonably request in order to detect (a) any structural deficiencies in the
Leased Improvements or the utilities servicing the Leased Property or (b) the
presence of any condition that (i) may be harmful or present a health hazard to
the residents and other occupants of the Leased Property or (ii) constitutes a
breach or violation of any of the Lease Documents. In the event that Lessor
reasonably determines that the results of such testing or inspections are
unsatisfactory, within thirty (30) days of notice from Lessor, Lessee shall
commence such appropriate remedial actions as may be reasonably requested by
Lessor to correct such unsatisfactory conditions and, thereafter, shall
diligently and continuously prosecute such remedial actions to completion within
the time limits prescribed in this Lease or the other Lease Documents.
7.2 USE OF THE LEASED PROPERTY; COMPLIANCE; MANAGEMENT.
7.2.1 OBLIGATION TO OPERATE. Lessee shall continuously operate the
Leased Property in accordance with the Primary Intended Use and the Other
Permitted Uses and maintain its qualifications for licensure and accreditation
as required by all applicable Legal Requirements.
7.2.2 PERMITTED USES. During the entire Term, Lessee shall use the
Leased Property, or permit the Leased Property to be used, only for the Primary
Intended Use and,
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if applicable, the Other Permitted Uses. Lessee shall not use the Leased
Property or permit the Leased Property to be used for any other use without the
prior written consent of Lessor, which consent may be withheld in Lessor's sole
and absolute discretion.
7.2.3 COMPLIANCE WITH INSURANCE REQUIREMENTS. No use shall be made or
permitted to be made of the Leased Property and no acts shall be done which will
cause the cancellation of any insurance policy covering the Leased Property, nor
shall Lessee, any Manager or any other Person sell or otherwise provide to
residents, other occupants or invitees therein, or permit to be kept, used or
sold in or about the Leased Property, any article which may be prohibited by any
of the Insurance Requirements. Furthermore, Lessee shall, at its sole cost and
expense, take whatever other actions that may be necessary to comply with and to
insure that the Leased Property complies with all Insurance Requirements.
7.2.4 NO WASTE. Lessee shall not commit or suffer to be committed any
waste on, in or under the Leased Property, nor shall Lessee cause or permit any
nuisance thereon.
7.2.5 NO IMPAIRMENT. Lessee shall neither permit nor knowingly suffer
the Leased Property to be used in such a manner as (a) might reasonably tend to
impair Lessor's title thereto or (b) may reasonably make possible a claim or
claims of adverse usage or adverse possession by the public or of implied
dedication of the Leased Property.
7.2.6 NO LIENS. Except as permitted pursuant to Section 6.1.2, Lessee
shall not permit or suffer any Lien to exist on the Tangible Personal Property
and shall in no event cause, permit or suffer any Lien to exist with respect to
the Leased Property other than as set forth in Section 11.5.2.
7.3 COMPLIANCE WITH LEGAL REQUIREMENTS. Lessee covenants and agrees that
the Leased Property shall not be used for any unlawful purpose and that Lessee,
at its sole cost and expense, will promptly (a) comply with, and shall cause
every other member of the Leasing Group to comply with, all applicable Legal
Requirements relating to the use, operation, maintenance, repair and restoration
of the Leased Property, whether or not compliance therewith shall require
structural change in any of the Leased Property or interfere with the use and
enjoyment of the Leased Property and (b) procure, maintain and comply with (in
all material respects), and shall cause every other member of the Leasing Group
to procure, maintain and comply with (in all material respects), all Contracts
and Permits necessary or
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desirable in order to operate the Leased Property for the Primary Intended Use
and/or, if applicable, Other Permitted Uses, and for compliance with all of the
terms and conditions of this Lease. Unless a Lease Default has occurred or any
event has occurred which, with the passage of time and/or the giving of notice
would constitute a Lease Default, Lessee may, upon prior written notice to
Lessor, contest any Legal Requirement to the extent permitted by, and in
accordance with, Article 15 below.
7.4 MANAGEMENT AGREEMENTS. Throughout the Term, Lessee shall not enter
into any Management Agreement without the prior written approval of Lessor, in
each instance, which approval shall not be unreasonably withheld. Lessee shall
not, without the prior written approval of Lessor, in each instance, which
approval shall not be unreasonably withheld, agree to or allow: (a) any change
in the Manager or change in the ownership or control of the Manager, (b) the
termination of any Management Agreement (other than in connection with the
exercise by Lessee of any of its remedies under the Management Agreement as a
result of any default by the Manager thereunder), (c) any assignment by the
manager of its interest under the Management Agreement or (d) any material
amendment of the Management Agreement. In addition, Lessee shall, at its sole
cost and expense, promptly and fully perform or cause to be performed every
covenant, condition, promise and obligation of the licensed operator of the
Leased Property under any Management Agreement.
Each Management Agreement shall provide that Lessor shall be provided
notice of any defaults thereunder and, at Lessor's option, an opportunity to
cure such default. Lessee shall furnish to Lessor, within three (3) days after
receipt thereof, or after the mailing or service thereof by Lessee, as the case
may be, a copy of each notice of default which Lessee shall give to, or receive
from any Person, based upon the occurrence, or alleged occurrence, of any
default in the performance of any covenant, condition, promise or obligation
under any Management Agreement.
Whenever and as often as Lessee shall fail to perform, promptly and fully,
at its sole cost and expense, any covenant, condition, promise or obligation on
the part of the licensed operator of the Leased Property under and pursuant to
any Management Agreement, Lessor, or a lawfully appointed receiver of the Leased
Property, may, at their respective options land without any obligation to do
so), after five (5) days' prior notice to Lessee (except in the case of an
emergency) enter upon the Leased Property and perform, or cause to be performed,
such work, labor, services, acts or things, and take such other steps and do
such other acts as they may deem advisable, to cure such defaulted covenant,
condition, promise or obligation, and any amount so paid or advanced by Lessor
or such receiver and all costs and expenses reasonably incurred in connection
therewith
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(including, without limitation, attorneys' fees and expenses and court costs),
shall be a demand obligation of Lessee to Lessor or such receiver, and, Lessor
shall have the same rights and remedies for failure to pay such costs on demand
as for Lessee's failure to pay any other sums due hereunder.
7.5 PARTICIPATION IN THIRD PARTY PAYOR PROGRAMS. No provision of this
Lease shall be deemed to require Lessee to commence participation in any Third
Party Payor Program or any Managed Care Plan.
ARTICLE 8
REPAIRS; RESTRICTIONS
8.1 MAINTENANCE AND REPAIR.
8.1.1 LESSEE'S RESPONSIBILITY. Lessee, at its sole cost and expense,
shall keep the Leased Property (with respect to the Project, to the extent
consistent with the stage of construction of the Project) and all private
roadways, sidewalks and curbs appurtenant thereto which are under Lessee's
control in good order and repair (whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
the Leased Property or such private roadways, sidewalks and curbs or any other
cause whatsoever other than Lessor's gross negligence or willful misconduct)
and, subject to Articles 9, 13 and 14, Lessee shall promptly, with the exercise
of all reasonable efforts, undertake and diligently complete all necessary and
appropriate repairs, replacements, renovations, restorations, alterations and
modifications thereof of every kind and nature, whether interior or exterior,
structural or non-structural, ordinary or extraordinary, foreseen or unforeseen
or arising by reason of a condition (concealed or otherwise) existing prior to
the commencement of, or during, the Term and thereafter until Lessee surrenders
the Leased Property in the manner required by this Lease. In addition, Lessee,
at its sole cost and expense, shall make all repairs, modifications,
replacements, renovations and alterations of the Leased Property (and such
private roadways, sidewalks and curbs) that are necessary to comply with all
applicable Legal Requirements and Insurance Requirements so that the Leased
Property can be legally operated for the Primary Intended Use and, if
applicable, the Other Permitted Uses. All repairs, replacements, renovations,
alterations, and modifications required by the terms of this Section 8.1 shall
be (a) performed in a good and workmanlike manner in compliance with all
applicable Legal Requirements, Insurance Requirements and the requirements of
Article 9 hereof, using new materials well suited for their intended purpose and
(b)
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consistent with the operation of the Facility in a reputable manner.
Lessee will not take or omit to take any action the taking or omission of
which might materially impair the value or the usefulness of the Leased
Property for the Primary Intended Use and, if applicable, the Other
Permitted Uses. To the extent that any of the repairs, replacements,
renovations, alterations or modifications required by the terms of this
Section 8.1 constitute Material Structural Work, Lessee shall obtain
Lessor's prior written approval (which approval shall not be unreasonably
withheld) of the specific repairs, replacements, renovations, alterations
and, modifications to be performed by or on behalf of Lessee in connection
with such Material Structural Work.
Notwithstanding the foregoing, in the event of a bona fide emergency during
which Lessee is unable to contact the appropriate representatives of
Lessor, Lessee may commence such Material Structural Work as may be
necessary in order to address such emergency without Lessor's prior
approval, PROVIDED, HOWEVER, that Lessee shall immediately thereafter
advise Lessor of such emergency and the nature and scope of the Material
Structural Work commenced and shall obtain Lessor's approval of the
remaining Material Structural Work to be completed.
8.1.2 NO LESSOR OBLIGATION. Lessor shall not, under any circumstances,
be required to build or rebuild any improvements on the Leased Property (or any
private roadways, sidewalks or curbs appurtenant thereto), or to make any
repairs, replacements, renovations, alterations, restorations, modifications, or
renewals of any nature or description to the Leased Property (or any private
roadways, sidewalks or curbs appurtenant thereto), whether ordinary or
extraordinary, structural or non-structural, foreseen or unforeseen, or to make
any expenditure whatsoever with respect thereto in connection with this Lease,
or to maintain the Leased Property (or any private roadways, sidewalks or curbs
appurtenant thereto) in any way.
8.1.3 LESSEE MAY NOT OBLIGATE LESSOR. Nothing contained herein nor any
action or inaction by Lessor shall be construed as (a) constituting the consent
or request of Lessor, express or implied, to any contractor, subcontractor,
laborer, materialman or vendor to or for the performance of any labor or
services for any construction, alteration, addition, repair or demolition of or
to the Leased Property or (b) except as otherwise provided in this Lease, giving
Lessee any right, power or permission to contract for or permit the performance
of any labor or services or the furnishing of any materials or other property in
such fashion as would permit the making of any claim against Lessor for the
payment thereof or to make any agreement that may create, or in any way be the
basis for,
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any right, title or interest in, or Lien or claim against, the estate of
Lessor in the Leased Property. Without limiting the generality of the
foregoing and except as otherwise provided in this Lease, the right title
and interest of Lessor in and to the Leased Property shall not be subject
to liens or encumbrances for the performance of any labor or services or
the furnishing of any materials or other property furnished to the Leased
Property at or by the request of Lessee or any other Person other than
Lessor. Lessee shall notify any contractor, subcontractor, laborer,
materialman or vendor providing any labor, services or materials to the
Leased Property of this provision.
8.2 ENCROACHMENTS; TITLE RESTRICTIONS. If any of the Leased Improvements
shall, at any time, encroach upon any property, street or right-of-way adjacent
to the Leased Property, or shall violate the agreements or conditions contained
in any lawful restrictive covenant or other Lien now or hereafter affecting the
Leased Property, or shall impair the rights of others under any easement, right-
of-way or other Lien to which the Leased Property is now or hereafter subject,
then promptly upon the request of Lessor, Lessee shall, at its sole cost and
expense, subject to Lessee's right to contest the existence of any encroachment,
violation or impairment as set forth in Article 15, (a) obtain valid and
effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation or impairment or (b) make such
alterations to the Leased Improvements, and take such other actions, as Lessee
in the good faith exercise of its judgment deems reasonably practicable, to
remove such encroachment, or to end such violation or impairment, including, if
necessary, the alteration of any of the Leased Improvements. Notwithstanding
the foregoing, Lessee shall, in any event, take all such actions as may be
reasonably necessary in order to be able to continue the operation of the Leased
Improvements for the Primary Intended Use and, if applicable, the Other
Permitted Uses substantially in the manner and to the extent that the Leased
Improvements were operated prior to the assertion of such encroachment,
violation or impairment and nothing contained herein shall limit Lessee's
obligations to operate the Leased Property in accordance with its Primary
Intended Use. Any such alteration made pursuant to the terms of this Section
8.2 shall be completed in conformity with the applicable requirements of Section
8.1 and Article 9. Lessee's obligations under this Section 8.2 shall be in
addition to and shall in no way discharge or diminish any obligation of any
insurer under any policy of title or other insurance. If and to the extent any
obligation of an insurer under any policy of title or other insurance exists and
Lessee has incurred costs and expenses with respect to the subject matter of
such obligation and provided Lessor is reasonably satisfied with the resolution
of such subject matter, at the request of Lessee, Lessor, at Lessor's option,
shall either assign to Lessee any right it may
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have to proceed against such insurer or remit to Lessee any amount which Lessor
recovers from such insurer, minus any amounts needed to reimburse Lessor for its
reasonable costs and expenses, for the costs and expenses incurred by Lessee in
reconstructing the Facility or taking such other action reasonably required in
order to create a viable and functional Facility under all of the circumstances.
ARTICLE 9
MATERIAL STRUCTURAL WORK AND
CAPITAL ADDITIONS
9.1 LESSOR'S APPROVAL. Without the prior written consent of Lessor, which
consent may be withheld by Lessor, in its sole and absolute discretion, Lessee
shall make no Capital Addition or Material Structural Work to the Leased
Property (including, without limitation, any change in the size or unit capacity
of the Facility), except as may be otherwise expressly required pursuant to
Article 8.
9.2 GENERAL PROVISIONS AS TO CAPITAL ADDITIONS AND CERTAIN MATERIAL
STRUCTURAL WORK. As to any Capital Addition or Material Structural Work (other
than such Material Structural Work that is required to be performed pursuant to
the terms of Section 8.1) for which Lessor has granted its prior written
approval, the following terms and conditions shall apply unless otherwise
expressly set forth in Lessor's written approval.
9.2.1 NO LIENS. Lessee shall not be permitted to create any Lien on
the Leased Property in connection with any Capital Addition or Material
Structural Work (including, without limitation, Liens relating to the provision
of financing for a Capital Addition) other than Liens expressly permitted by the
terms and provisions of this Lease Agreement.
9.2.2 LESSEE'S PROPOSAL REGARDING CAPITAL ADDITIONS AND MATERIAL
STRUCTURAL WORK. If Lessee desires to undertake any Capital Addition or Material
Structural Work, Lessee shall submit to Lessor in writing a proposal setting
forth in reasonable detail any proposed Capital Addition or Material Structural
Work and shall provide to Lessor copies of, or information regarding, the
applicable plans and specifications, Permits, Contracts and any other materials
concerning the proposed Capital Addition or Material Structural Work, as the
case may be, as Lessor may reasonably request. Without limiting the generality
of the foregoing, each such proposal pertaining to any Capital Addition shall
indicate the approximate projected cost of constructing such Capital Addition,
the use or uses to which
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it will be put and a good faith estimate of the change, if any, in the
Gross Revenues that Lessee anticipates will result from the construction of
such Capital Addition.
9.2.3 LESSOR'S OPTIONS REGARDING CAPITAL ADDITIONS AND MATERIAL
STRUCTURAL WORK. Lessor shall have the options of: (a) denying permission for
the construction of the applicable Capital Addition or Material Structural Work,
(b) offering to finance the construction of the Capital Addition pursuant to
Section 9.3 on such terms as may be specified by Lessor, including the terms of
any amendment to this Lease, including, without limitation, an increase in Base
Rent based on Lessor's then existing terms and prevailing conditions to
compensate Lessor for the additional funds advanced by it, (c) allowing Lessee
to separately pay for or finance the construction of the Capital Addition,
subject to compliance with the terms and conditions of Section 9.2.1, Section
9.4, Section 13.1.3, all applicable Legal Requirements, all other requirements
of this Lease and to such other terms and conditions as Lessor may in its
discretion reasonably impose or (d) any combination of the foregoing. Unless
Lessor notifies Lessee in writing of a contrary election within thirty (30) days
of Lessee's request or unless Lessor is required to consent thereto pursuant to
this Section 9.2.3, Lessor shall be deemed to have denied the request for the
Capital Addition or Material Structural Work. In the event and to the extent
Lessor has granted permission for the construction of the applicable Capital
Addition or Material Structural Work and (x) Lessor has not offered to finance
the construction of the same or (y) Lessee declines to accept the financing
offered by Lessor, Lessee may separately finance such construction, subject to
the limitation on Liens set forth in Section 9.2.1, or pay for such construction
itself. In the event Lessee declines to accept the financing offered by Lessor
or if Lessor has not offered such financing to Lessee and proposes to obtaining
financing from another Person, Lessee shall inform Lessor in writing of the
terms and conditions of such financing and shall provide Lessor with a copy of a
commitment letter evidencing the same and Lessor may, by giving notice thereof
to Lessee within twenty (20) days following being so informed, elect to provide
financing to Lessee at the effective rate of interest as such financing. Lessor
shall not unreasonably withhold its permission for the construction of Material
Structural Work which is necessary to protect the safety or welfare of residents
of the Facility.
9.2.4 LESSOR MAY ELECT TO FINANCE CAPITAL ADDITIONS. If Lessor elects
to offer financing for the proposed Capital Addition and Lessee accepts lessor's
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financing proposal, the provisions of Section 9.3 shall apply.
9.3 CAPITAL ADDITIONS FINANCED BY LESSOR.
9.3.1 ADVANCES. All advances of funds for any such financing shall be
made in accordance with Lessor's then standard construction loan requirements
and procedures, which may include, without limitation, the requirements and
procedures applicable to Work under Sections 13.1.3.
9.3.2 LESSOR'S GENERAL REQUIREMENTS. It Lessor agrees to finance the
proposed Capital Addition and Lessee accepts Lessor's proposal therefor, in
addition to all other items which Lessor or any applicable Financing Party may
reasonably require, Lessee shall provide to Lessor the following:
(a) prior to any advance of funds, (i) any information, opinions,
certificates, Permits or documents reasonably requested by Lessor or any
applicable Financing Party which are necessary to confirm that Lessee is
reasonably expected to be able to use the Capital Addition upon completion
thereof in accordance with the Primary Intended Use and/or, if applicable, the
Other Permitted Uses and (ii) evidence satisfactory to Lessor and any applicable
Financing Party that all Permits required for the construction and use of the
Capital Addition have been received, are in full force and effect and are not
subject to appeal, except only for those Permits which cannot in the normal
course be obtained prior to commencement or completion of the construction;
PROVIDED, THAT Lessor and any applicable Financing Party are furnished with
reasonable evidence that the same is reasonably expected to be available in the
normal course of business without unusual condition;
(b) prior to any advance of funds, an Officer's Certificate and, if
requested, a certificate from Lessee's architect, setting forth in reasonable
detail the projected (or actual, if available) Capital Addition Cost;
(c) bills of sale, instruments of transfer and other documents required by
Lessor so as to vest title to the Capital Addition in Lessor free and clear of
all Liens (except to the extent a Lien is being duly contested in accordance
with the terms and provisions of this Lease), and amendments to this Lease and
any recorded notice or memorandum thereof, duly executed and acknowledged, in
form and substance reasonably
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satisfactory to Lessor, providing for any changes required by Lessor
including, without limitation, changes in the Base Rent and the legal
description of the Land;
(d) upon payment therefor, a deed conveying to Lessor title to any land
acquired for the purpose of constructing the Capital Addition ("Additional
Land") free and clear of any Liens except those approved by Lessor;
(e) upon completion of the Capital Addition, a final as-built survey
thereof reasonably satisfactory to Lessor, if required by Lessor;
(f) during and following the advance of funds and the completion of the
Capital Addition, endorsements to any outstanding policy of title insurance
covering the Leased Property satisfactory in form and substance to Lessor (i)
updating the same without any additional exception except as may be reasonably
permitted by Lessor and (ii) increasing the coverage thereof by an amount equal
to the Fair Market Value of the Capital Addition and/or increasing the coverage
thereof by an amount equal to the Fair Market Value of the Additional Land and
including the Additional Land in the premises covered by such title insurance
policy;
(g) simultaneous with the initial advance of funds, if appropriate, (i) an
owner's policy of title insurance insuring fee simple title to any Additional
Land conveyed to Lessor pursuant to subparagraph (d) free and clear of all Liens
except those approved by Lessor and (ii) an owner's policy of title insurance
reasonably satisfactory in form and substance to Lessor and a lender's policy of
title insurance reasonably satisfactory in form and substance to any applicable
Financing Party;
(h) following the completion of the Capital Addition, if reasonably deemed
necessary by Lessor, an appraisal of the Leased Property by an M.A.I. appraiser
acceptable to Lessor, which states that the Fair Market Value of the Leased
Property upon completion of the Capital Addition exceeds the Fair Market Value
of the Leased Property prior to the commencement of such Capital Addition by an
amount not less than one hundred twenty-five percent (125%) of the Capital
Addition Cost; and
(i) during or following the advancement of funds, prints of architectural
and engineering drawings
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relating to the Capital Addition and such other materials, including,
without limitation, the modifications to outstanding policies of title
insurance contemplated by subsection (f) above, opinions of counsel,
appraisals, surveys, certified copies of duly adopted resolutions of the
board of directors of Lessee authorizing the execution and delivery of the
lease amendment and any other documents and instruments as may be
reasonably required by Lessor and any applicable Financing Party.
9.3.3 PAYMENT OF COSTS. By virtue of making a request to finance a
Capital Addition, whether or not such financing is actually consummated, Lessee
shall be deemed to have agreed to pay, upon demand, all costs and expenses
reasonably incurred by Lessor and any Person participating with Lessor in any
way in the financing of the Capital Addition Cost, including, but not limited to
(a) fees and expenses of their respective attorneys, (b) all photocopying
expenses, if any, (c) the amount of any filing, registration and recording taxes
and fees, (d) documentary stamp taxes and intangible taxes (e) title insurance
charges and appraisal fees.
9.4 GENERAL LIMITATIONS. Without in any way limiting Lessor's options
with respect to proposed Capital Additions or Material Structural Work: (a) no
Capital Addition or Material Structural Work shall be completed that could, upon
completion, significantly alter the character or purpose or detract from the
value or operating efficiency of the Leased Property, or significantly impair
the revenue-producing capability of the Leased Property, or adversely affect the
ability of Lessee to comply with the terms of this Lease; (b) no Capital
Addition or Material Structural Work shall be completed which would tie in or
connect any Leased Improvements on the Leased Property with any other
improvements on property adjacent to the Leased Property (and not part of the
Land covered by this Lease) including, without limitation, tie-ins of buildings
or other structures or utilities, unless Lessee shall have obtained the prior
written approval of Lessor, which approval may be withheld in Lessor's sole and
absolute discretion and (c) all proposed Capital Additions and Material
Structural Work shall be architecturally integrated and consistent with the
Leased Property.
9.5 NON-CAPITAL ADDITIONS. Lessee shall have the obligation and right to
make repairs, replacements and alterations which are not Capital Additions as
required by the other Sections of this Lease, but in so doing, Lessee shall
always comply with and satisfy the conditions of Section 9.4. Lessee shall have
the right, from time to time, to make additions, modifications or improvements
to the Leased Property which do not constitute Capital Additions or Material
Structural
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Work as it may deem to be desirable or necessary for its uses and purposes,
subject to the same limits and conditions imposed under Section 9.4. The cost of
any such repair, replacement, alteration, addition, modification or improvement
shall be paid by Lessee and the results thereof shall be included under the
terms of this Lease and become a part of the Leased Property, without payment
therefor by Lessor at any time. Notwithstanding the foregoing, all such
additions, modifications and improvements which affect the structure of any of
the Leased Improvements, or which involve the expenditure of more than FIFTY
THOUSAND DOLLARS ($50,000.00), shall be undertaken only upon compliance with the
provisions of Section 13.1.3, all applicable Legal Requirements and all other
applicable requirements of this Lease; PROVIDED, HOWEVER, that in the event of a
bona fide emergency during which Lessee is unable to contact the appropriate
representatives of Lessor, Lessee may commence such additions, modifications and
improvements as may be necessary in order to address such emergency without
Lessor's prior approval, as long as Lessee immediately thereafter advises Lessor
of such emergency and the nature and scope of the additions, modifications and
improvements performed and obtains Lessor's approval of the remaining work to be
completed. Any such addition, modification and improvement which affects the
structure of any of the Leased Improvements which is not a Capital Addition or
Material Structural Work shall be exempt from the requirements of Section 9.2
hereof.
9.6 COMPENSATION TO LESSEE FOR CAPITAL ADDITIONS PAID FOR OR FINANCED BY
LESSEE. Upon the expiration or earlier termination of this Lease, except by
reason of the default by Lessee hereunder, Lessor shall compensate Lessee for
all Capital Additions paid for or financed by Lessee in any of the following
ways, determined in the sole discretion of Lessor:
(a) By purchasing all Capital Additions paid for or financed by Lessee
from Lessee for cash in the amount of the Fair Market Added Value (determined as
of the date of such purchase) of all such Capital Additions paid for or financed
by Lessee; or
(b) By purchasing such Capital Addition from Lessee by delivering to
Lessee Lessor's purchase money promissory note in the amount of said Fair Market
Added Value, due and payable no later than eighteen (18) months after the date
of expiration or other termination of this Lease, bearing interest at a rate
equal to one hundred ten percent (110%) of the applicable federal rate
(determined at the time of execution of such note pursuant to Section 1274 of
the Code or any successor section thereto), compounded semiannually, or, if no
such rate exists, or such rate is in excess of that permitted under applicable
law, at the Prime Rate, which interest shall be payable monthly, and which note
shall be secured by a mortgage on the Leased Property, subject to all Liens on
the Leased Property at the time of such purchase; or
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(c) By Lessor assigning to Lessee under appropriate written instruments
the right to receive an amount equal to the Added Value Percentage (determined
as of the expiration of earlier termination of this Lease) from all rent and
other consideration receivable by Lessor under any re-letting or other
disposition of the Leased Property, after deducting all costs and expenses
incurred by Lessor in connection with such re-letting or other disposition of
the leased Property and all costs and expenses of operating and maintaining the
Leased Property during any such new lease which are not borne by the tenant
thereunder. The provisions of this Subparagraph (c) shall remain in effect
until the sale or other final disposition of the Leased Property in which event
Lessor shall pay to Lessee the outstanding balance of the Fair Market Added
Value in accordance with Subparagraph (a), (b), or (d) of this Section 9.6,
after deducting any amounts received by Lessee under this Subparagraph (c); or
(d) Such other arrangement regarding such compensation as shall be mutually
acceptable to Lessor and Lessee.
ARTICLE 10
WARRANTIES AND REPRESENTATIONS
10.1 REPRESENTATIONS AND WARRANTIES. Lessee hereby represents and warrants
to, and covenants and agrees with, Lessor that:
10.1.1 EXISTENCE; POWER; QUALIFICATION.
Lessee is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Washington. Lessee has all requisite corporate power to own and operate
its properties and to carry on its business as now conducted and is duly
qualified to transact business and is in good standing in each jurisdiction
where such qualification is necessary or desirable in order to carry out
its business as presently conducted. As of the date of this Agreement,
Lessee does not have any Subsidiaries and Lessee is not a member of any
partnership or joint venture. Attached hereto as EXHIBIT C is a true and
correct list of all of the shareholders of Lessee and their respective
ownership interests in Lessee;
10.1.2 VALID AND BINDING. Lessee is duly authorized to make and
enter into all of the Lease Documents to which Lessee is a party and to carry
out the transactions contemplated therein. All of the Lease Documents to which
Lessee is a party have been duly executed and delivered by Lessee, and each is a
legal, valid and binding obligation of Lessee, enforceable in accordance with
its terms.
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10.1.3 SINGLE PURPOSE. Lessee is, and during the entire time that
this Lease remains in force and effect shall be, engaged in no business, trade
or activity other than the operation and development of the Leased Property for
the Primary Intended Use and such other activities in which Lessee may be
permitted to engage by the provisions of Meditrust/Emeritus Transaction
Documents. The fiscal year of Lessee, and the Guarantor is the Fiscal Year.
10.1.4 NO VIOLATION. The execution, delivery and performance of
the Lease Documents by the members of the Leasing Group and the consummation by
the members of the Leasing Group of the transactions thereby contemplated shall
not result in any breach of, or constitute a default under, or result in the
acceleration of, or constitute an event which, with the giving of notice or the
passage of time, or both, could result in default or acceleration of any
obligation of any such member of the Leasing Group under any of the Permits or
Contracts or any other contract, mortgage, lien, lease, agreement, instrument,
franchise, arbitration award, judgment, decree, bank loan or credit agreement,
trust indenture or other instrument to which any member of the Leasing Group is
a party or by which any member of the Leasing Group may be bound or affected and
do not violate or contravene any Legal Requirement.
10.1.5 CONSENTS AND APPROVALS. Except as already obtained or filed
or, with respect to the Project, reasonably expected to be obtained in the
ordinary course of business prior to or upon the Completion of the Project, as
the case may be, no consent or approval or other authorization of, or exemption
by, or declaration or filing with, any Person and no waiver of any right by any
Person is required to authorize or permit, or is otherwise required as a
condition of the execution, delivery and performance of its obligations under
the Lease Documents by any member of the Leasing Group or as a condition to the
validity (assuming the due authorization, execution and delivery by Lessor of
the Lease Documents to which it is a party) and the first priority of any Liens
granted under the Lease Documents, except the filing of the Financing
Statements.
10.1.6 NO LIENS OR INSOLVENCY PROCEEDINGS. Each member of the
Leasing Group in existence as of the date hereof is financially solvent and
there are no actions, suits, investigations or proceedings including, without
limitation, outstanding federal or state tax liens, garnishments or insolvency
or bankruptcy proceedings, pending or, to the best of Lessee's knowledge and
belief, threatened:
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(a) against or affecting any member of the Leasing Group, which if
adversely resolved to such member of the Leasing Group, would materially
adversely affect the ability of any of the foregoing to perform their respective
obligations under the Lease Documents;
(b) against or affecting the Leased Property or the ownership,
construction, development, maintenance, management, repair, use, occupancy,
possession or operation thereof; or
(c) which may involve or affect the validity, priority or enforceability
of any of the Lease Documents, at law or in equity, or before or by any
arbitrator or Governmental Authority.
10.1.7 Intentionally deleted.
10.1.8 COMMERCIAL ACTS. Lessee's performance of and compliance with
the obligations and conditions set forth herein and in the other Lease Documents
will constitute commercial acts done and performed for commercial purposes.
10.1.9 ADEQUATE CAPITAL, NOT INSOLVENT. After giving effect to the
consummation of the transactions contemplated by the Lease Documents, each
member of the Leasing Group:
(a) will be able to pay its debts as they become due;
(b) will have sufficient funds or available capital to carry on its
business as now conducted or as contemplated to be conducted (in accordance with
the terms of the Lease Documents); and
(c) will not be rendered insolvent as determined by applicable law.
10.1.10 NOT DELINQUENT. Except as permitted under Section 11.3.8, no
member of the Leasing Group which exists as of the date hereof is delinquent or
claimed to be delinquent under any obligation for the payment of borrowed money.
10.1.11 NO AFFILIATE DEBT. Lessee has not created, incurred, guaranteed,
endorsed, assumed or suffered to exist any liability (whether direct or
contingent) for borrowed money from the Guarantor (or any of its Affiliates) or
any Affiliate of Lessee which has not been fully subordinated to the Lease
Obligations.
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10.1.12 TAXES CURRENT. Each member of the Leasing Group which exists as
of the date hereof has filed all federal, state and local tax returns which are
required to be filed as to which extensions are not currently in effect and has
paid all taxes, assessments, impositions, fees and other governmental charges
(including interest and penalties) which have become due pursuant to such
returns or pursuant to any assessment or notice of tax claim or deficiency
received by each such member of the Leasing Group. No tax liability has been
asserted by the Internal Revenue Service against any member of the Leasing Group
or any other federal, state or local taxing authority for taxes, assessments,
impositions, fees or other governmental charges (including interest or penalties
thereon) in excess of those already paid.
10.1.13 FINANCIALS COMPLETE AND ACCURATE. The financial statements of
each member of the Leasing Group given to Lessor in connection with the
execution and delivery of the Lease Documents were true, complete and accurate,
in all material respects, and fairly presented the financial condition of each
such member of the Leasing Group as of the date thereof and for the periods
covered thereby, having been prepared in accordance with GAAP and such financial
statements disclosed all liabilities, including, without limitation, contingent
liabilities, of each such member of the Leasing Group as of the date thereof.
There has been no material adverse change since such date with respect to the
Net Worth of any such member of the Leasing Group or with respect to any other
matters contained in such financial statements, nor have any additional material
liabilities, including, without limitation, contingent liabilities, of any such
member of the Leasing Group arisen or been incurred or asserted since such date
except as otherwise disclosed to Lessor. The projections heretofore delivered
to Lessor continue to be reasonable (with respect to the material assumptions
upon which such projections are based) and Lessee reasonably anticipates based
on information currently available to it after due inquiry the results projected
therein will be achieved, there having been (a) no material adverse change in
the business, assets or condition, financial or otherwise of any such member of
the Leasing Group or the Leased Property and (b) no material depletion of the
cash or decrease in working capital of any such member of the Leasing Group.
10.1.14 PENDING ACTIONS, NOTICES AND REPORTS.
(a) There is no action or investigation pending or, to the best knowledge
and belief of Lessee, threatened, anticipated or contemplated (nor, to the
knowledge of Lessee, is there any reasonable basis therefor) against or
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affecting the Leased Property or any member of the Leasing Group (or any
Affiliate thereof) before any Governmental Authority, Accreditation Body,
if any or Third Party Payor which could prevent or hinder the consummation
of the transactions contemplated hereby or call into question the validity
of any of the Lease Documents or any action taken or to be taken in
connection with the transactions contemplated thereunder or which in any
single case or in the aggregate might result in any material adverse change
in the business, prospects, condition, affairs of any member of the Leasing
Group or the Leased Property (including, without. limitation, any action to
revoke, withdraw or suspend any Permit necessary or desirable for the
operation of the Leased Property in accordance with its Primary Intended
Use and any action to transfer or relocate any such Permit to a location
other than the Leased Property) or any material impairment of the right or
ability of any member of the Leasing Group to carry on its operations as
presently conducted or, with respect to the Project, proposed upon
Completion of the Project to be conducted with respect to the Leased
Property or with respect to its obligations under the Lease Documents or
which may materially adversely impact reimbursement to any member of the
Leasing Group for services rendered to beneficiaries of Third Party Payor
Programs.
(b) Neither the Facility nor any member of the Leasing Group has received
any notice of any claim, requirement or demand of any Governmental Authority,
Accreditation Body, if any, Third Party Payor or any insurance body having or
claiming any licensing, certifying, supervising, evaluating or accrediting
authority over the Leased Property to rework or redesign the Leased Property,
its professional staff or its professional services, procedures or practices in
any material respect or to provide additional furniture, fixtures, equipment or
inventory or to otherwise take action so as to make the Leased Property conform
to or comply with any Legal Requirement;
(c) The most recent utilization reviews, if any, relating to the Leased
Property by all applicable Third Party Payors, Accreditation Bodies and
Governmental Authorities and all applicable reviews or scrutiny by any managed
care or utilization review companies, if any, have not had a material adverse
impact on the utilization of units or programs at any of the Leased Property.
No claims or assertions have been made in any utilization review that any of the
practices or procedures used at the Leased Property are improper or
inappropriate other than such claims or assertions which singly and in the
aggregate will not have a material adverse impact on the Leased Property; and
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(d) Lessee has delivered or caused to be delivered to Lessor true and
correct copies of all licenses, inspection surveys and accreditation reviews, if
any, relating to the Leased Property, issued by any Governmental Authority OR
Accreditation Body, if any, during the most recent licensing period, together
with all plans of correction relating thereto.
10.1.15 COMPLIANCE WITH LEGAL AND OTHER REQUIREMENTS.
(a) Lessee and the Leased Property (with respect to the Project, to the
extent consistent with the stage of construction of the Project) and the
ownership, construction, development, maintenance, management, repair, use,
occupancy, possession and operation thereof comply with all applicable Legal
Requirements and there is no claim of any violation thereof known to Lessee.
Without limiting the foregoing, Lessee has obtained all Permits that are
necessary or desirable to operate the Leased Property in accordance with its
Primary Intended Use or, with respect to the Project, reasonably expects to
obtain such Permits prior to, or upon, the Completion of the Project.
(b) Except as previously delivered to Lessor pursuant to Section
10.1.14(d) hereof, there are no outstanding notices of deficiencies, notices of
proposed action or orders of any kind relating to the Leased Property, if any,
issued by any Governmental Authority, Accreditation Body, if any, or Third Party
Payor requiring conformity to any of the applicable Legal Requirements.
(c) To the extent such accreditation is applicable, the Facility is
accredited by all applicable Accreditation Bodies and there are no deficiencies
in either the Leased Property or any services provided at the Facility that
would prevent the extension of the accreditation of the Facility by any
applicable Accreditation Body after any next regularly scheduled inspections.
10.1.16 NO ACTION BY GOVERNMENTAL AUTHORITY OR ACCREDITATION BODY. There
is no action pending or, to the best knowledge and belief of Lessee,
recommended, by any Governmental Authority, Accreditation Body, if any, to
revoke, repeal, cancel, modify, withdraw or suspend any Permit or Contract or to
take any other action of any other type which could have a material adverse
effect on the Leased Property.
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10-1.17 PROPERTY MATTERS
(a) The Leased Property is free and clear of agreements, covenants and
Liens, except those agreements, covenants and Liens to which this Lease is
expressly subject, whether presently existing, as are listed on EXHIBIT B or
were listed on the UCC lien search results delivered to Lessor at or prior to
the execution and delivery of this Lease (and were not required to be terminated
as a condition of the execution and delivery of this Lease), or which may
hereafter be created in accordance with the terms hereof (collectively referred
to herein as the "Permitted Encumbrances"); and Lessee shall warrant and defend
Lessor's title to the Leased Property against any and all claims and demands of
every kind and nature whatsoever;
(b) There is no Condemnation or similar proceeding pending with respect to
or affecting the Leased Property, and Lessee is not aware, to the best of
Lessee's knowledge and belief, that any such proceeding is contemplated;
(c) No part of the Collateral or the Leased Property has been damaged by
any fire or other casualty. The Leased Improvements (except the Project prior
to completion of the Project) are in good operating condition and repair,
ordinary wear and tear excepted, free from known defects in construction or
design;
(d) None of the Permitted Encumbrances has or is likely to have a material
adverse impact upon, nor interfere with or impede, in any material respect, the
operation of the Leased Property in accordance with the Primary Intended Use;
(e) Upon the Conversion Date, all buildings, facilities and other
improvements necessary, both legally and practically, for the proper and
efficient operation of the Facility are (or in the case of the Project, will be)
located upon the Leased Property and all real property and personal property
currently utilized by Lessee is (or in the case of the Project, will be)
included within the definition of the Leased Property or the Collateral;
(f) The Leased Property abuts on and has direct vehicular access to a
public road or access to a public road via permanent, irrevocable, appurtenant
easements;
(g) The Leased Property constitutes a parcel(s) for real estate tax
purposes separate from any real property that does not constitute a portion of
the Leased Property and no portion of any real property that does not constitute
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a portion of the Leased Property is part of the same tax parcel as any part
of the Leased Property;
(h) ALL utilities necessary for the use and operation of the Facility are
available to the lot lines of the Leased Property:
(i) in sufficient supply and capacity;
(ii) through validly created and existing easements of record
appurtenant to or encumbering the Leased Property (which easements shall not
impede or restrict the operation of the Facility);
(iii) without need for any Permits and/or Contracts to be issued
by or entered into with any Governmental Authority, except as already obtained
or executed, as the case may be, or as otherwise shown to the satisfaction of
Lessor to be readily obtainable; and
(iv) Lessee has made no structural alterations or improvements to any
of the Leased Improvements that changed the foot-print of any of the Leased
Improvements, added an additional story to any of the Leased Improvements,
decreased the amount of parking available on the Leased Property or otherwise
involved any alteration which would be regulated by applicable zoning
requirements, in each case without the express written consent of Lessor.
Except for matters which have been disclosed to Lessor or concerning which
Lessor has independent actual knowledge, Lessee has no actual knowledge of any
such structural alteration or improvement made to any of the Leased Improvements
during the last ten (10) years and has no knowledge of any such structural
alteration or renovation made to any of the Leased Improvements or any such
decrease in parking during such period.
10.1.18 THIRD PARTY PAYOR AGREEMENTS.
(a) Lessee or the Facility is fully qualified as a provider of services
under and participates in such Third Party Payor Programs and referral
programs as are necessary for the prudent operation of the Facility in
the good faith exercise of commercially reasonable business judgment.
(b) Attached hereto as EXHIBIT D is a list of national accounts and local
discount agreements, which constitute all of the agreements between Lessee or
the Facility, on the one hand, and Third Party Payors on the other hand,
pursuant to which Lessee or the Facility agrees to provide services
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based on a discount factor from the rates regularly charged for services
rendered by Lessee or the facility.
10.1.19 RATE LIMITATIONS. The State currently imposes no restrictions or
limitations on rates which may be charged to private pay residents receiving
services at the Facility.
10.1.20 FREE CARE. There are no Contracts, Permits or applicable Legal
Requirements which require that, a percentage of units in any program at the
Facility be reserved for Medicaid or Medicare eligible residents or that the
Facility provide a certain amount of welfare, free or charity care or discounted
or government assisted resident care.
10.1.21 NO PROPOSED CHANGES. Lessee has no actual knowledge of any
applicable Legal Requirements which have been enacted, promulgated or issued
within the eighteen (18) months preceding the date of this Lease or any proposed
applicable Legal Requirements currently pending in the State which may
materially adversely affect rates at the Facility (or any program operated by a
member of the Leasing Group in conjunction with the Facility) or may result in
the likelihood of increased competition at the Facility or the imposition of
Medicaid, Medicare, charity, free care, welfare or other discounted or
government assisted residents at the Facility or require that Lessee or the
Facility obtain a certificate of need, Section 1122 approval or the equivalent,
which Lessee or the Facility does not currently possess.
10.1.22 ERISA. No employee pension benefit plan maintained by any member
of the Leasing Group has any accumulated funding deficiency within the meaning
of the ERISA, nor does any member of the Leasing Group have any material
liability to the PBGC established under ERISA (or any successor thereto) in
connection with any employee pension benefit plan (or other class of benefit
which the PBGC has elected to insure), and there have been no "reportable
events" (not waived) or "prohibited transactions" with respect to any such plan,
as those terms are defined in Section 4043 of ERISA and Section 4975 of the
Internal Revenue Code of 1986, as now or hereafter amended, respectively.
10.1.23 NO BROKER. No member of the Leasing Group nor any of their
respective Affiliates has dealt with any broker or agent in connection with the
transactions contemplated by the Lease Documents.
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10.1.24 NO IMPROPER PAYMENTS. No member of the Leasing Group nor any of
their respective Affiliates has:
(a) made any contributions, payments or gifts of its funds or property to
or for the private use of any government official, employee, agent or other
Person where either the payment or the purpose of such contribution, payment or
gifts is illegal under the laws of the United States, any state thereof or any
other jurisdiction (foreign or domestic);
(b) knowingly established or maintained any unrecorded fund or asset for
any purpose or knowingly made any false or artificial entries on any of its
books or records for any reason;
(c) made any payments to any Person with the intention or understanding
that any part of such payment was to be used for any other purpose other than
that described in the documents supporting the payment; or
(d) made any contribution, or reimbursed any political gift or contribution
made by any other Person, to candidates for public office, whether federal,
state or local, where such contribution would be in violation of applicable law.
10.1.25 NOTHING OMITTED. Neither this Lease, nor any of the other Lease
Documents, nor any certificate, agreement, statement or other document,
including, without limitation, any financial statements concerning the financial
condition of any member of the Leasing Group, furnished to or to be furnished to
Lessor or its attorneys in connection with the transactions contemplated by the
Lease Documents, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to
prevent all statements contained herein and therein from being misleading.
There is no fact within the special knowledge of Lessee which has not been
disclosed herein or in writing to Lessor that materially adversely affects, or
in the future, insofar as Lessee can reasonably foresee based on the information
currently available to it after due inquiry, may materially adversely affect the
business, properties, assets or condition, financial or otherwise, of any member
of the Leasing Group or the Leased Property.
10.1.26 NO MARGIN SECURITY. Lessee is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal
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Reserve System), and no part of the proceeds of the Meditrust Investment
will be used to purchase or carry any margin security or to extend credit
to others for the purpose of purchasing or carrying any margin security or
in any other manner which would involve a violation of any of the
regulations of the Board of Governors of the Federal Reserve System.
Lessee is not an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
10.1.27 NO DEFAULT. No event or state of facts which constitutes, or
which, with notice or lapse of time, or both, could constitute, a Lease Default
has occurred and is continuing.
10.1.28 PRINCIPAL PLACE OF BUSINESS. The principal place of business and
chief executive office of Lessee is located at Market Place One, 2003 Western
Avenue, Suite 660, Seattle, Washington 98121-2162 (the "Principal Place of
Business").
10.1.29 LABOR MATTERS. There are no proceedings now pending, nor, to the
best of Lessee's knowledge, threatened with respect to the operation of the
Facility before the National Labor Relations Board, State Commission on Human
Rights and Opportunities, State Department of Labor, U.S. Department of Labor or
any other Governmental Authority having jurisdiction of employee rights with
respect to hiring, tenure and conditions of employment, and no member of the
Leasing Group has experienced any material controversy with any Facility
administrator or other employee of similar stature or with any labor
organization which has, or is likely, to have a materially adverse effect upon
the financial condition and/or operations of the Facility.
10.1.30 INTELLECTUAL PROPERTY. Lessee is duly licensed or authorized to
use all (if any) copyrights, rights of reproduction, trademarks, trade-names,
trademark applications, service marks, patent applications, patents and patent
license rights, (all whether registered or unregistered, U.S. or foreign),
inventions, franchises, discoveries, ideas, research, engineering, methods,
practices, processes, systems, formulae, designs, drawings, products, projects,
improvements, developments, know-how and trade secrets which are used in or
necessary for the development and/or operation of the Facility in accordance
with its Primary Intended Use, without conflict with or infringement of any, and
subject to no restriction, lien, encumbrance, right, title or interest in
others.
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10.1.31 MANAGEMENT AGREEMENTS. There is no Management Agreement in
force and effect as of the date hereof.
10.2 CONTINUING EFFECT OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Lease and the other Lease
Documents shall constitute continuing representations and warranties which shall
remain true, correct and complete throughout the Term. Notwithstanding the
provisions of the foregoing sentence but without derogation from any other terms
and provisions of this Lease, including, without limitation, those terms and
provisions containing covenants to be performed or conditions to be satisfied on
the part of Lessee, the representations and warranties contained in Sections
10.1.6, 10.1.7, 10.1.10, 10.1.14, 10.1.15, 10.1.17(b), 10.1.17(c), 10.1.17(i),
10.1.18, 10.1.19, 10.1.20, 10.1.21, 10.1.22, 10.1.27, 10.1.29, in the second
sentence of Section 10.1.12, in the second and third sentences of Section
10.1.13 and in the second sentence of Section 10.1.25 shall not constitute
continuing representations and warranties throughout the Term provided, however,
that nothing contained in the first sentence of Section 10.1.25 shall be
construed as imposing any obligation on Lessee to update after the Commencement
Date the information furnished to Lessor prior to the execution and delivery of
this Lease but without derogation of any other obligation Lessee has under this
Lease to provide information to Lessor.
ARTICLE 11
FINANCIAL AND OTHER COVENANTS
11.1 STATUS CERTIFICATES. At any time, and from time to time, upon request
from the other, Lessee and Lessor shall furnish to the other, within ten (10)
Business Days' after receipt of such request, an Officer's Certificate
certifying that this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and setting forth the
modifications) and the dates to which the Rent has been paid. Any Officer's
Certificate furnished pursuant to this Section at the request of Lessor shall be
addressed to any prospective purchaser or mortgagee of the Leased Property as
Lessor may request and may be relied upon by Lessor and any such prospective
purchaser or mortgagee of the Leased Property.
11.2 FINANCIAL STATEMENTS; REPORTS; NOTICE AND INFORMATION.
11.2.1 OBLIGATION TO FURNISH. Lessee will furnish and shall cause
to be furnished to Lessor the following statements, information and other
materials:
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(a) ANNUAL STATEMENTS. Within ninety (90) days after the end of each of
their respective fiscal years, (i) a copy of the Consolidated Financials for
each of (x) Lessee, (y) the Guarantor and (z) any Sublessee which is an
Affiliate of Lessee for the preceding fiscal year, certified and, in the case of
Guarantor, audited by, and with the unqualified opinion of, independent
certified public accountants acceptable to Lessor and certified as true and
correct by Lessee, the Guarantor or the applicable Sublessee, as the case may be
(and, without limiting anything else contained herein, the Consolidated
Financials for Lessee and for each such Sublessee shall include a detailed
balance sheet for Leased Property as of the last day of such fiscal year and a
statement of earnings from the Leased Property for such fiscal year showing,
among other things, all rents and other income therefrom and all expenses paid
or incurred in connection with the operation of the Leased Property); (ii)
separate statements, certified as true and correct by Lessee, the Guarantor, any
Manager which is an Affiliate of Lessee and each such Sublessee which is an
Affiliate of Lessee, stating whether, to the best of the signer's knowledge and
belief after making due inquiry, Lessee, the Guarantor, such Manager or any such
Sublessee, as the case may be, is in default in the performance or observance of
any of the terms of this Lease or any of the other Lease Documents and, if so,
specifying all such defaults, the nature thereof and the steps being taken to
immediately remedy the same; (iii) a copy of all letters from the independent
certified accountants engaged to perform the annual audits referred to above,
directed to the management of the Guarantor regarding the existence of any
reportable conditions or material weaknesses; (iv) a statement certified as true
and correct by Lessee setting forth all Subleases as of the last day of such
fiscal year, the respective areas demised thereunder, the names of the
Sublessees thereunder, the respective expiration dates of the Subleases, the
respective rentals provided for therein, and such other information pertaining
to the Subleases as may be reasonably requested by Lessor; and (v) evidence
satisfactory to Lessor that Lessee has fulfilled its obligation to make the
Annual Facility Upgrade Expenditure, provided, however, that no such evidence
shall be required to be submitted until the fourth Lease Year with respect to
that portion of the Leased Property comprised only of the Project.
(b) MONTHLY STATEMENTS OF LESSEE. Within thirty (30) days after the end
of each calendar month during the pendency of this Lease, (i) a statement
certified
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as true and correct by Lessee setting forth the Gross Revenues of the Leased
Property for the immediately preceding month, (ii) an unaudited, detailed month
and year to date income and expense statement for the Leased Property which
shall include a comparison to corresponding budget figures, occupancy statistics
(including the actual number of residents, the number of units available and
total resident days for such month) and resident mix breakdowns (for each
resident day during such month classifying residents by the type of care
required and source of payment) and (iii) an express written calculation showing
the compliance or non-compliance, as the case may be, with the specific
financial covenants set forth in Section 11.3 for the applicable period,
including with respect to the calculation of Lessee's Debt Coverage Ratio, a
schedule substantially in the form attached hereto as EXHIBIT E.
(c) QUARTERLY STATEMENTS. Within thirty (30) days after the end of each
respective fiscal quarter, unaudited Consolidated Financials for each of (i)
Lessee and (ii) each Sublessee which is an Affiliate of Lessee certified as true
and correct by Lessee or such applicable Sublessee, as the case may be and
within thirty (30) days after each calendar quarter, Lessee shall also provide
Lessor with a calculation of the Additional Rent payable for such quarter.
(d) QUARTERLY STATEMENTS OF THE GUARANTOR. Within forty-five (45) days
after the end of each fiscal quarter, unaudited Consolidated Financials for the
Guarantor certified as true and correct by the Guarantor.
(e) PERMITS AND CONTRACTS. Within ten (10) days after the issuance or the
execution thereof, as the case may be, true and complete copies of (i) all
Permits which constitute operating licenses for the Facility issued by any
Governmental Authority having jurisdiction over assisted living matters and (ii)
Contracts (involving payments in the aggregate in excess of $100,000 per annum),
including, without limitation, all Provider Agreements.
(f) CONTRACT NOTICES. Promptly but in no event more than ten (10) days
after the receipt thereof, true and complete copies of any notices, consents,
terminations or statements of any kind or nature relating to any of the
Contracts (involving payments in the aggregate in excess of ONE HUNDRED
THOUSAND DOLLARS ($100,000) per annum) other than those issued in the
ordinary course of business.
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(g) PERMIT OR CONTRACT DEFAULTS. Promptly but in no event more than ten
(10) days after the receipt thereof, true and complete copies of all surveys,
follow-up surveys, licensing surveys, complaint surveys,
examinations, compliance certificates, inspection reports, statements (other
than those statements that are issued in the ordinary course of business), if
any, terminations and notices of any kind (other than those notices that are
furnished in the ordinary course of business) issued or provided to Lessee, the
Manager or any Sublessee by any Governmental Authority, Accreditation Body, if
any, or any Third Party Payor, including, without limitation, any notices
pertaining to any delinquency in, or proposed revision of, Lessee's, the
Manager's or any Sublessee's obligations under the terms and conditions of any
Permits or Contracts now or hereafter issued by or entered into with any
Governmental Authority, Accreditation Body, if any, or Third Party Payor and the
response(s) thereto made by or on behalf of Lessee, the Manager or any
Sublessee.
(h) OFFICIAL REPORTS. Upon completion or filing thereof, complete
copies of all applications (other than those that are furnished in the ordinary
course of business), notices (other than those that are furnished in the
ordinary course of business), Statements, annual reports, cost reports and other
reports or filings of any kind (other than those that are furnished in the
ordinary course of business) provided by Lessee, the Manager or any Sublessee to
any Governmental Authority, Accreditation Body, if any, or any Third Party Payor
with respect to the Leased Property.
(i) OTHER INFORMATION. With reasonable promptness, such other
information as Lessor may from time to time reasonably request respecting (i)
the financial condition and affairs of each member of the Licensing Group and
the Leased Property and (ii) the licensing and operation of the Leased
Property; including, without limitation, financial statements, certificates
and consents from accountants and all other financial and
licensing/operational information as may be required or requested by any
Governmental Authority.
(j) DEFAULT CONDITIONS. As soon as possible, and in any event within five
(5) days after the occurrence of any Lease Default, or any event or circumstance
which, with the giving of notice or the passage of time, or both, would
constitute a Lease Default, a written statement of Lessee setting forth the
details
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of such Lease Default, event or circumstance and the action which Lessee
proposes to take with respect thereto.
(k) OFFICIAL ACTIONS. Promptly but in no event more than ten (10)
days after the commencement thereof, notice of all actions, suits and
proceedings before any Governmental Authority or Accreditation Body, if
any, which could have a material adverse effect on any member of the
Leasing Group or the Leased Property.
(l) AUDIT REPORTS. Promptly but in no event more than ten (10) days
after receipt, a copy of all audits or reports submitted to Lessee by any
independent public accountant in connection with any annual, special or
interim audits of the books of Lessee and, if requested by Lessor, any
letter of comments directed by such accountant to the management of Lessee.
(m) ADVERSE DEVELOPMENTS. Promptly but in no event more than ten
(10) days after Lessee acquires knowledge thereof, written notice of:
(i) the potential termination of any Permit or Provider
Agreement necessary for the operation of the Leased
Property;
(ii) any loss, damage or destruction to or of the Leased Property
in excess of TWENTY-FIVE THOUSAND DOLLARS ($25,000)
(regardless of whether the same is covered by insurance);
(iii) any material controversy involving Lessee or any Sublessee
which is an Affiliate of Lessee and (x) Facility
administrator or Facility employee of similar stature or (y)
any labor organization or (z) the Manager or any employee
of the Manager which has, or is reasonably likely to have,
a materially adverse effect on the financial condition
and/or operations of the Facility;
(iv) any controversy that calls into question the eligibility of
the Facility for the participation in any Medicaid, Medicare
or other Third Party Payor Program in which the Facility is
participating;
(v) any refusal of reimbursement by any Third Party Payor which,
singularly or together
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with all other such refusals by any Third Party Payors,
could reasonably be expected to have a material adverse
effect on the financial condition of Lessee or any Sublessee
which is an Affiliate of Lessee; and
(vi) any fact within the special knowledge of any member of the
Leasing Group, or any other development in the business or
affairs of any member of the Leasing Group, which could
reasonably be expected to be materially adverse to the
business, properties, assets or condition, financial or
otherwise, of any member of the Leasing Group or the Leased
Property.
(n) RESPONSES TO INSPECTION REPORTS. Within thirty (30) days after
receipt of an inspection report relating to the Leased Property from
Lessor, a written response describing in detail prepared plans to address
concerns raised by the inspection report.
(o) PUBLIC INFORMATION. Upon the completion or filing, mailing or
other delivery thereof, complete copies of all financial statements,
reports, notices and proxy statements, if any, sent by any member of the
Leasing Group (which is a publicly held corporation) to its shareholders
and of all reports, if any, filed by any member of the Leasing Group (which
is a publicly held corporation) with any securities exchange or with the
Securities Exchange Commission.
(p) ANNUAL BUDGETS. Prior to the end of each Fiscal Year, Lessee,
any Sublessee which is an Affiliate of Lessee and/or any Manager which is
an Affiliate of Lessee shall submit to Lessor a preliminary annual
financial budget for the Facility for the next Fiscal Year, a preliminary
capital expenditures budget for the Facility for the next Fiscal Year and a
report detailing the capital expenditures made in the then current Fiscal
Year and on or before the end of the first month of each Fiscal Year,
Lessee, any such Sublessee and/or any such Manager shall submit to Lessor
revised finalized versions of such budgets and report.
(q) WORKING CAPITAL LOAN. Promptly after receipt thereof, copies of
any notices with respect to default from a lender of a Working Capital
Loan.
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11.2.2 RESPONSIBLE OFFICER. Any certificate, instrument, notice,
or other document to be provided to Lessor hereunder by any member of the
Leasing Group shall be signed by an executive officer of such member (in
the event that any of the foregoing is not an individual), having a
position of Vice President or higher and with respect to financial matters,
any such certificate, instrument, notice or other document shall be signed
by the chief financial officer of such member.
11.2.3 NO MATERIAL OMISSION. No certificate, instrument, notice or
other document, including without limitation, any financial statements
furnished or to be furnished to Lessor pursuant to the terms hereof or of
any of the other Lease Documents shall contain any untrue statement of a
material fact or shall omit to state any material fact necessary in order
to prevent all statements contained therein from being misleading.
11.2.4 CONFIDENTIALITY. Lessor shall afford any information
received pursuant to the provisions of the Lease Documents the same degree
of confidentiality that Lessor affords similar information proprietary to
Lessor; PROVIDED, HOWEVER, that Lessor shall have the unconditional right
to (a) disclose any such information as Lessor deems necessary or
appropriate in connection with any sale, transfer, conveyance,
participation or assignment of the Leased Property or any of the Lease
Documents or any interest therein and (b) use such information in any
litigation or arbitration proceeding between Lessor and any member of the
Leasing Group. Without limiting the foregoing, Lessor may also utilize any
information furnished to it hereunder as and to the extent (i) counsel to
Lessor determines that such utilization is necessary pursuant to 15 U.S.C.
77a-77aa or 15 U.S.C 78a-78jj and the rules and regulations promulgated
thereunder, (ii) Lessor is required or requested by any Governmental
Authority to disclose any such information and/or (iii) Lessor is requested
to disclose any such information by any of the Meditrust Entities' lenders
or potential lenders. Lessor shall not be liable in any way for any
subsequent disclosure of such information by any Person to which Lessor has
provided such information in accordance with the terms hereof.
Nevertheless, in connection with any such disclosure, Lessor shall inform
the recipient of any such information of the confidential nature thereof.
Lessor shall observe any prohibitions or limitations on the disclosure of
any such information under applicable confidentiality law or regulations,
to the extent that the same are applicable to such information.
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11.3 FINANCIAL COVENANTS. Lessee covenants and agrees that, throughout the
Term and as long as Lessee is in possession of the Leased Property:
11.3.1 DEBT COVERAGE RATIO OF LESSEE. From and after the second
anniversary of the Conversion Date until the fourth anniversary thereof,
Lessee shall maintain with respect to the Facility and all other Group Two
Acquisition Facilities for each Fiscal Quarter an aggregate Debt Coverage
Ratio equal to or greater than 1.1 to 1 and from and after the fourth
anniversary thereof and for the remainder of the Term, Lessee shall
maintain with respect to the Facility and all other Group Two Acquisition
Facilities each Fiscal Quarter an aggregate Debt Coverage Ratio equal to or
greater than 1.2 to 1.
11.3.2 INTENTIONALLY DELETED.
11.3.3 INTENTIONALLY DELETED.
11.3.4 INTENTIONALLY DELETED.
11.3.5 CURRENT RATIO - GUARANTOR. From and after December 31, 1999
and for the remainder of the Term, the Guarantor shall maintain a ratio of
Consolidated Current Assets to Consolidated Current Liabilities equal to or
greater than 1 to 1 as of the end of each fiscal year.
11.3.6 INTENTIONALLY DELETED.
11.3.7 NET WORTH - GUARANTOR. The Guarantor shall maintain, at all
times, a Net Worth of not less than TWENTY MILLION DOLLARS ($20,000,000).
11.3.8 NO INDEBTEDNESS. Lessee shall not create, incur, assume or
suffer to exist any liability for borrowed money except (i) Indebtedness to
Lessor under the Lease Documents and, (ii) Impositions allowed pursuant to
the provisions of the Lease, (iii) unsecured normal trade debt incurred
upon customary terms in the ordinary course of business, (iv) Indebtedness
created in connection with any financing of any Capital Addition, PROVIDED,
THAT each such financing has been approved by Lessor in accordance with the
terms of Article 9 hereof, (v) Indebtedness to any Affiliate, PROVIDED,
THAT, such Indebtedness is fully subordinated to this Lease pursuant to the
Affiliated Party Subordination Agreement, (vi) other Indebtedness of Lessee
in the aggregate amount not to exceed TWO HUNDRED THOUSAND DOLLARS
($200,000) incurred, for the exclusive use of the Leased Property, on
account of purchase money indebtedness or finance lease arrangements, each
of which shall not exceed the fair market value of the assets or property
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acquired or leased and shall not extend to any assets or property other
than those purchased or leased and purchase money security interests in
equipment and equipment leases which comply with the provisions of Section
6.1.2 and (vii) Indebtedness specifically permitted by the
Meditrust/Emeritus Transaction Documents.
11.3.9 NO GUARANTIES. Lessee shall not assume, guarantee, endorse,
contingently agree to purchase or otherwise become directly or contingently
liable (including, without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to
supply funds to or otherwise to invest in any debtor or otherwise to assure
any creditor against loss) in connection with any Indebtedness of any other
Person, except by the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business and
except for a guaranty of the Indebtedness of the Guarantor in connection
with a Working Capital Loan which expressly limits recourse under such
guaranty to the Receivables.
11.4 AFFIRMATIVE COVENANTS. Lessee covenants and agrees that throughout
the Term and any periods thereafter that Lessee remains in possession of the
Leased Property:
11.4.1 MAINTENANCE OF EXISTENCE. If Lessee is a corporation, trust
or partnership, during the entire time that this Lease remains in full
force and effect, Lessee shall keep in effect its existence and rights as a
corporation, trust or partnership under the laws of the state of its
incorporation or formation and its right to own property and transact
business in the State.
11.4.2 MATERIALS. Except as provided in Section 6.1.2, Lessee shall
not suffer the use in connection with any renovations or other construction
relating to the Leased Property of any materials, fixtures or equipment
intended to become part of the Leased Property which are purchased upon
lease or conditional bill of sale or to which Lessee does not have absolute
and unencumbered title, and Lessee covenants to cause to be paid punctually
all sums becoming due for labor, materials, fixtures or equipment used or
purchased in connection with any such renovations or construction, subject
to Lessee's right to contest to the extent provided for in Article 15.
11.4.3 COMPLIANCE WITH LEGAL REQUIREMENTS AND APPLICABLE
AGREEMENTS. Lessee and the Leased Property and all uses thereof shall
comply with (i) all applicable Legal Requirements (except to the extent
being duly contested in accordance with the terms hereof), (ii) all Permits
and
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Contracts, (iii) all Insurance Requirements, (iv) the Lease Documents, (v)
the Permitted Encumbrances and (vi) the Appurtenant Agreement.
11.4.4 BOOKS AND RECORDS. Lessee shall cause to be kept and
maintained, and shall permit Lessor and its representatives to inspect at
all reasonable times and upon reasonable notice, accurate books of accounts
in which complete entries will be made in accordance with GAAP reflecting
all financial transactions of Lessee (showing, without limitation, all
materials ordered and received and all disbursements, accounts payable and
accounts receivable in connection with the operation of the Leased
Property).
11.4.5 PARTICIPATION IN THIRD PARTY PAYOR PROGRAMS. If Lessee or a
Sublessee which is an Affiliate of Lessee elects to participate in Third
Party Payor Programs, Lessee or such Sublessee shall remain eligible to
participate in such Third Party Payor Programs in accordance with all
requirements thereof (including, without limitation, all applicable
Provider Agreements), if and to the extent remaining eligible shall be
necessary for the prudent operation of the Facility in the good faith
exercise of commercially reasonable business judgment.
11.4.6 CONDUCT OF ITS BUSINESS. Lessee will maintain, and cause any
Sublessee and any Manager to maintain, experienced and competent
professional management with respect to its business and with respect to
the Leased Property. Lessee, any Sublessee and any Manager shall conduct,
in the ordinary course, the operation of the Facility, and Lessee and any
Sublessee which is an Affiliate of Lessee shall not enter into any other
business or venture during the Term or such time as Lessee or any such
Sublessee is in possession of the Leased Property other than activities in
which Lessee or such Sublessee are permitted to engage by the provisions of
the Meditrust/Emeritus Transaction Documents.
11.4.7 ADDRESS. Lessee shall provide Lessor thirty (30) days'
prior written notice of any change of its Principal Place of Business from
its current Principal Place of Business. Lessee shall maintain the
Collateral, including without limitation, all books and records relating to
its business, solely at its Principal Place of Business and at the Leased
Property. Lessee shall not (a) remove the Collateral, including, without
limitation, any books or records relating to Lessee's business from either
the Leased Property or Lessee's Principal Place of Business or (b) relocate
its Principal Place of Business until after receipt of a certificate from
Lessor, signed by an officer thereof, stating that Lessor has, to its
satisfaction,
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obtained all documentation that it deems necessary or desirable to obtain,
maintain, perfect and confirm the first priority security interests granted
in the Lease Documents.
11.4.8 SUBORDINATION OF AFFILIATE TRANSACTIONS. Without limiting
the provisions of any other Section of this Lease or the Affiliated Party
Subordination Agreement, any payments to be made by Lessee to (a) any
member of the Leasing Group (or any of its Affiliates) or (b) any Affiliate
of Lessee, in connection with any transaction between Lessee and such
Person, including, without limitation, the purchase, sale or exchange of
any property, the rendering of any service to or with any such Person
(including, without limitation, all allocations of any so-called corporate
or central office costs, expenses and charges of any kind or nature) or the
making of any loan or other extension of credit or the making of any equity
investment, shall be subordinate to the complete payment and performance of
the Lease Obligations; PROVIDED, HOWEVER, that all such subordinated
payments may be paid at any time unless: (x) after giving effect to such
payment, Lessee shall be unable to comply with any of its obligations under
any of the Lease Documents or (y) a Lease Default has occurred and is
continuing and has not been expressly waived in writing by Lessor or an
event or state of facts exists, which, with the giving of notice or the
passage of time, or both, would constitute a Lease Default.
11.4.9 INSPECTION. At reasonable times and upon reasonable notice,
Lessee shall permit Lessor and its authorized representatives (including,
without limitation, the Consultants) to inspect the Leased Property as
provided in Section 7.1 above, provided, however, that, in the event
results of any such testing or inspection reflect the same satisfactory
results as the results of a similar testing or inspection initiated by
Lessor within the prior twelve (12) months period, the costs and expense of
such testing or inspection shall be the responsibility of Lessor.
11.5 ADDITIONAL NEGATIVE COVENANTS. Lessee covenants and agrees that,
throughout the Term and such time as Lessee remains in possession of the Leased
Property:
11.5.1 RESTRICTIONS RELATING TO LESSEE. Except as may otherwise be
expressly provided in Section 19.4 or in any of the other Lease Documents,
Lessee shall not, without the prior written consent of Lessor, in each
instance, which consent may be withheld in the sole and absolute discretion
of Lessor:
(a) convey, assign, hypothecate, transfer, dispose of or
encumber, or permit the conveyance,
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assignment, transfer, hypothecation, disposal or encumbrance of all or
any part of any legal or beneficial interest in this Lease, its other
assets or the Leased Property except as expressly permitted by the
terms of this Lease Agreement; PROVIDED, HOWEVER, that this
restriction shall not apply to (i) the Permitted Encumbrances that may
be created after the date hereof pursuant to the Lease Documents; (ii)
Liens created in accordance with Section 6.1.2 against Tangible
Personal Property securing Indebtedness permitted under Section
11.3.8(v); (iii) the sale, conveyance, assignment, hypothecation,
lease or other transfer of any material asset or assets (whether now
owned or hereafter acquired), the fair market value of which equals or
is less than TWENTY-FIVE THOUSAND DOLLARS ($25,000), individually, or
ONE HUNDRED THOUSAND DOLLARS ($100,000) collectively; (iv) without
limitation as to amount, the disposition in the ordinary course of
business of any obsolete, worn out or defective fixtures, furnishings
or equipment used in the operation of the Leased Property provided
that the same are replaced with fixtures, furnishings or equipment of
equal or greater utility or value or Lessee provides Lessor with an
explanation (reasonably satisfactory to Lessor) as to why such
fixtures, furnishings or equipment is no longer required in connection
with the operation of the Leased Property; (v) without limitation as
to amount, any sale of inventory by Lessee in the ordinary course of
business; and (vi) subject to the terms of the Negative Pledge
Agreement and the Affiliated Party Subordination Agreement,
distributions to the shareholders of Lessee;
(b) permit the use of the Facility for any purpose other than
the Primary Intended Use and the Other Permitted Uses; or
(c) liquidate, dissolve or merge or consolidate with any other
Person except, subject to Lessor's prior written consent, which
consent shall not be unreasonably withheld, a Meditrust/Emeritus
Transaction Affiliate.
11.5.2 NO LIENS. Lessee will not directly or indirectly create or
allow to remain and will promptly discharge at its expense any Lien, title
retention agreement or claim upon or against the Leased Property (including
Lessee's interest therein) or Lessee's interest in this Lease or any of the
other Lease Documents, or in respect of the Rent, excluding (a) this Lease
and any permitted Subleases, (b) the Permitted Encumbrances, (c) Liens
which are consented to in writing by Lessor, (d) Liens for those
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taxes of Lessor which Lessee is not required to pay hereunder, (e) Liens of
mechanics, laborers, materialmen, suppliers or vendors for sums either not
yet due or being contested in strict compliance with the terms and
conditions of Article 15, (f) any Liens which are the responsibility of
Lessor pursuant to the provisions of Article 20, (g) Liens for Impositions
which are either not yet due and payable or which are in the process of
being contested in strict compliance with the terms and conditions of
Article 15 (h) the Liens incurred pursuant to the provisions of Section
6.1.2 and (i) involuntary Liens-caused by the actions or omissions of
Lessor.
11.5.3 LIMITS ON AFFILIATE TRANSACTIONS. Lessee shall not enter
into any transaction with any Affiliate, including, without limitation, the
purchase, sale or exchange of any property, the rendering of any service to
or with any Affiliate and the making of any loan or other extension of
credit, except in the ordinary course of, and pursuant to the reasonable
requirements of, Lessee's business and upon fair and reasonable terms no
less favorable to the Lessee than would be obtained in a comparable arms'-
length transaction with any Person that is not an Affiliate.
11.5.4 NON-COMPETITION. Lessee acknowledges that upon and after any
termination of this Lease, any competition by any member of the Leasing
Group with any subsequent owner or subsequent lessee of the Leased Property
(the "Purchaser") would cause irreparable harm to Lessor and any such
Purchaser. To induce Lessor to enter into this Lease, Lessee agrees that,
from and after the date hereof and thereafter until (a) in the case of the
expiration of the Initial Term or a termination of this Lease, the fifth
(5th) anniversary of the termination hereof or of the expiration of the
Initial Term, as applicable, and (b) in the case of an expiration of any of
the Extended Terms, the second (2nd) anniversary of the expiration of the
applicable Extended Term, no member of the Leasing Group nor any Person
holding or controlling, directly or indirectly, any interest in any member
of the Leasing Group (collectively, the "Limited Parties") shall be
involved in any capacity in or lend any of their names to or engage in any
capacity in any assisted living facility, center, unit or program (or in
any Person engaged in any such activity or any related activity competitive
therewith) other than (a) those set forth on SCHEDULE 11.5.4 annexed
hereto, (b) those activities in which a Meditrust/Emeritus Transaction
Affiliate is permitted to engage by the provisions of the
Meditrust/Emeritus Transaction Documents which relate to any such facility,
center, unit or program and (c) the acquisition of an ownership interest in
any such facility,
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center, unit or program which is part of a single transaction in which an
ownership interest in at least four (4) other facilities, centers, units or
programs (provided, however, that if such acquisition occurs within the
last twelve month period of the Initial Term or any of the Extended Terms
Lessee shall have the benefit of this clause (c) only if at the time
such acquisition occurs Lessee has already (x) exercised in that twelve
month period its right under Section 1.3 hereof to extend the Term for
another Extended Term or (y) given a Purchase Option Notice and has waived
any right to rescind the same based upon the determination of the Fair
Market Value of the Leased Property), whether such competitive activity
shall be as an officer, director, owner, employee, agent, advisor,
independent contractor, developer, lender, sponsor, venture capitalist,
administrator, manager, investor, partner, joint venturer, consultant or
other participant in any capacity whatsoever with respect to an assisted
living facility, center, unit or program located within a five (5) mile
radius of the Leased Property.
Lessee hereby acknowledges and agrees that none of the time span,
scope or area covered by the foregoing restrictive covenants is or are
unreasonable and that it is the specific intent of Lessee that each and all
of the restrictive covenants set forth hereinabove shall be valid and
enforceable as specifically set forth herein. Lessee further agrees that
these restrictions are special, unique, extraordinary and reasonably
necessary for the protection of Lessor and any Purchaser and that the
violation of any such covenant by any of the Limited Parties would cause
irreparable damage to Lessor and any Purchaser for which a legal remedy
alone would not be sufficient to fully protect such parties.
Therefore, in addition to and without limiting any other remedies
available at law or hereunder, in the event that any of the Limited Parties
breaches any of the restrictive covenants hereunder or shall threaten
breach of any of such covenants, then Lessor and any Purchaser shall be
entitled to obtain equitable remedies, including specific performance and
injunctive relief, to prevent or otherwise restrain a breach of this
Section 11.5.4 (without the necessity of posting a bond) and to recover any
and all costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses and court costs) incurred in enforcing the
provisions of this Section 11.5.4. The existence of any claim or cause of
action of any of the Limited Parties or any member of the Leasing Group
against Lessor or any Purchaser, whether predicated on this Lease or
otherwise, shall not constitute a defense to the enforcement by Lessor or
any Purchaser of the foregoing restrictive
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covenants and the Limited Parties shall not defend on the basis that there
is an adequate remedy at law.
Without limiting any other provision of this Lease, the parties hereto
acknowledge that the foregoing restrictive covenants are severable and
separate. If at any time any of the foregoing restrictive covenants shall
be deemed invalid or unenforceable by a court having jurisdiction over this
Lease, by reason of being vague or unreasonable as to duration, or
geographic scope or scope of activities restricted, or for any other
reason, such covenants shall be considered divisible as to such portion and
such covenants shall be immediately amended and reformed to include only
such covenants as are deemed reasonable and enforceable by the court having
jurisdiction over this Lease to the full duration, geographic scope and
scope of restrictive activities deemed reasonable and thus enforceable by
said court; and the parties agree that such covenants as so amended and
reformed, shall be valid and binding as through the invalid or
unenforceable portion has not been included therein.
The provisions of this Section 11.5.4 shall survive the termination of
the Lease and any satisfaction of the Lease Obligations in connection
therewith or subsequent thereto. The parties hereto acknowledge and agree
that any Purchaser may enforce the provisions of this Section 11.5.4 as a
third party beneficiary.
11.5.5 Intentionally deleted.
11.5.6 Intentionally deleted.
11.5.7 Intentionally deleted.
11.5.8 ERISA. Lessee shall not establish or permit
any Sublessee to establish any new pension or defined benefit plan or
modify any such existing plan for employees subject to ERISA, which plan
provides any benefits based on past service without the advance consent of
Lessor (which consent shall not be unreasonably withheld) to the amount of
the aggregate past service liability thereby created.
11.5.9 FORGIVENESS OF INDEBTEDNESS. Lessee will not waive, or
permit any Sublessee or Manager which is an Affiliate to waive any debt or
claim, except in the ordinary course of its business.
11.5.10 VALUE OF ASSETS. Except as disclosed in the financial
statements provided to Lessor as of the date hereof, Lessee will not write
up (by creating an appraisal surplus or otherwise) the value of any assets
of Lessee
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above their cost to Lessee, less the depreciation regularly allowable
thereon.
11.5.11 CHANGES IN FISCAL YEAR AND ACCOUNTING PROCEDURES. Upon notice
to Lessor, Lessee may (a) change its fiscal year or capital structure or
(b) change, alter, amend or in any manner modify in accordance with GAAP
any of its current accounting procedures related to the method of revenue
recognition, billing procedures or determinations of doubtful accounts or
bad debt expenses or permit any of its Subsidiaries to so change its fiscal
year, provided that, in the event of such change, modification or
alteration, Lessee and Lessor shall make such adjustments to the
calculation of Additional Rent and the financial covenants contained herein
as Lessor shall reasonably require to make the same consistent in result
with the calculation thereof immediately prior to such change, modification
or alteration.
ARTICLE 12
INSURANCE AND INDEMNITY
12.1 GENERAL INSURANCE REQUIREMENTS. During the Term of this Lease and
thereafter until Lessee surrenders the Leased Property in the manner required by
this Lease, Lessee shall at its sole cost and expense keep the Leased Property,
the Tangible Personal Property located thereon and the business operations
conducted on the Leased Property insured as set forth below.
12.1.1 TYPES AND AMOUNTS OF INSURANCE. Lessee's insurance shall
include the following:
(a) property loss and physical damage insurance on an all risk
basis (with only such exceptions as Lessor may in its reasonable
discretion approve) covering the Leased Property (exclusive of Land)
for its full replacement cost, which cost shall be reset once a year
at Lessor's option, with an agreed-amount endorsement and a deductible
not in excess of TWENTY FIVE THOUSAND DOLLARS ($25,000). Such
insurance shall include, without limitation, the following coverages:
(i) increased cost of construction, (ii) cost of demolition, (iii) the
value of the undamaged portion of the Facility and (iv) contingent
liability from the operation of building laws, less exclusions
provided in the normal "All Risk" insurance policy. During any period
of construction, such insurance shall be on a builder's risk,
completed value, non-reporting form (including all risk and extended
coverage, collapse, cost of demolition, increased cost of construction
and
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value of undamaged portion of the improvements protection) with
permission to occupy;
(b) flood insurance (if the Leased Property or any portion
thereof is situated in an area which is considered a flood risk area
by the U.S. Department of Housing and Urban Development or any future
governmental authority charged with such flood risk analysis in the
future) in limits reasonably acceptable to Lessor and subject to the
availability of such flood insurance;
(c) boiler and machinery insurance (including related electrical
apparatus and components) under a standard comprehensive form,
providing coverage against loss or damage caused by explosion of steam
boilers, pressure vessels or similar vessels, now or hereafter
installed on the Leased Property, in limits acceptable to Lessor;
(d) earthquake insurance (if reasonably deemed necessary by
Lessor) In limits and with deductibles acceptable to Lessor;
(e) environmental impairment liability insurance (if available
on commercially reasonable terms and deemed reasonably necessary by
Lessor) in limits and with deductibles acceptable to Lessor;
(f) Business interruption insurance in an amount equal to the
annual Base Rent due hereunder plus the aggregate sum of the
Impositions relating to the Leased Property due and payable during one
year;
(g) comprehensive general public liability insurance including
coverages commonly found in the Broad Form Commercial Liability
Endorsements with amounts not less than FIVE MILLION DOLLARS
($5,000,000) per occurrence with respect to bodily injury and death
and THREE MILLION DOLLARS ($3,000,000) for property damage and with
all limits based solely upon occurrences at the Leased Property
without any other impairment;
(h) Professional liability insurance in an amount not less than
TEN MILLION DOLLARS ($10,000,000) for each medical incident;
(i) physical damage insurance on an all risk basis (with only
such exceptions as Lessor in its reasonable discretion shall approve)
covering the Tangible Personal Property for the full replacement
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cost thereof and with a deductible not in excess of one percent (1%)
of the full replacement cost thereof;
(j) "Workers' Compensation and Employers' Liability Insurance
providing protection against all claims arising out of injuries to all
employees of Lessee or of any Sublessee (employed on the Leased
Property or any portion thereof) in amounts equal for Workers'
Compensation, to the statutory benefits payable to employees in the
State and for Employers' Liability, to limits of not less than ONE
HUNDRED THOUSAND DOLLARS ($100,000) for injury by accident, ONE
HUNDRED THOUSAND DOLLARS ($100,000) per employee for disease and FIVE
HUNDRED THOUSAND DOLLARS ($500,000) disease-policy limit;
(k) subsidence insurance (if deemed necessary by Lessor) in
limits acceptable to Lessor; and
(1) such other insurance as Lessor from time to time may
reasonably require and also, as may from time to time be required by
applicable Legal Requirements and/or by any Fee Mortgagee.
12.1.2 INSURANCE COMPANY REQUIREMENTS. ALL such insurance required
by this Lease or the other Lease Documents shall be issued and underwritten
by insurance companies licensed to do insurance business by, and in good
standing under the laws of, the State and which companies have and maintain
a rating of A:X or better by A.M. Best Co.
12.1.3 POLICY REQUIREMENTS. Every policy of insurance from time to
time required under this Lease or any of the other Lease Documents (other
than worker's compensation) shall name Lessor as owner, loss payee, secured
party (to the extent applicable) and additional named insured as its
interests may appear. If an insurance policy covers properties other than
the Leased Property, then Lessor shall be so named with respect only to the
Leased Property. Each such policy, where applicable or appropriate, shall:
(a) include an agreed amount endorsement and loss payee,
additional named insured and secured party endorsements, in forms
acceptable to Lessor in its reasonable discretion;
(b) include mortgagee, secured party, loss payable and
additional named insured endorsements reasonably acceptable to each
Fee Mortgagee;
(c) provide that the coverages may not be cancelled or
materially modified except upon thirty
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(30) days' prior written notice to Lessor and any Fee Mortgagee;
(d) be payable to Lessor and any Fee Mortgagee notwithstanding
any defense or claim that the insurer may have to the payment of the
same against any other Person holding any other interest in the Leased
Property;
(e) be endorsed with standard noncontributory clauses in favor
of and in form reasonably acceptable to Lessor and any Fee Mortgagee;
(f) expressly waive any right of subrogation on the part of the
insurer against Lessor, any Fee Mortgagee or the Leasing Group; and
(g) otherwise be in such forms as shall be reasonably acceptable
to Lessor.
12.1.4 NOTICES; CERTIFICATES AND POLICIES. Lessee shall promptly
provide to Lessor copies of any and all notices (including notice of non-
renewal), claims and demands which Lessee receives from insurers of the
Leased Property. At least ten (10) days prior to the expiration of any
insurance policy required hereunder, Lessee shall deliver to Lessor
certificates and evidence of insurance relating to all renewals and
replacements thereof, together with evidence, satisfactory to Lessor, of
payment of the premiums thereon. Lessee shall deliver to Lessor original
counterparts or copies certified by the insurance company to be true and
complete copies, of all insurance policies required hereunder not later
than ten (10) days after receipt thereof by Lessee. Lessee shall use its
best efforts to obtain such counterparts or copies within ninety (90) days
after the effective date of each such policy.
12.1.5 LESSOR'S RIGHT TO PLACE INSURANCE. If Lessee shall fail to
obtain any insurance policy required hereunder by Lessor, or shall fail to
deliver the certificate and evidence of insurance relating to any such
policy to Lessor, or if any insurance policy required hereunder (or any
part thereof) shall expire or be cancelled or become void or voidable by
reason of any breach of any condition thereof, or if Lessor reasonably
determines that such insurance coverage is unsatisfactory by reason of the
failure or impairment of the capital of any insurance company which wrote
any such policy, upon demand by Lessor, Lessee shall promptly but in any
event in not more than ten (10) days thereafter obtain new or additional
insurance coverage on the Leased Property, or for those risks required to
be insured by the provisions hereof, satisfactory to Lessor,
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and, in the event Lessee fails to perform its obligations under this
Section and at its option, Lessor may obtain such insurance and pay the
premium or premiums therefor; in which event, any amount so paid or
advanced by Lessor and all costs and expenses incurred in connection
therewith (including, without limitation, reasonable attorneys' fees and
expenses and court costs), shall be a demand obligation of Lessee to
Lessor, payable as an Additional Charge.
12.1.6 PAYMENT OF PROCEEDS. All insurance policies required
hereunder (except for general public liability, professional liability and
workers' compensation and employers liability insurance) shall provide that
in the event of loss, injury or damage, subject to the rights of any Fee
Mortgagee, all proceeds shall be paid to Lessor alone (rather than jointly
to Lessee and Lessor). Lessor is hereby authorized to adjust and
compromise any such loss with the consent of Lessee or, following any Lease
Default, whether or not cured, without the consent of Lessee, and to
collect and receive such proceeds in the name of Lessor and Lessee, and
Lessee appoints Lessor (or any agent designated by Lessor) as Lessee's
attorney-in-fact with full power of substitution, to endorse Lessee's name
upon any check in payment thereof. Subject to the provisions of Article
13, such insurance proceeds shall be applied first toward reimbursement of
all costs and expenses reasonably incurred by Lessor in collecting said
insurance proceeds, then toward payment of the Lease Obligations or any
portion thereof, which have not been paid when due and payable or within
any applicable cure period, in such order as Lessor determines, and then in
whole or in part toward restoration, repair or reconstruction of the Leased
Property for which such insurance proceeds shall have been paid.
12.1.7 IRREVOCABLE POWER OF ATTORNEY. The power of attorney
conferred on Lessor pursuant to the provisions of Section 12.1, being
coupled with an interest, shall be irrevocable for as long as this Lease is
in effect or any Lease Obligations are outstanding, shall not be affected
by any disability or incapacity which Lessee may suffer and shall survive
the same. Such power of attorney, is provided solely to protect the
interests of Lessor and shall not impose any duty on Lessor to exercise any
such power, and neither Lessor nor such attorney-in-fact shall be liable
for any act, omission, error in judgment or mistake of law, except as the
same may result from its gross negligence or wilful misconduct.
12.1.8 BLANKET POLICIES. Notwithstanding anything to the contrary
contained herein, Lessee's obligations to carry the insurance provided for
herein may be brought within the coverage of a so-called blanket policy or
policies of
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insurance carried and maintained by Lessee and its Affiliates; PROVIDED,
HOWEVER, that the coverage afforded to Lessor shall not be reduced or
diminished or otherwise be different from that which would exist under a
separate policy meeting ALL other requirements of this Lease BY reason of
the use of such blanket policy of insurance, and PROVIDED, FURTHER that the
requirements of Section 12.1 are otherwise satisfied.
12.1.9 NO SEPARATE INSURANCE. Lessee shall not, on Lessee's own
initiative or pursuant to the request or requirement of any other Person,
take out separate insurance concurrent in form or contributing in the
event of loss with the insurance required hereunder to be furnished by
Lessee, or increase the amounts of any then existing insurance by securing
an additional policy or additional policies, unless (a) all parties having
an insurable interest in the subject matter of the insurance, including
Lessor, are included therein as additional insureds and (b) losses are
payable under said insurance in the same manner as losses are required to
be payable under this Lease. Lessee shall immediately notify Lessor of the
taking out of any such separate insurance or of the increasing of any of
the amounts of the then existing insurance by securing an additional
insurance policy or policies.
12.1.10 ASSIGNMENT OF UNEARNED PREMIUMS. Lessee hereby assigns to
Lessor all rights of Lessee in and to any unearned premiums on any
insurance policy required hereunder to be furnished by Lessee which may
become payable or are refundable after the occurrence of an Event of
Default hereunder, which premium, upon receipt thereof, Lessor shall at
Lessor's option apply toward the Lease Obligations or hold as security
therefor. In the event that this Lease is terminated for any reason (other
than the purchase of the Leased Property by Lessee), the insurance policies
required to be maintained hereunder, including all right, title and
interest of Lessee thereunder, shall become the absolute property of Lessor
subject to any limitation on assignment provided for therein.
12.2 INDEMNITY.
12.2.1 INDEMNIFICATION. Except with respect to the gross negligence
or wilful misconduct of Lessor or any of the other Indemnified Parties, as
to which no indemnity is provided, Lessee hereby agrees to defend with
counsel reasonably acceptable to Lessor, against all claims and causes of
action and to indemnify and hold harmless Lessor and each of the other
Indemnified Parties from and against all damages, losses, liabilities,
obligations, penalties, costs and expenses (including, without limitation,
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reasonable attorneys' fees, court costs and other expenses of litigation)
suffered by, or claimed or asserted against, Lessor or any of the other
Indemnified Parties, directly or indirectly, by any Person other than a
member of the Leasing Group who prevails in such claim or action based on,
arising out of or resulting from (a) the use and occupancy of the Leased
Property or any business conducted therein, (b) any act, fault, omission to
act or misconduct by (i) any member of the Leasing Group, (ii) any
Affiliate of Lessee or (iii) any employee, agent, licensee, business
invitee, guest, customer, contractor or sublessee of any of the foregoing
parties, relating to, directly or indirectly, the Leased Property, (c) any
accident, injury or damage whatsoever caused to any Person, including,
without limitation, any claim of malpractice, or to the property of any
Person in or about the Leased Property or outside of the Leased Property
where such accident, injury or damage results or is claimed to have
resulted from any act, fault, omission to act or misconduct by any member
of the Leasing Group or any Affiliate of Lessee or any employee, agent,
licensee, contractor or sublessee of any of the foregoing parties, (d) any
Lease Default, (e) any claim brought or threatened against Lessor by any
member of the Leasing Group or by any other Person on account of (i)
Lessor's relationship with any member of the Leasing Group pertaining in
any way to the Leased Property and/or the transaction evidenced by the
Lease Documents and/or (ii) Lessor's negotiation of, entering into and/or
performing any of its obligations and/or exercising any of its right and
remedies under any of the Lease Documents, (f) any attempt by any member of
the Leasing Group or any Affiliate of Lessee to transfer or relocate any of
the Permits to any location other than the Leased Property and/or (g) the
enforcement of this indemnity. Any amounts which become payable by Lessee
under this Section 12-2.1 shall be a demand obligation of Lessee to Lessor,
payable as an Additional Charge. The indemnity provided for in this
Section 12.2.1 shall survive any termination of this Lease.
12.2.2 INDEMNIFIED PARTIES. As used in this Lease the term
"Indemnified Parties" shall mean the Meditrust Entities, any Fee Mortgagee
and their respective successors, assigns, employees, servants, agents,
attorneys, officers, directors, shareholders, partners and owners.
12.2.3 LIMITATION ON LESSOR LIABILITY. Neither Lessor nor any
Affiliate of Lessor shall be liable to any member of the Leasing Group or
any Affiliate of any member of the Leasing Group, or to any other Person
whatsoever for any damage, injury, loss, compensation, or claim (including,
but not limited to, any claim for the interruption of or loss to any
business conducted on the Leased Property) based on,
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arising out of or resulting from any cause whatsoever, including, but not
limited to, the following: (a) repairs to the Leased Property, (b)
interruption in use of the Leased Property; (c) any accident or damage
resulting from the use or operation of the Leased Property or any business
conducted thereon; (d) the termination of this Lease by reason of Casualty
or Condemnation, (e) any fire, theft or other casualty or crime, (f) the
actions, omissions or misconduct of any other Person, (g) damage to any
property, or (h) any damage from the flow or leaking of water, rain or
snow. All Tangible Personal Property and the personal property of any other
Person on the Leased Property shall be at the sole risk of Lessee and
Lessor shall not in any manner be held responsible therefor (except in the
event of loss caused by the gross negligence or willful misconduct of
Lessor). Notwithstanding the foregoing, Lessor shall not be released from
liability for any injury, loss, damage or liability suffered by Lessee to
the extent caused directly by the gross negligence or willful misconduct of
Lessor, its servants, employees or agents acting within the scope of their
authority on or about the Leased Property or in regards to the Lease;
provided, however, that in no event shall Lessor, its servants, employees
or agents have any liability based on any loss for any indirect or
consequential damages. or
12.2.4 RISK OF LOSS. During the Term of this Lease, the risk of
loss or of decrease in the enjoyment and beneficial use of the Leased
Property in consequence of any damage or destruction thereof by fire, the
elements, casualties, thefts, riots, wars or otherwise, or in consequence
of foreclosures, levies or execution of Liens (other than those created by
Lessor in accordance with the provisions of Article 20) is assumed by
Lessee and, in the absence of the gross negligence or willful misconduct as
set forth in Section 12.2.3, Lessor shall in no event be answerable or
accountable therefor (except for the obligation to account for insurance
proceeds and Awards to the extent provided for in Articles 13 and 14) nor
shall any of the events mentioned in this Section entitle Lessee to any
abatement of Rent (except for an abatement, if any, as specifically
provided for in Section 3.7).
ARTICLE 13
FIRE AND CASUALTY
13.1 RESTORATION FOLLOWING FIRE OR OTHER CASUALTY.
13.1.1 FOLLOWING FIRE OR CASUALTY. In the event of
any damage or destruction to the Leased Property by reason
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of fire or other hazard or casualty (a "Casualty"), Lessee shall give
immediate written notice thereof to Lessor and, subject to the terms of
this Article 13 and any applicable Legal Requirements, Lessee shall proceed
with reasonable diligence, in full compliance with all applicable Legal
Requirements, to perform such repairs, replacement and reconstruction work
(referred to herein as the "Work") to restore the Leased Property to the
condition it was in immediately prior to such damage or destruction and to
a condition adequate to operate the Facility for the Primary Intended Use
and, if applicable, the Other Permitted Uses and in compliance with
applicable Legal Requirements. All Work shall be performed and completed
in accordance with all applicable Legal Requirements and the other
requirements of this Lease within one hundred and twenty (120) days
following the occurrence of the damage or destruction plus a reasonable
time to compensate for Unavoidable Delays (including for the purposes of
this Section, delays in obtaining Permits and in adjusting insurance
losses), but in no event beyond two-hundred and seventy (270) days
following the occurrence of the Casualty.
13.1.2 PROCEDURES. In the event that any Casualty results in non-
structural damage to the Leased Property in excess of FIFTY THOUSAND
DOLLARS ($50,000) or in any structural damage to the Leased Property,
regardless of the extent of such structural damage, prior to commencing the
Work, Lessee shall comply with the following requirements:
(a) Lessee shall furnish to Lessor complete plans and
specifications for the Work (collectively and as the same may be
modified and amended from time to time pursuant to the terms hereof,
the "Plans and Specifications"), for Lessor's approval, in each
instance, which approval shall not be unreasonably withheld. The
Plans and Specifications shall bear the signed approval thereof by an
architect, licensed to do business in the State, reasonably
satisfactory to Lessor (in the event Lessor reasonably determines that
the Work is of a nature for which the involvement of an architect is
appropriate) and shall be accompanied by a written estimate from the
architect, bearing the architect's seal, of the entire cost of
completing the Work, and to the extent feasible, the Plans and
Specifications shall provide for Work of such nature, quality and
extent, that, upon the completion thereof, the Leased Property shall
be at least equal in value and general utility to its value and
general utility prior to the Casualty and shall be adequate to operate
the Leased Property for the Primary Intended Use and, if applicable,
the Other Permitted Uses;
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(b) Lessee shall furnish to Lessor certified or photostatic
copies of all Permits and Contracts required by all applicable Legal
Requirements in connection with the commencement and conduct of the
Work to the extent the same can be secured in the ordinary course
prior to the commencement of construction;
(c) Lessee shall furnish to Lessor a cash deposit or a payment
and performance bond sufficient to pay for completion of and payment
for the Work in an amount not less than the architect's estimate of
the entire cost of completing the Work, less the amount of property
insurance proceeds (net of costs and expenses incurred by Lessor in
collecting the same), if any, then held by Lessor and which Lessor
shall be required to apply toward restoration of the Leased Property
as provided in Section 13.2;
(d) Lessee shall furnish to Lessor such insurance with respect
to the Work (in addition to the insurance required under Section 12.1
hereof) in such amounts and in such forms as is reasonably required by
Lessee; and
(e) Lessee shall not commence any of the Work until Lessee shall
have complied with the requirements set forth in clauses (a) through
(d) immediately above, as applicable, and, thereafter, Lessee shall
perform the Work diligently, in a good and workmanlike fashion and in
good faith in accordance with (i) the Plans and Specifications
referred to in clause (a) immediately above, (ii) the Permits and
Contracts referred to in clause (b) immediately above and (iii) all
applicable Legal Requirements and other requirements of this Lease;
PROVIDED, HOWEVER, that in the event of a bona fide emergency during
which Lessee is unable to contact the appropriate representatives of
Lessor, Lessee may commence such Work as may be necessary in order to
address such emergency without Lessor's prior approval, as long as
Lessee immediately thereafter advises Lessor of such emergency and the
nature and scope of the Work performed and obtains Lessor's approval
of the remaining Work to be completed.
13.1.3 DISBURSEMENT OF INSURANCE PROCEEDS. If, as provided in
Section 13.2, Lessor is required to apply any property insurance proceeds
toward repair or restoration of the Leased Property, then as long as the
Work is being diligently performed by Lessee in accordance with the terms
and conditions of this Lease, Lessor shall disburse such insurance proceeds
from time to time during the course of the Work in accordance with and
subject to satisfaction of
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the following provisions and conditions. Lessor shall not be required to
make disbursements more often than a-t thirty (30) day intervals. Lessee
shall submit a written request for each disbursement at least ten (10)
Business DAYS in advance and shall comply with the following requirements
in connection with each disbursement:
(a) Prior to the commencement of any Work, Lessee shall have received
Lessor's written approval of the Plans and Specifications Which approval
shall not be unreasonably withheld) and the Work shall be supervised by an
experienced construction-manager with the consultation of an-architect or
engineer qualified and licensed to do business in the State in the event
Lessor reasonably determines that the Work is of a nature for which the
involvement of such architect or engineer is appropriate). Lessee shall
not make any changes in, and shall not permit any changes in, the quality
of the materials to be used in the work, the Plans and Specifications or
the Work, whether by change order or otherwise, without-t the prior written
consent of Lessor, in each instance (which consent may be withheld in
Lessor's sole and absolute discretion); PROVIDED, HOWEVER, that such
consent shall not be required for any individual change which has been
approved by the architect, which does not materially affect the structure
or exterior of the Facility, and the cost of which does not exceed TEN
THOUSAND DOLLARS ($10,000)or which changes, in the aggregate, do not exceed
ONE HUNDRED THOUSAND DOLLARS ($100,000) in cost. Notwithstanding the
foregoing, prior to making any change in Plans and Specifications, copies
of all change orders shall be submitted by Lessee to Lessor and Lessee a-
hall also deliver to Lessor evidence satisfactory to Lessor, in its
reasonable discretion, that all necessary Permits and/or Contracts required
by any Governmental Authority in connection therewith have been obtained or
entered into, as the case may be.
(b) Each request for payment shall be accompanied by W a certificate
of the architect or engineer, bearing the architect's or engineer's seal,
and (Y) a certificate of the general contractor, qualified and licensed to
do business in the State, that is performing the Work (collectively, the
"Work Certificates-"), each dated not more than ten (10) days prior to the
application for withdrawal of funds, and each stating:
(i) that all of the Work performed as of the date of the certificates
has been completed in compliance with the approved Plans and
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Specifications, applicable Contracts and all applicable Legal
Requirements;
(ii) that the sum then requested to be withdrawn has been paid by
Lessee or is justly due to contractors, subcontractors,
materialmen, engineers, architects or other Persons, whose names
and addresses shall be stated therein, who have rendered or
furnished certain services or materials for the Work, and the
certificate shall also include a brief description of such
services and materials and the principal subdivisions or
categories thereof and the respective amounts so paid or due to
each of said Persons in respect thereof and stating the progress
of the Work up to the date of said certificate;
(iii) that the sum then requested to be withdrawn, plus all sums
previously withdrawn, does not exceed the cost of the Work
insofar as actually accomplished up to the date of such
certificate;
(iv) that the remainder of the funds held by Lessor will be sufficient
to pay for the full completion of the Work in accordance with the
Plans and Specifications;
(v) that no part of the cost of the services and materials described
in the applicable Work Certificate has been or is being made the
basis of the withdrawal of any funds in any previous or then
pending application; and
(vi) that, except for the amounts, if any, specified in the applicable
Work Certificate to be due for services and materials, there is
no outstanding indebtedness known, after due inquiry, which is
then due and payable for work, labor, services or materials in
connection with the Work which, if unpaid, might become the basis
of a vendor's, mechanic's, laborer's or materialman's statutory
or
other similar Lien upon the Leased Property.
(c) Lessee shall deliver to Lessor satisfactory evidence that the
Leased Property and all materials and all property described in the Work
Certificates are free and clear of Liens, except (i) Liens, if any,
securing indebtedness due to Persons (whose names and
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addresses and the several amounts due them shall be stated therein)
specified in an applicable Work Certificate, which Liens shall be
discharged upon disbursement of the funds then being requested or duly
contested in accordance with the terms of this Lease Agreement, (ii) any
Fee Mortgage and (iii) the Permitted Encumbrances. Lessor shall accept as
satisfactory evidence of the foregoing lien waivers in customary form from
the general contractor and all subcontractors performing the Work,
together with an endorsement of its title insurance policy (relating to the
Leased Property) in form acceptable to Lessor, dated as of the date of the
making of the then current disbursement, confirming the foregoing.
(d) If the Work involves alteration or restoration of the exterior of
any Leased Improvement that changes the footprint of any Leased
Improvement, Lessee shall deliver to Lessor, upon the request of Lessor, an
"as-built" survey of the Leased Property dated as of a date within ten (10)
days prior to the making of the first and final advances (or revised to a
date within ten (10) days prior to each such advance) showing no
encroachments other than such encroachments, if any, by the Leased
Improvements upon or over the Permitted Encumbrances as are in existence as
of the date hereof.
(e) Lessee shall deliver to Lessor (i) an opinion of counsel
(satisfactory to Lessor both as to counsel and as to the form of opinion)
prior to the first advance opining that all necessary Permits for the
repair, replacement and/or restoration of the Leased Property which can be
obtained in the ordinary course as of said date have been obtained and that
the Leased Property, if repaired, replaced or rebuilt in accordance, in all
material respects, with the approved Plans and Specifications and such
Permits, shall comply with all applicable Legal Requirements subject to
such limitations as may be imposed on such opinion under local law and
(ii) if applicable, an architect's certificate (satisfactory to Lessor both
as to the architect and as to the form of the certificate) prior to the
final advance, certifying that the Leased Property was repaired, replaced
or rebuilt in accordance, in all material respects, with the approved Plans
and Specifications and complies with all applicable Legal Requirements,
including, without limitation, all Permits referenced in the foregoing
clause (i).
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(f) There shall be no Lease Default or any state of facts or
circumstance existing which, with the giving of notice and/or the passage
of time, would constitute any Lease Default.
Lessor, at its option, may waive any of the foregoing requirements in whole
or in part in any instance. Upon compliance by Lessee with the foregoing
requirements (except for such requirements, if any, as Lessor may have
expressly elected to waive), and to the extent of (x) the insurance
proceeds, if any, which Lessor may be required to apply to restoration of
the Leased Property pursuant to the provisions of this Lease and (y) all
other cash deposits made by Lessee, Lessor shall make available for payment
to the Persons named in the Work Certificate the respective amounts stated
in said certificate(s) to be due, subject to a retention of ten percent
(10%) as to all hard costs of the Work (the "Retainage"). It is understood
that the Retainage is intended to provide a contingency fund to assure
Lessor that the Work shall be fully completed in accordance with the Plans
and Specifications and the requirements of Lessor. Upon the full and final
completion of all of the Work in accordance with the provisions hereof, the
Retainage shall be made available for payment to those Persons entitled
thereto.
Upon completion of the Work, and as a condition precedent to making any
further advance, in addition to the requirements set forth above, Lessee
shall promptly deliver to Lessor:
(i) if applicable, written certificates of the architect or engineer,
bearing the architect's or engineer's seal, and the general
contractor, certifying that the Work has been fully completed in
a good and workmanlike manner in material compliance with the
Plans and Specifications and all applicable Legal Requirements;
(ii) an endorsement of its title insurance policy (relating to the
Leased Property) in form reasonably acceptable to Lessor insuring
the Leased Property against all mechanic's and materialman's
liens accompanied by the final lien waivers from the general
contractor and all subcontractors;
(iii) a certificate by Lessee in form and substance reasonably
satisfactory to Lessor, listing all costs and expenses in
connection with the completion of the Work and the amount paid by
Lessee with respect to the Work; and
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(iv) a temporary certificate of occupancy (if obtainable) and all
other applicable Permits and Contracts issued by or entered into
with any Governmental Authority with respect to the Primary
Intended Use not already delivered to Lessor and, to the extent
applicable, the Other Permitted Uses and by the appropriate Board
of Fire Underwriters or other similar bodies acting in and for
the locality in which the Leased Property is situated with
respect to the Facility; PROVIDED, THAT within thirty (30) days
after completion of the Work, Lessee shall obtain and deliver to
Lessor a permanent certificate of occupancy for the Leased
Property, subject to seasonal delays.
Upon completion of the Work and delivery of the documents required
pursuant to the provisions of this Section 13.1, Lessor shall pay the
Retainage to Lessee or to those Persons entitled thereto and if there shall
be insurance proceeds or cash deposits, other than the Retainage, held by
Lessor in excess of the amounts disbursed pursuant to the foregoing
provisions, then provided that no Lease Default has occurred and is
continuing, nor any state of facts or circumstances which, with the giving
of notice and/or the passage of time would constitute a Lease Default,
Lessor shall pay over such proceeds or cash deposits to Lessee.
No inspections or any approvals of the Work during or after
construction shall constitute a warranty or representation by Lessor, or
any of its agents or Consultants, as to the technical sufficiency, adequacy
or safety of any structure or any of its component parts, including,
without limitation, any fixtures, equipment or furnishings, or as to the
subsoil conditions or any other physical condition or feature pertaining to
the Leased Property. All acts, including any failure to act, relating to
Lessor are performed solely for the benefit of Lessor to assure the payment
and performance of the Lease Obligations and are not for the benefit of
Lessee or the benefit of any other Person.
13.2 DISPOSITION OF INSURANCE PROCEEDS.
13.2.1 PROCEEDS TO BE RELEASED TO PAY FOR WORK. In the event of any
Casualty, except as provided for in Section 13.2.2, Lessor shall release
proceeds of property insurance held by it to pay for the Work in accordance
with the provisions and procedures set forth in this Article 13, only if:
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(a) all of the terms, conditions and provisions of Sections 13.1
and 13.2.1 are satisfied;
(b) Lessee demonstrates to Lessor's satisfaction that Lessee has
the financial ability to satisfy the Lease Obligations during such
repair or restoration; and
(c) no Sublease material to the operation of the Facility
immediately prior to such damage or taking shall have been cancelled
or terminated, nor contain any still exercisable right to cancel or
terminate, due to such Casualty if and to the extent that the income
from such Sublease is necessary in order to avoid the violation of any
of the financial covenants set forth in this Lease or otherwise to
avoid the creation of an Event of Default.
If a Fee Mortgagee prevents Lessor from releasing proceeds of property
insurance notwithstanding the satisfaction of the foregoing requirements,
Lessee shall have no obligation to restore the Casualty to which such
proceeds pertain.
13.2.2 PROCEEDS NOT TO BE RELEASED. If, as the result of any
Casualty, the Leased Property is damaged to the extent it is rendered
Unsuitable For Its Primary Intended Use and if either: (a) Lessee, after
exercise of diligent efforts, cannot within a reasonable time (not in
excess of ninety (90) days) obtain all necessary Permits in order to be
able to perform all required Work and to again operate the Facility for its
Primary Intended Use and, if applicable, the Other Permitted Uses within
two hundred and seventy (270) days from the occurrence of the damage or
destruction in substantially the manner as immediately prior to such damage
or destruction or (b) such Casualty occurs during the last twenty-four (24)
months of the Term and would reasonably require more than nine (9) months
to obtain all Permits and complete the Work, then Lessee may either (i)
acquire the Leased Property from Lessor for a purchase price equal to the
greater of (x) the Meditrust Investment or (y) the Fair Market Value of the
Leased Property MINUS the Fair Market Added Value, with the Fair Market
Value and the Fair Market Added Value to be determined as of the day
immediately prior to such Casualty and prior to any other Casualty which
has not been fully repaired, restored or replaced, in which event, Lessee
shall be entitled upon payment of the full purchase price to receive all
property insurance proceeds (less any costs and expenses incurred by Lessor
in collecting the same), or (ii) terminate this Lease, in which event
(subject to the provisions of the last sentence of this Section 13.2.2)
Lessor shall be entitled to receive and retain the insurance proceeds;
PROVIDED,
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HOWEVER, that Lessee shall only have such right of termination effective
upon payment to Lessor of all Rent and other sums due under this Lease and
the other Lease Documents through the date of termination plus an amount,
which when added to the sum of (1) the Fair Market Value of the Leased
Property as affected by all unrepaired or unrestored damage due to any
Casualty (and giving due regard for delays, costs and expenses incident to
completing all repair or restoration required to fully repair or restore
the same) PLUS (2) the amount of insurance proceeds actually received by
Lessor (net of costs and expenses incurred BY Lessor in collecting the
same) equals (3) the greater of the Meditrust Investment or the Fair Market
Value of the Leased Property MINUS the Fair Market Added Value, with the
Fair Market Value and the Fair Market Added Value to be determined as of
the day immediately prior to such Casualty and prior to any other Casualty
which has not been fully repaired. Any acquisition of the Leased Property
pursuant to the terms of this Section 13.2.2 shall be consummated in
accordance with the provisions of Article 18, MUTATIS, MUTANDIS. If such
termination becomes effective, Lessor shall assign to Lessee any
outstanding insurance claims and, at Lessee's expense, shall cooperate in
Lessee's efforts to secure the same. In the event this Lease is terminated
pursuant to the provisions of this Section 13.2.2 and the insurance
proceeds received by Lessor in connection therewith (net of costs and
expenses incurred in obtaining such proceeds) exceeds one hundred fifteen
(115%) percent of the Fair Market Value of the Leased Premises at the time
of such termination, Lessor shall pay to Lessee fifty percent (50%) of the
amount of such excess.
13.3 TANGIBLE PERSONAL PROPERTY. All insurance proceeds payable by
reason of any loss of or damage to any of the Tangible Personal Property shall
be paid to Lessor as secured party, subject to the rights of the holders of any
Permitted Prior Security Interests, and, thereafter, provided that no Lease
Default, nor any fact or circumstance which with the giving of notice and/or the
passage of time could constitute a Lease Default, has occurred and is
continuing, Lessor shall pay such insurance proceeds to Lessee to reimburse
Lessee for the cost of repairing or replacing the damaged Tangible Personal
Property, subject to the terms and conditions set forth in the other provisions
of this Article 13, MUTATIS MUTANDIS.
13.4 RESTORATION OF CERTAIN IMPROVEMENTS AND THE TANGIBLE PERSONAL
PROPERTY. If Lessee is required or elects to restore the Facility, Lessee shall
either (a) restore (i) all alterations and improvements to the Leased Property
made by Lessee and (ii) the Tangible Personal Property or (b) replace such
alterations and improvements and the Tangible Personal Property with
improvements or items of the same or better quality
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and utility in the operation of the Leased Property provided, however, that
Lessee shall be obligated to so restore or replace the Tangible Personal
Property only to the extent desirable for the prudent operation of the Facility
in the good faith exercise OF commercially reasonable business judgment.
13.5 NO ABATEMENT OF RENT. In no event shall any Rent abate as a
result of any Casualty except as expressly provided in Section 3.7.
13.6 TERMINATION OF CERTAIN RIGHTS. Any termination of this Lease
pursuant to this Article 13 shall cause any right of Lessee to extend the Term
of this Lease granted to Lessee herein and any right of Lessee to purchase the
Leased Property contained in this Lease to be terminated and to be without
further force or effect.
13.7 WAIVER. Lessee hereby waives any statutory rights of termination
which may arise by reason of any damage or destruction to the Leased Property
due to any Casualty which Lessee is obligated to restore or may restore under
any of the provisions of this Lease.
13.8 APPLICATION OF RENT LOSS AND/OR BUSINESS INTERRUPTION INSURANCE.
Lessor shall direct all proceeds of rent loss and/or business interruption
insurance (collectively, "Rent Insurance Proceeds") to be paid to Lessee,
provided no fact or circumstance exists which constitutes, or with notice, or
passage of time, or both, would constitute, a Lease Default pertaining to the
Facility or the Leased Property. If a Lease Default or such fact or
circumstance exists, Lessor may rescind such direction and apply all such
insurance proceeds towards the Lease Obligations pertaining to the Facility or
the Leased Property or hold such proceeds as security therefor.
13.9 OBLIGATION TO ACCOUNT. Upon Lessee's written request, which may
not be made not more than once in any three (3) month period, Lessor shall
provide Lessee with a written accounting of the application of all insurance
proceeds received by Lessor.
ARTICLE 14
CONDEMNATION
14.1 PARTIES' RIGHTS AND OBLIGATIONS. If during the Term there is any
Taking of all or any part of the Leased Property or any interest in this Lease,
the rights and obligations of the parties shall be determined by this Article
14.
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14.2 TOTAL TAKING. If there is a permanent Taking of all or
substantially all of the Leased Property, this Lease shall terminate on the Date
of Taking. In the event this Lease is terminated pursuant to the provisions of
this Section 14.2 and the award received by Lessor in connection therewith (net
of costs and expenses incurred in obtaining such Award) exceeds one hundred
fifteen percent (115%) of the Fair Market Value of the Leased Premises at the
time of such termination, Lessor shall pay to Lessee fifty percent (50%) of the
amount of such excess.
14.3 PARTIAL OR TEMPORARY TAKING. If there is a Permanent Taking of a
portion of the Leased Property, or if there is a temporary Taking of all or a
portion of the Leased Property, this Lease shall remain in effect so long as the
Leased Property is not thereby rendered permanently Unsuitable For Its Primary
Intended Use or temporarily Unsuitable For Its Primary Intended Use for a period
not likely to, or which does not, exceed two hundred and seventy (270) days.
If, however, the Leased Property is thereby so rendered permanently or
temporarily Unsuitable For Its Primary Intended Use: (a) if only rendered
temporarily Unsuitable For Its Primary Intended Use, Lessee shall have the right
to restore the Leased Property, at its own expense (subject to the right under
certain circumstances as provided for in Section 14.5 to receive the net
proceeds of an Award for reimbursement), to the extent possible, to
substantially the same condition as existed immediately before the partial or
temporary Taking or (b) Lessee shall have the right to acquire the Leased
Property from Lessor (i) upon payment of all Rent due through the date that the
purchase price is paid, for a purchase price equal to the greater of (x) the
Meditrust Investment or (y) the Fair Market Value of the Leased Property MINUS
the Fair Market Added Value, with the Fair Market Value of the Leased Property
and the Fair Market Added Value to be determined as of the day immediately prior
to such partial or temporary Taking and (ii) in accordance with the terms and
conditions set forth in Article 18; in which event, this Lease shall terminate
upon payment of such purchase price and the consummation of such acquisition.
Notwithstanding the foregoing, Lessor may overrule Lessee's election under
clause (a) or (b) and instead either (1) terminate this Lease (with no
obligation on the part of Lessee to acquire the Leased Property as a result
thereof) as of the date when Lessee is required to surrender possession of the
portion of the Leased Property so taken if (x) such portion comprises more than
thirty percent (30%) of the Leased Property or of the residential building(s)
located thereon or (y) possession thereof is to be surrendered within two years
of the expiration of the Term or (2) compel Lessee to keep the Lease in
full force and effect and to restore the Leased Property as provided in clause
(a) above, but only if the Leased Property may be operated for at least eighty
percent (80%) of the licensed unit capacity of the Facility in effect prior to
the Taking. Lessee shall exercise its election under this Section 14.3 by
giving Lessor notice thereof
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("Lessee's Election Notice") within sixty (60) days after Lessee receives notice
of the Taking. Lessor shall exercise its option to overrule Lessee's election
under this Section 14.3 by giving Lessee notice of Lessor's exercise of its
rights under Section 14.3 within thirty (30) days after Lessor receives Lessee's
Election Notice. If, as the result of any such partial or temporary Taking,
this Lease is not terminated as provided above, Lessee shall be entitled to an
abatement of Rent, but only to the extent, if any, provided for in Section 3.7,
effective as of the date upon which the Leased Property is rendered Unsuitable
For Its Primary Intended Use.
14.4 RESTORATION. If there is a partial or temporary Taking of the
Leased Property and this Lease remains in full force and effect pursuant to
Section 14.3, Lessee shall accomplish all necessary restoration and Lessor shall
release the net proceeds of such Award to reimburse Lessee for the actual
reasonable costs and expenses thereof, subject to all of the conditions and
provisions set forth in Article 13 as though the Taking was a Casualty and the
Award was insurance proceeds. If the cost of the restoration exceeds the amount
of the Award (net of costs and expenses incurred in obtaining the Award), Lessee
shall be obligated to contribute any excess amount needed to restore the
Facility or pay for such costs and expenses. To the extent that the cost of
restoration is less than the amount of the Award (net of cost and expenses
incurred in obtaining the Award), the remainder of the Award shall be retained
by Lessor and Rent shall be abated as set forth in Section 3.7.
14.5 AWARD DISTRIBUTION. In the event Lessee completes the purchase of
the Leased Property, as described in Section 14.3, the entire Award shall, upon
payment of the purchase price and all Rent and other sums due under this Lease
and the other Lease Documents, belong to Lessee and Lessor agrees to assign to
Lessee all of Lessor's rights thereto or, to the extent Lessor has received
payment of the Award, the amount of such payment shall be credited against the
purchase price. In any other event, the entire Award (except for such portion
thereof which the Condemner designates as allocable to Lessee's loss of business
or Tangible Personal Property) shall belong to and be paid to Lessor.
14.6 CONTROL OF PROCEEDINGS. Subject to the rights of any Fee
Mortgagee, unless and until Lessee completes the purchase of the Leased Property
as provided in Section 14.3, all proceedings involving any Taking and the
prosecution of claims arising out of any Taking against the Condemnor shall be
conducted, prosecuted and settled by Lessor; PROVIDED, HOWEVER, that Lessor
shall keep Lessee apprised of the progress of all such proceedings and shall
solicit Lessee's advice with respect thereto and shall give due consideration to
any such advice. In addition, Lessee shall reimburse Lessor (as an Additional
Charge)
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for all costs and expenses, including reasonable attorneys' fees, appraisal
fees, fees of expert witnesses and costs of litigation or dispute resolution, in
relation to any Taking, whether or not this Lease is terminated; PROVIDED,
HOWEVER, if this Lease is terminated as a result of a Taking, Lessee's
obligation to so reimburse Lessor shall be diminished by the amount of the
award, if any, received by Lessor which is in excess of the Meditrust
Investment.
ARTICLE 15
PERMITTED CONTESTS
15.1 LESSEE'S RIGHT TO CONTEST. To the extent of the express
references made to this Article 15 in other Sections of this Lease, Lessee, any
Sublessee or any Manager on their own or on Lessor's behalf (or in Lessor's
name), but at their sole cost and expense, may contest, by appropriate legal
proceedings conducted in good faith and with due diligence (until the resolution
thereof), the amount, validity or application, in whole or in part, of any
Imposition, Legal Requirement, the decision of any Governmental Authority
related to the operation of the Leased Property for its Primary Intended Use
and/or, if applicable, any of the Other Permitted Uses or any Lien or claim
relating to the Leased Property not otherwise permitted by this Agreement;
PROVIDED, THAT (a) prior written notice of such contest is given to Lessor, (b)
in the case of an unpaid Imposition, Lien or claim, the commencement and
continuation of such proceedings shall suspend the collection thereof from
Lessor and/or compliance by any applicable member of the Leasing Group with the
contested Legal Requirement or other matter may be legally delayed pending the
prosecution of any such proceeding without the occurrence or creation of any
Lien, charge or liability of any kind against the Leased Property, (c) neither
the Leased Property nor any rent therefrom would be in any immediate danger of
being sold, forfeited, attached or lost as a result of such proceeding, (d) in
the case of a Legal Requirement, neither Lessor nor any member of the Leasing
Group would be in any immediate danger of civil or criminal liability for
failure to comply therewith pending the outcome of such proceedings, (e) in the
event that any such contest shall involve a sum of money or potential loss in
excess of TWENTY FIVE THOUSAND DOLLARS ($25,000), Lessee shall deliver to Lessor
an Officer's Certificate and opinion of counsel, if Lessor deems the delivery of
an opinion to be appropriate, certifying or opining, as the case may be, as to
the validity of the statements set forth to the effect set forth in clauses (b),
(c) and (d), to the extent applicable, (f) Lessee shall give such cash security
as may be demanded in good faith by Lessor to insure ultimate payment of any
fine, penalty, interest or cost and to prevent any sale or forfeiture of the
affected portion of the Leased Property
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by reason of such non-payment or non-compliance, (g) if such contest is finally
resolved against Lessor or any member of the Leasing Group, Lessee shall
promptly pay, as Additional Charges due hereunder, the amount required to be
paid, together with all interest and penalties accrued thereon and/or comply
(and cause any Sublessee and any Manager to comply) with the applicable Legal
Requirement, and (h) no state-of facts or circumstance exists which constitutes,
or with the passage of time and/or the giving of notice, could constitute a
Lease Default; PROVIDED, HOWEVER, but without limiting any other right Lessee
may have under the Lease Documents to contest the payment of Rent, the
provisions of this Article 15 shall not be construed to permit Lessee to contest
the payment of Rent or any other sums payable by Lessee to Lessor under any of
the Lease Documents. If such contest is finally resolved in favor of Lessee,
Lessee shall be entitled to any refund resulting therefrom.
15.2 LESSOR'S COOPERATION. Lessor, at Lessee's sole cost and expense,
shall execute and deliver to Lessee such authorizations and other documents as
may reasonably be required in any such contest, so long as the same does not
expose Lessor to any civil or criminal liability, and, if reasonably requested
by Lessee or if Lessor so desires, Lessor shall join as a party therein.
15.3 LESSEE'S INDEMNITY. Lessee, as more particularly provided for in
Section 12.2, shall indemnify, defend (with counsel acceptable to Lessor) and
save Lessor harmless against any liability, cost or expense of any kind,
including, without limitation, attorneys' fees and expenses that may be imposed
upon Lessor in connection with any such contest and any loss resulting therefrom
and in the enforcement of this indemnification.
ARTICLE 16
DEFAULT
16.1 EVENTS OF DEFAULT. Each of the following shall constitute an
"Event of Default" hereunder and shall entitle Lessor to exercise its remedies
hereunder and under any of the other Lease Documents:
(a) any failure of Lessee to pay any amount due hereunder or under
any of the other Lease Documents within ten (10) days following the date
when such payment was due;
(b) any failure in the observance or performance of any other
covenant, term, condition or warranty provided in this Lease or any of the
other Lease Documents, other than the payment of any monetary obligation
and other than as
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specified in subsections (c) through (v) below (a "Failure to Perform"),
continuing for thirty (30) days after the giving of notice by Lessor to
Lessee specifying the nature of the Failure to Perform; except as to
matters not susceptible to cure within thirty (30) days, provided that with
respect to such matters, (i) Lessee commences the cure thereof within
thirty (30) days after the giving of such notice by Lessor to Lessee, (ii)
Lessee continuously prosecutes such cure to completion, (iii) such cure is
completed within one hundred twenty (120) days after the giving of such
notice by Lessor to Lessee and (iv) such Failure to Perform does not impair
the value of, or Lessor's rights with respect to, the Leased Property or
otherwise impair the Collateral or Lessor's security interest therein;
(c) the occurrence of any default or breach of condition continuing
beyond the expiration of the applicable notice and grace periods, if any,
under any of the other Lease Documents, including, without limitation, the
Agreement Regarding Related Transactions;
(d) if any representation, warranty or statement contained herein or
in any of the other Lease Documents proves to be untrue in any material
respect as of the date when made or at any time during the Term if such
representation or warranty is a continuing representation or warranty
pursuant to Section 10.2;
(e) it any member of the Leasing Group shall (i) voluntarily be
adjudicated a bankrupt or insolvent, (ii) seek or consent to the
appointment of a receiver or trustee for itself or for the Leased Property,
(iii) file a petition seeking relief under the bankruptcy or other similar
laws of the United States, any state or any jurisdiction, (iv) make a
general assignment for the benefit of creditors, (v) make or offer a
composition of its debts with its creditors or (VI) be unable to pay its
debts as such debts mature;
(f) if any court shall enter an order, judgment or decree appointing,
without the consent of any member of the Leasing Group, a receiver or
trustee for such member or for any of its property and such order, judgment
or decree shall remain in force, undischarged or unstayed, ninety (90) days
after it is entered;
(g) if a petition is filed against any member of the Leasing Group
which seeks relief under the bankruptcy or other similar laws of the United
States, any state or any other jurisdiction, and such petition is not
dismissed within ninety (90) days after it is filed;
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(h) in the event that:
i. all or any portion of the interest of any partner, shareholder,
member in any member of the Leasing Group (other than Guarantor)
shall be, on any one or more occasions, directly or indirectly,
sold, assigned, hypothecated or otherwise transferred (whether by
operation of law or otherwise), if such member of the Leasing
Group shall be a partnership, joint venture, syndicate or other
group, without the prior written consent of Lessor, in each
instance, which consent may be withheld by Lessor in its
reasonable discretion with respect to a sale, assignment,
hypothecation or other transfer to a Meditrust/Emeritus
Transaction Affiliate and in all other cases, in its sole and
absolute discretion;
ii. the shares of the issued and outstanding capital stock of any
member of the Leasing Group (other than Guarantor) shall be, on
any one or more occasions, directly or indirectly, sold,
assigned, hypothecated or otherwise transferred (whether by
operation of law or otherwise), if such member of the Leasing
Group shall be a corporation, without the prior written consent
of Lessor, in each instance, which consent may be withheld by
Lessor in its reasonable discretion with respect to a sale,
assignment, hypothecation or other transfer to a
Meditrust/Emeritus Transaction Affiliate and in all other cases,
in its sole and absolute discretion; or
iii. all or any portion of the beneficial interest in any member of
the Leasing Group (other than Guarantor) shall be, directly or
indirectly, sold or otherwise transferred (whether by operation
of law or otherwise), if such member of the Leasing Group shall
be a trust, without the prior written consent of Lessor, in each
instance, which consent may be withheld by Lessor in its
reasonable discretion with respect to a sale, assignment,
hypothecation or other transfer to a Meditrust/Emeritus
Transaction Affiliate and in all other cases, in its sole and
absolute discretion;
Notwithstanding the foregoing, no consent of Lessor to a pledge by Lessee
of its stock to the lender of a Working
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Capital Loan satisfying the requirements of Section 6.1.3 shall be required
(a "Working Capital Stock Pledge").
(i) the death, incapacity, liquidation, dissolution or termination of
existence of any member of the Leasing Group or the merger or consolidation
of any member of the Leasing Group with any other Person except as
expressly permitted by the terms of this Lease Agreement;
(j) except as provided in Section 19.1 hereof, if, without the prior
written consent of Lessor, in each instance, which consent may be withheld
by Lessor in its sole and absolute discretion, Lessee's or any interest of
a Sublessee which is an Affiliate of Lessee in the Leased Property shall
be, directly or indirectly, mortgaged, encumbered (by any voluntary or
involuntary Lien other than the Permitted Encumbrances), subleased, sold,
assigned, hypothecated or otherwise transferred (whether by operation of
law or otherwise);
(k) the occurrence of a default or breach of condition continuing
beyond the expiration of the applicable notice and grace periods, if any,
in connection with the payment or performance of any other material
obligation of Lessee or any Sublessee which is an Affiliate of Lessee, if
the applicable creditor or obligee elects to declare the obligations of
Lessee or the applicable Sublessee under the applicable agreement due and
payable or to exercise any other right or remedy available to such creditor
or obligee, or, whether or not such creditor or obligee has so elected or
exercised, such creditor's or obligee's rights and remedies, if exercised,
may involve or result in the taking of possession of, or the creation of a
Lien on, the Leased Property; PROVIDED, HOWEVER, that in any event, the
election by the applicable creditor or obligee to declare the obligations
of Lessee under the applicable agreement due and payable or to exercise any
other right or remedy available to such creditor or obligee shall be an
Event of Default hereunder only if such obligations, individually or in the
aggregate, are in excess of TWO HUNDRED FIFTY THOUSAND DOLLARS ($ 250,000);
(l) the occurrence of a Related Party Default;
(m) the occurrence of any default or breach of condition which is not
cured within any applicable cure period under a Working Capital Loan
secured by a Working Capital Stock Pledge (or any documents executed in
connection therewith) or the exercise of any ownership rights by the lender
of a Working Capital Loan secured by a Working Capital Stock Pledge;
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(n) except as a result of Casualty or a partial or complete
Condemnation (including a temporary taking), if Lessee or any Sublessee
ceases operation of the Facility for a period in excess of thirty (30) days
(a "Failure to Operate");
(o) if one or more judgments against Lessee or any Sublessee which is
an Affiliate of LESSEE or attachments against Lessee's interest or any such
Sublessee's interest in the Leased Property, which in the aggregate exceed
TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) or which may materially and
adversely interfere with the operation of the Facility, remain unpaid,
unstayed on appeal, undischarged, unbonded or undismissed for a period of
thirty (30) days;
(p) if any malpractice award or judgment exceeding any applicable
professional liability insurance coverage by more than FIVE HUNDRED
THOUSAND DOLLARS ($500,000) shall be rendered against any member of the
Leasing Group and either (i) enforcement proceedings shall have been
commenced by any creditor upon such award or judgment or (ii) such award or
judgment shall continue unsatisfied and in effect for a period of ten (10)
consecutive days without an insurance company satisfactory to Lessor (in
its sole and absolute discretion) having agreed to fund such award or
judgment in a manner satisfactory to Lessor (in its sole and absolute
discretion) and in either case such award or judgment shall, in the
reasonable opinion of Lessor, have a material adverse affect on the ability
of Lessee or any Sublessee to operate the Facility;
(q) if any Provider Agreement material to the operation or financial
condition of the Leased Property shall be terminated prior to the
expiration of the term thereof or, without the prior written consent of
Lessor, in each instance, which consent may be withheld in Lessor's
reasonable discretion, shall not be renewed or extended upon the expiration
of the stated term thereof;
(r) if, after Lessee or any Sublessee has obtained approval for
Medicare and/or Medicaid funding, a final unappealable determination is
made by the applicable Governmental Authority that Lessee or any Sublessee
shall have failed to comply with applicable Medicare and/or Medicaid
regulations in the operation of the Facility, as a result of which failure
Lessee or such Sublessee is declared ineligible to continue its
participation in the Medicare and/or Medicaid programs and such
determination could reasonably be expected to have a material adverse
effect on the operation or financial condition of the Leased Property;
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(s) if any member of the Leasing Group receives notice of a final
unappealable determination by applicable Governmental Authorities of the
revocation of any Permit required for the lawful construction or operation
of the Facility in accordance with the Primary Intended Use and, if
applicable, the Other Permitted Uses or the loss of any Permit under any
other circumstances under which any member of the Leasing Group is required
to permanently cease the construction or operation of the Facility in
accordance with the Primary Intended Use and the Other Permitted Uses; and
(t) any failure to maintain the insurance required pursuant to
Section 13 of this Lease in force and effect at all times until the Lease
Obligations are fully paid and performed;
(u) the appointment of a temporary manager (or operator) for the
Leased Property by any Governmental Authority;
(v) the entry of an order by a court with jurisdiction over the
Leased Property to close the Facility, to transfer one or more residents
the Facility as a result of an allegation of abuse or neglect or to take
any action to eliminate an emergency situation then existing at the
Facility, if such order has not been stayed pending appeal within ten (10)
following such entry; or
(w) the occurrence of any default or breach of condition continuing
for more than thirty (30) days under any credit agreement, loan agreement
or other agreement establishing a major line of credit (including, without
limitation, a major line of credit or a Working Capital Loan which is not
secured by a Working Capital Stock Pledge) (or any documents executed in
connection with such lines of credit) on behalf of Guarantor without regard
to whether the applicable creditor has elected to declare the indebtedness
due and payable under such line of credit or to exercise any other right or
remedy available to it or the occurrence of any such default or breach of
condition if the applicable creditor has elected to declare the
indebtedness due and payable under such line of credit or to exercise any
other right or remedy available to it. For the purpose of this provision,
a major line of credit shall mean and include any line of credit
established in an amount equal to or greater than ONE MILLION DOLLARS
($1,000,000) with respect to a line of credit for which Guarantor is an
obligor, endorser, surety or guarantor.
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16.2 REMEDIES.
(a) If any Lease Default shall have occurred, Lessor may at its option
terminate this Lease by giving Lessee not less than ten (10) days' notice of
such termination, or exercise any one or more of its rights and remedies under
this Lease or any of the other Lease Documents, or as available at law or in
equity and upon the expiration of the time fixed in such notice, the Term shall
terminate (but only if Lessor shall have specifically elected by a written
notice to so terminate the Lease) and all rights of Lessee under this Lease
shall cease. Notwithstanding the foregoing, in the event of Lessee's failure to
pay Rent, if such Rent remains unpaid beyond ten (10) days from the due date
thereof, Lessor shall not be obligated to give ten (10) days notice of such
termination or exercise of any of its other rights and remedies under this
Lease, or the other Lease Documents, or otherwise available at law or in equity,
and Lessor shall be at liberty to pursue any one or more of such rights or
remedies without further notice. No taking of possession of the Leased Property
by or on behalf of Lessor, and no other act done by or on behalf of Lessor,
shall constitute an acceptance of surrender of the Leased Property by Lessee or
reduce Lessee's obligations under this Lease or the other Lease Documents,
unless otherwise expressly agreed to in a written document signed by an
authorized officer or agent of Lessor.
(b) To the extent permitted under applicable law, Lessee shall pay as
Additional Charges all costs and expenses (including, without limitation,
attorneys' fee and expenses) reasonably incurred by or on behalf of Lessor as a
result of any Lease Default.
(c) If any Lease Default shall have occurred, whether or not this Lease
has been terminated pursuant to Paragraph (a) of this Section, Lessee shall, to
the extent permitted under applicable law, if required by Lessor so to do, upon
not less than ten (10) days' prior notice from Lessor, immediately surrender to
Lessor the Leased Property pursuant to the provisions of Paragraph (a) of this
Section and quit the same, and Lessor may enter upon and repossess the Leased
Property by reasonable force, summary proceedings, ejectment or otherwise, and
may remove Lessee and all other Persons and any and all of the Tangible Personal
Property from the Leased Property, subject to the rights of any residents of the
Facility and any Sublessees who are not Affiliates of any member of the Leasing
Group and to any requirements of applicable law, or Lessor may claim ownership
of the Tangible Personal Property as set forth in Section 5.2.3 hereof or Lessor
may exercise its rights as secured party under the Security Agreement. Lessor
shall use reasonable, good faith efforts to relet the Leased Property or
otherwise mitigate damages suffered by Lessor as a result of Lessee's breach of
this Lease.
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(d) In addition to all of the rights and remedies of Lessor set forth in
this Lease and the other Lease Documents, if Lessee shall fail to pay any rental
or other charge due hereunder (whether denominated as Base Rent, Additional
Rent, Additional Charges or otherwise) within ten (10) days after same shall
have become due and payable, then and in such event Lessee shall also pay to
Lessor (i) a late payment service charge (in order to partially defray Lessor's
administrative and other overhead expenses) equal to TWO HUNDRED FIFTY DOLLARS
(0250) and (ii) to the extent permitted by applicable law, interest on such
unpaid sum at the Overdue Rate; it being understood, however, that nothing
herein shall be deemed to extend the due date for payment of any sums required
to be paid by Lessee hereunder or to relieve Lessee of its obligation to pay
such sums at the time or times required by this Lease.
16.3 DAMAGES. None of (a) the termination of this Lease pursuant to
Section 16.2, (b) the eviction of Lessee or the repossession of the Leased
Property, (c) the inability after reasonable diligence of Lessor,
notwithstanding reasonable good faith efforts, to relet the Leased Property,
(j) the reletting of the Leased Property or (d) the failure of Lessor to
collect or receive any rentals due upon any such reletting, shall relieve
Lessee of its liability and obligations hereunder, all of which shall survive
any such termination, repossession or reletting. In any such event, Lessee
shall forthwith pay to Lessor all Rent due and payable with respect to the
Leased Property to and including the date of such termination, repossession
or eviction. Thereafter, Lessee shall forthwith pay to Lessor, at Lessor's
option, either:
(i) the sum of (x) all Rent that is due and unpaid at later to occur of
termination, repossession or eviction, together with interest thereon
at the Overdue Rate to the date of payment, PLUS (y) the worth
(calculated in the manner stated below) of the amount by which the
unpaid Rent for the balance of the Term after the later to occur of
the termination, repossession or eviction exceeds the fair market
rental value of the Leased Property for the balance of the Term, PLUS
(z) any other amount necessary to compensate Lessor for all damage
proximately caused by Lessee's failure to perform the Lease
Obligations or which in the ordinary course would be likely to result
therefrom and LESS the amount of rent that has actually been received
by Lessor following the termination of this Lease from a Person other
than an Affiliate of Lessor (which for purposes hereof shall include
the net income received by Lessor or an Affiliate of Lessor from its
own operation of the Leased Property in the event it elects to resume
operation thereof in lieu of hiring a
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third party manager or re-letting the Leased Property); or
(ii) each payment of Rent as the same would have become due and payable if
Lessee's right of possession or other rights under this Lease had not
been terminated, or if Lessee had not been evicted, or if the Leased
Property had not been repossessed which Rent, to the extent permitted
by law, shall bear interest at the Overdue Rate from the date when due
until the date paid, and Lessor may enforce, by action or otherwise,
any other term or covenant of this Lease. There shall be credited
against Lessee's obligation under this Clause (ii) amounts actually
collected by Lessor from another tenant to whom the Leased Property
may have actually been leased or, if Lessor is operating the Leased
Property for its own account, the actual Cash Flow of the Leased
Property.
In making the determinations described in subparagraph (i) above, the
"worth" of unpaid Rent shall be determined by a court having jurisdiction
thereof using the lowest rate of capitalization (highest present worth)
reasonably applicable at the time of such determination and allowed by
applicable law and the Additional Rent shall be deemed to be the same as the
average Additional Rent of the preceding five (5) full calendar years, or if
shorter, the average Additional Rent for the calendar years or portions thereof
since the date that Additional Rent commenced to accrue or such other amount as
either party shall prove reasonably could have been earned during the remainder
of the Term or any portion thereof.
16.4 LESSEE WAIVERS. If this Lease is terminated pursuant to Section
16.2, Lessee waives, to the extent not prohibited by applicable law, (a) any
right of redemption, re-entry or repossession, (b) any right to a trial by jury
in the event of summary proceedings to enforce the remedies set forth in this
Article 16, and (c) the benefit of any laws now or hereafter in force exempting
property from liability for rent or for debt.
16.5 APPLICATION OF FUNDS. Any payments otherwise payable to Lessee
which are received by Lessor under any of the provisions of this Lease during
the existence or continuance of any Lease Default shall be applied to the Lease
Obligations in the order which Lessor may reasonably determine or as may be
required by the laws of the State.
16.6 FAILURE TO CONDUCT BUSINESS. For the purpose of determining
rental loss damages or Additional Rent, in the event Lessee fails to conduct
business upon the Leased Property, exact damages or the amount of Additional
Rent being unascertainable, it shall be deemed that the Additional Rent for
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such period would be equal to the average annual Additional Rent during the five
(5) preceding calendar years or such shorter period of time as may have existed
between the date Additional Rent commenced to accrue and the date of
computation.
16.7 LESSOR'S RIGHT TO CURE. If Lessee shall fail to make any payment,
or to perform any act required to be made or performed under this Lease and to
cure the same within the relevant time periods provided in Section 16.1, Lessor,
after five (5) Business Days, prior notice to Lessee (except in an emergency
when such shorter notice shall be given as is reasonable under the
circumstances), and without waiving or releasing any obligation or Event of
Default, may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of Lessee,
and may, to the extent permitted by law, enter upon the Leased Property for such
purpose and take all such action thereon as, in Lessor's opinion, may be
necessary or appropriate therefor. No such entry shall be deemed an eviction of
Lessee. All sums so paid by Lessor and all costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses, in each case, to
the extent permitted by law) so incurred shall be paid by Lessee to Lessor on
demand as an Additional Charge. The obligations of Lessee and rights of Lessor
contained in this Article shall survive the expiration or earlier termination of
this Lease.
16.8 NO WAIVER BY LESSOR. Lessor shall not by any act, delay, omission
or otherwise (including, without limitation, the exercise of any right or remedy
hereunder) be deemed to have waived any of its rights or remedies hereunder or
under any of the other Lease Documents unless such waiver is in writing and
signed by Lessor, and then, only to the extent specifically set forth therein.
No waiver at any time of any of the terms, conditions, covenants,
representations or warranties set forth in any of the Lease Documents
(including, without limitation, any of the time periods set forth therein for
the performance of the Lease Obligations) shall be construed as a waiver of any
other term, condition, covenant, representation or warranty of any of the Lease
Documents, nor shall such a waiver in any one instance or circumstances be
construed as a waiver of the same term, condition, covenant, representation or
warranty in any subsequent instance or circumstance. No such failure, delay or
waiver shall be construed as creating a requirement that Lessor must thereafter,
as a result of such failure, delay or waiver, give notice to Lessee or any
Guarantor, or any other Person that Lessor does not intend to, or may not, give
a further waiver or to refrain from insisting upon the strict performance of the
terms, conditions, covenants, representations and warranties set forth in the
Lease Documents before Lessor can exercise any of its rights or remedies under
any of the Lease Documents or before any Lease Default can occur, or as
establishing a course of
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dealing for interpreting the conduct of and agreements between Lessor and
Lessee, the Guarantor or any other Person.
The acceptance by Lessor of any payment that is less than payment in full
of all amounts then due under any of the Lease Documents at the time of the
making of such payment shall not: (a) constitute a waiver of the right to
exercise any of Lessor's remedies at that time or at any subsequent time, (b)
constitute an accord and satisfaction or (c) nullify any prior exercise of any
remedy, without the express written consent of Lessor. Any failure by Lessor to
take any action under this Lease or any of the other Lease Documents by reason
of a default hereunder or thereunder, acceptance of a past due installment, or
indulgences granted from time to time shall not be construed as a novation of
this Lease or any of the other Lease Documents or as a waiver of such right or
of the right of Lessor thereafter to insist upon strict compliance with the
terms of this Lease or any of the other Lease Documents, or (d) prevent the
exercise of such right of acceleration or any other right granted hereunder or
under applicable law for purposes of obtaining the damages set forth in Section
16.3, specific performance or equitable remedies; and to the maximum extent not
prohibited by applicable law, Lessee hereby expressly waives the benefit of any
statute or rule of law or equity now provided, or which may hereafter be
provided, which would produce a result contrary to or in conflict with the
foregoing.
16.9 RIGHT OF FORBEARANCE. Whether or not for consideration paid or
payable to Lessor and, except as may be otherwise specifically agreed to by
Lessor in writing, no forbearance on the part of Lessor, no extension of the
time for the payment of the whole or any part of the Obligations, and no other
indulgence given by Lessor to Lessee or any other Person, shall operate to
release or in any manner affect the original liability of Lessee or such other
Persons, or to limit, prejudice or impair any right of Lessor, including,
without limitation, the right to realize upon any collateral, or any part
thereof, for any of the Obligations evidenced or secured by the Lease Documents;
notice of any such extension, forbearance or indulgence being hereby waived by
Lessee and all those claiming by, through or under Lessee.
16.10 CUMULATIVE REMEDIES. The rights and remedies set forth under this
Lease are in addition to all other rights and remedies afforded to Lessor under
any of the other Lease Documents or at law or in equity, all of which are hereby
reserved by Lessor, and this Lease is made and accepted without prejudice to any
such rights and remedies. All of the rights and remedies of Lessor under each
of the Lease Documents shall be separate and cumulative and may be exercised
concurrently or successively in Lessor's sole and absolute discretion.
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ARTICLE 17
SURRENDER OF LEASED PROPERTY OR LEASE; HOLDING OVER
17.1 SURRENDER. Lessee shall, upon the expiration or prior termination of
the Term (unless occasioned by Lessee's purchase of the Leased Property pursuant
to the terms of this Lease Agreement), vacate and surrender the Leased Property
to Lessor in good repair and condition, in compliance with all applicable Legal
Requirements, all Insurance Requirements, and in compliance with the provisions
of Article 8, except for: (a) ordinary wear and tear subject to the obligation
of Lessee to maintain the Leased Property in good order and repair during the
entire Term of the Lease), (b) damage caused by the gross negligence or willful
acts of Lessor, and (c) any damage or destruction resulting from a Casualty or
Taking that Lessee is not required by the terms of this Lease to repair or
restore.
17.2 TRANSFER OF CONTRACTS AND PERMITS. In connection with the expiration
or any earlier termination of this Lease (unless occasioned by Lessee's purchase
of the Leased Property pursuant to the terms of this Lease Agreement), upon any
request made from time to time by Lessor, Lessee shall (a) promptly and
diligently use its best efforts to (i) transfer and assign all Permits and
Contracts necessary or desirable for the operation of the Leased Property in
accordance with its Primary Intended Use to Lessor or its designee to the extent
the same are assignable under applicable Legal Requirements and/or (ii) arrange
for the transfer or assignment of such Permits and Contracts to Lessor or its
designee and (b) cooperate in every respect (and to the fullest extent possible)
and assist Lessor or its designee in obtaining such Permits and Contracts (whet-
her by transfer, assignment or otherwise) provided, however, that unless a
termination is the result of a Lease Default, Casualty or Condemnation, Lessee's
efforts and cooperation shall not require Lessee to pay the costs and expenses
incurred by Lessor or Lessor's designated transferee of the Contracts and
Permits. Such efforts and cooperation on the part of Lessee shall include,
without limitation, the execution, delivery and filing with appropriate
Governmental Authorities and Third Party Payors of any applications, petitions,
statements, notices, requests, assignments and other documents or instruments
requested by Lessor. Furthermore, Lessee shall not take any action or refrain
from taking any action which would defer, delay or jeopardize the process of
Lessor or its designee obtaining said Permits and Contracts (whether by
transfer, assignment or otherwise). Without limiting the foregoing, Lessee
shall not seek to transfer or relocate any of said Permits or Contracts to any
location other than the Leased Property. The provisions of this Section 17.2
shall survive the expiration or earlier termination of this Lease.
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Lessee hereby appoints Lessor as its attorney-in-fact, with full power of
substitution to take such actions, in the event that Lessee fails to comply with
any request made by Lessor hereunder, as Lessor (in its sole absolute
discretion) may deem necessary or desirable to effectuate the intent of this
Section 17.2. The power of attorney conferred on Lessor by the provisions of
this Section 17.2, being coupled with an interest, shall be irrevocable until
the Obligations are fully paid and performed and shall not be affected by any
disability or incapacity which Lessee may suffer and shall survive the same.
Such power of attorney is provided solely to protect the interests of Lessor and
shall not impose any duty on the Lender to exercise any such power and neither
Lessor nor such attorney-in-fact shall be liable for any act, omission, error in
judgment or mistake of law, except as the same may result from its gross
negligence or willful misconduct.
17.3 NO ACCEPTANCE OF SURRENDER. Except at the expiration of the Term in
the ordinary course, no surrender to Lessor of this Lease or of the Leased
Property or any interest therein shall be valid or effective unless agreed to
and accepted in writing by Lessor and no act by Lessor or any representative or
agent of Lessor, other than such a written acceptance by Lessor, shall
constitute an acceptance of any such surrender.
17.4 HOLDING OVER. If, for any reason, Lessee shall remain in
possession of the Leased Property after the expiration or any earlier
termination of the Term, such possession shall be as a tenant at sufferance
during which time Lessee shall pay as rental each month, one and one-half times
the aggregate of (i) one-twelfth of the aggregate Base Rent, and Additional Rent
payable at the time of such expiration or earlier termination of the Term; (ii)
all Additional Charges accruing during the month and (iii) all other sums, if
any, payable by Lessee pursuant to the provisions of this Lease with respect to
the Leased Property. During such period of tenancy, Lessee shall be obligated
to perform and observe all of the terms, covenants and conditions of this Lease,
but shall have no rights hereunder other than the right, to the extent given by
law to tenants at sufferance, to continue its occupancy and use of the Leased
Property. Nothing contained herein shall constitute the consent, express or
implied, of Lessor to the holding over of Lessee after the expiration or earlier
termination of this Lease.
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ARTICLE 18
PURCHASE OF THE LEASED PROPERTY
18.1 PURCHASE OF THE LEASED PROPERTY. In the event Lessee purchases the
Leased Property from Lessor pursuant to any of the terms of this Lease, Lessor
shall, upon receipt from Lessee of the applicable purchase price, together with
full payment of any unpaid Rent due and payable with respect to any period
ending on or before the date of the purchase, deliver to Lessee a deed with
covenants only against acts of Lessor conveying the entire interest of Lessor in
and to the Leased Property to Lessee subject to all applicable Legal
Requirements, all of the matters described in clauses (a), (b), (e) and (g) of
Section 11.5.2, Impositions, any Liens created by Lessee, any Liens created in
accordance with the terms of this Lease (except to the extent specifically
excluded by the terms hereof) or consented to by Lessee, the claims of all
Persons claiming by, through or under Lessee, any other matters assented to by
Lessee and all matters for which Lessee has responsibility under any of the
Lease Documents, but otherwise not subject to any other Lien created by Lessor
from and after the Commencement Date (other than an Encumbrance permitted under
Article 20 which Lessee elects to assume). The applicable purchase price shall
be paid in cash to Lessor, or as Lessor may direct, in federal or other
immediately available funds except as otherwise mutually agreed by Lessor and
Lessee. All expenses of such conveyance, including, without limitation, the
cost of title examination or standard or extended coverage title insurance,
attorneys' fees incurred by Lessor in connection with such conveyance, recording
and transfer taxes and recording fees and similar charges and specifically
excluding any prepayment penalties, if any, due Lessor's mortgagee, shall be
paid by Lessee.
18.2 APPRAISAL.
18.2.1 DESIGNATION OF APPRAISERS. In the event that it becomes
necessary to determine the Fair Market Value of the Leased Property for any
purpose of this Lease, the party required or permitted to give notice of
such required determination shall include in the notice the name of a
Person selected to act as appraiser on its behalf. Within ten (10) days
after receipt of any such notice, Lessor (or Lessee, as the case may be)
shall by notice to Lessee (or Lessor, as the case may be) either accept
such Person to be the sole appraiser to determine the Fair Market Value of
the Leased Property or appoint a second Person as appraiser on its behalf.
18.2.2 APPRAISAL PROCESS. The appraisers thus appointed, each of whom
must be a member of the American Institute of Real Estate Appraisers (or
any successor
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organization thereto), shall, within forty-five (45) days after the date of
the notice appointing the first appraiser, proceed to appraise the Leased
Property to determine the Fair Market Value of the Leased Property as of
the relevant date (giving effect to the impact, if any, of inflation from
the date of their decision to the relevant date); provided, however, that
if only one appraiser shall have been so appointed, or if two appraisers
shall have been so appointed but only one such appraiser shall have made
such determination within fifty (50) days after the making of Lessee's or
Lessor's request, then the determination of such appraiser shall be final
and binding upon the parties. If two appraisers shall have been appointed
and shall have made their determinations within the respective requisite
periods set forth above and if the difference between the amounts so
determined shall not exceed ten per cent (10%) of the lesser of such
amounts, then the Fair Market Value of the Leased Property shall be an
amount equal to fifty percent (50%) of the sum of the amounts so
determined. If the difference between the amounts so determined shall
exceed ten percent (10%) of the lesser of such amounts, then such two
appraisers shall have twenty (2O) days to appoint a third appraiser, but if
such appraisers fail to do so, then either party may request the American
Arbitration Association or any successor organization thereto to appoint an
appraiser within twenty (20) days of such request, and both parties shall
be bound by any appointment so made within such twenty (20) day period. If
no such appraiser shall have been appointed within such twenty (20) days or
within ninety (90) days of the original request for a determination of Fair
Market Value of the Leased Property, whichever is earlier, either Lessor or
Lessee may apply to any court having jurisdiction to have such appointment
made by such court. Any appraiser appointed by the original appraisers,
by the American Arbitration Association or by such court shall be
instructed to determine the Fair Market Value of the Leased Property within
thirty (30) days after appointment of such Appraiser. The determination of
the appraiser which differs most in terms of dollar amount from the
determinations of the other two appraisers shall be excluded, and fifty
percent (50%) of the sum of the remaining two determinations shall be final
and binding upon Lessor and Lessee as the Fair Market Value of the Leased
Property.
18.2.3 SPECIFIC ENFORCEMENT AND COSTS. This provision for
determination by appraisal shall be specifically enforceable to the extent
such remedy is available under applicable law, and any determination
hereunder shall be final and binding upon the parties except as otherwise
provided by applicable law. Lessor and Lessee shall each pay the fees and
expenses of the appraiser appointed by it and each shall pay one-half of
the fees and
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expenses of the third appraiser and one-half of all other cost and expenses
incurred in Connection with each appraisal.
18.3 LESSEE'S OPTION TO PURCHASE.
18.3.1 CONDITIONS TO OPTION. On the conditions (which conditions
Lessor may waive, at its sole option, by notice to Lessee at any time) that
(a) at the time of exercise of the Purchase Option and on the applicable
Purchase Option Date, there then exists no Lease Default, nor any state of
facts or circumstance which constitutes, or with the passage of time and/or
the giving of notice, would constitute a Lease Default and (b) Lessee
strictly complies with the provisions of this Section 18.3, then Lessee
shall have the option to purchase the Leased Property, at the price and
upon the terms hereinafter set forth (the "Purchase Option").
18.3.2 EXERCISE OF OPTION; DEPOSIT. Such Purchase Option shall
permit Lessee to purchase the Leased Property (a) on the last day of the
Initial Term or (b) on the last day of any Extended Term effectively
exercised by Lessee (each of such dates are referred to herein as a
"Purchase Option Date") and shall be exercised by notice given by Lessee to
Lessor (the "Lessee's Purchase Option Notice") at least one hundred eighty
(180) days (but not more than three hundred sixty (360) days) prior to the
relevant Purchase Option Date. Notwithstanding anything to the contrary
set forth in this Lease, Lessee's right to purchase the Leased Property is
subject to the further conditions that (i) concurrently with the exercise
of the option set forth under this Section 18.3, the Lessee shall have
exercised its right to purchase the premises demised under each of the
Related Leases in accordance with the provisions of Section 18.3 of each of
the Related Leases, (ii) the conveyance of the Leased Property pursuant to
the provisions of this Section 18.3 shall occur simultaneously with the
conveyance of the premises demised under each of the Related Leases
pursuant to Section 18.3 of each of the Related Leases and (iii) all
conditions contained in the Agreement Regarding Related Transactions
pertaining to the Purchase Option are satisfied. Lessee shall have no
right to rescind Lessee's Purchase Option Notice once given unless (a) a
notice of such rescission is given (i) within ten (10) days following
receipt of the final determination of the Fair Market Value of the Leased
Property or (ii) within thirty (30) days following an event of Casualty or
Condemnation as to which Lessee has waived any right of termination set
forth in Section 13.2.2 hereof and (b) simultaneously with such notice of
rescission, Lessee, by notice given pursuant to Section 1.3 hereof extends
the Term.
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18.3.3 CONVEYANCE. If the Purchase Option is exercised by Lessee in
accordance with the terms hereof, the Leased Property shall be conveyed by
a good and sufficient deed with covenants only against acts of Lessor (the
"Deed") running to Lessee or to such grantee as Lessee may designate by
notice to Lessor at least seven (7) days before the Time of Closing.
18.3.4 CALCULATION OF PURCHASE PRICE. The price to be paid by
Lessee for the acquisition of the Leased Property pursuant to this Purchase
Option (the "Purchase Price") shall be equal to the greater of (a) the
Meditrust Investment or (b) an amount equal to the then Fair Market Value
of the Leased Property minus the Fair Market Added Value, subject to the
terms of the Agreement Regarding Related Transactions.
18.3.5 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid
by Lessee at the Time of Closing by certified, cashier's, treasurer's or
bank check(s) or wire transfer pursuant to instructions received from
Lessor in accordance with the terms of the Agreement Regarding Related
Transactions as reduced by the principal balance of any Fee Mortgage which
Lessee has elected to, and has the right to, assume in accordance with the
terms hereof.
18.3.6 PLACE AND TIME OF CLOSING. If this Purchase Option is
exercised, the closing shall occur and the Deed shall be delivered (the
"Closing") at the office of Lessor at 12:00 o'clock noon (E.S.T.) on the
applicable Purchase Option Date (such time, as the same may be extended by
mutual written agreement of Lessor and Lessee, being hereinafter referred
to as the "Time of Closing") in accordance with the terms of the Agreement
Regarding Related Transactions. It is agreed that time is of the essence
of this Purchase Option.
18.3.7 CONDITION OF LEASED PROPERTY. The Leased Property is to be
purchased "AS IS" and "WHERE IS" as of the Time of Closing.
18.3.8 QUALITY OF TITLE. If Lessor shall be unable to give title
or to make conveyance, as stipulated in this Section 18.3, then, at
Lessor's option, Lessor shall use reasonable efforts to remove all defects
in title and the applicable Purchase Option Date and Time of Closing shall
be extended for period of thirty (30) days other than with respect to any
Encumbrances which Lessor has caused to exist. Lessor shall not be
required to expend more than FIFTY THOUSAND DOLLARS ($50,000) (inclusive of
attorney's fees) in order to have used "reasonable efforts."
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18.3.9 LESSOR'S INABILITY TO PERFORM If at the expiration of the
extended time Lessor shall have failed so to remove any such defects in
title, then all other obligations of all parties hereto under Section 18.3
shall cease and Section 18.3 shall be void and without recourse to the
parties hereto. Notwithstanding the foregoing, Lessee shall have the
election, at either the original or extended Purchase Option Date and Time
of Closing, to accept such title as Lessor can deliver to the Leased
Property in its then condition and to pay therefor the Purchase Price
without reduction, in which case Lessor shall convey such title; PROVIDED,
THAT, in the event of such conveyance, if any portion of the Leased
Property shall have been taken by Condemnation prior to the applicable
Purchase Option Date and Time of Closing, Lessor shall pay over or assign
to Lessee at the Time of Closing, all Awards recovered on account of such
Taking, less any amounts reasonably expended by Lessor in obtaining such
Award and less any amounts expended for restoration pursuant to the
provisions of Article 14 hereof, or, to the extent such Awards have not
been recovered as of the applicable Purchase Option Date and Time of
Closing, Lessor shall assign to Lessee all its rights with respect to any
claim therefor and FURTHER PROVIDED, THAT, in the event of such conveyance,
if any portion of the Leased Property shall have suffered a Casualty prior
to the applicable Purchase Option Date and Time of Closing, Lessor shall
pay over or assign to Lessee at the Time of Closing, all insurance proceeds
recovered on account of such Casualty, less any amounts reasonably expended
by Lessor in obtaining such proceeds and less any amounts expended for
restoration pursuant to the provisions of Article 13 hereof, or, to the
extent such proceeds have not been recovered as of the applicable Purchase
Option Date and Time of Closing, Lessor shall assign to Lessee all its
rights with respect to any claim therefor.
18.3.10 MERGER BY DEED. The acceptance of the Deed by Lessee or the
grantee designated by Lessee, as the case may be, shall be deemed to be a
full performance and discharge of every agreement and obligation to be
performed by Lessor contained or expressed in this Lease.
18.3.11 USE OF PURCHASE PRICE TO CLEAR TITLE. To enable Lessor to
make conveyance as provided in this Section, Lessor may, at the Time of
Closing, use the Purchase Price or any portion thereof to clear the title of
any Lien, provided that all instruments so procured are recorded
contemporaneously with the Closing or reasonable arrangements are made for
a recording subsequent to the Time of Closing in accordance with customary
conveyancing practices.
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18.3.12 LESSEE'S DEFAULT. If Lessee delivers Lessee's Purchase
Option Notice and fails to consummate the purchase of the Leased Property
in accordance with the terms hereof for any reason other than Lessor's
willful and unexcused refusal to deliver the Deed or exercise of the right
of rescission in Section 18.3.2 hereof, (a) Lessee shall thereafter have no
further right to purchase the Leased Property pursuant to this Section,
although this Lease shall otherwise continue in full force and effect and
(b) Lessor shall have the right to sue for specific performance of Lessee's
obligations to purchase the Leased Property provided such suit for specific
performance is commenced within one (1) year after the applicable Purchase
Option Date on which such sale was supposed to occur.
ARTICLE 19
SUBLETTING AND ASSIGNMENT
19.1 SUBLETTING AND ASSIGNMENT. Lessee may not, without the prior
written consent of Lessor, which consent may be withheld in Lessor's sole and
absolute discretion, assign or pledge all or any portion of its interest in this
Lease or any of the other Lease Documents (whether by operation of law or
otherwise) or sublet all or any part of the Leased Property. For purposes of
this Section 19.1, the term "assign" shall be deemed to include, but not be
limited to, any one or more sales, pledges, hypothecations or other transfers
(including, without limitation, any transfer by operation of law) of any of the
capital stock of or partnership interest in Lessee or sales, pledges,
hypothecations or other transfers (including, without limitation, any transfer
by operation of law) of the capital or the assets of Lessee. Any such
assignment, pledge, sale, hypothecation or other transfer made without Lessor's
consent shall be void and of no force and effect. Notwithstanding the
foregoing, Lessors consent shall not be unreasonably withheld with respect to an
assignment or pledge of an interest of Lessee in this Lease or a sublet of all
or a part of the Leased Property to a Meditrust/Emeritus Transaction Affiliate.
19.2 ATTORNMENT. Lessee shall insert in each Sublease approved by Lessor,
provisions to the effect that (a) such Sublease is subject and subordinate to
all of the terms and provisions of this Lease and to the rights of Lessor
hereunder, (b) in the event this Lease shall terminate before the expiration of
such Sublease, the Sublessee thereunder will, at Lessor's option, attorn to
Lessor and waive any right the Sublessee may have to terminate the Sublease or
to surrender possession thereunder, as a result of the termination of this Lease
and (c) in the event the Sublessee receives a written notice from Lessor stating
that Lessee is in default under this Lease, the Sublessee
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shall thereafter be obligated to pay all rentals accruing under said Sublease
directly to Lessor or as Lessor may direct. ALL rentals received from the
Sublessee by Lessor shall be credited against the amounts owing by Lessee under
this Lease.
ARTICLE 20
TITLE TRANSFERS AND LIENS GRANTED BY LESSOR
20.1 NO MERGER OF TITLE. Except as otherwise provided in Section 18.3.10,
there shall be no merger of this Lease or of the leasehold estate created hereby
with the fee estate in the Leased Property by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.
20.2 TRANSFERS BY LESSOR. If the original Lessor named herein or any
successor in interest shall convey the Leased Property in accordance with the
terms hereof, other than as security for a debt, and the grantee or transferee
of the Leased Property shall expressly assume all obligations of Lessor
hereunder arising or accruing from and after the date of such conveyance or
transfer, the original Lessor named herein or the applicable successor in
interest so conveying the Leased Property shall thereupon be released from all
future liabilities and obligations of Lessor under this Lease arising or
accruing from and after the date of such conveyance or other transfer as to the
Leased Property and all such future liabilities and obligations shall thereupon
be binding upon the new owner.
20.3 LESSOR MAY GRANT LIENS. Without the consent of Lessee, but subject
to the terms and conditions set forth below in this Section 20.3, Lessor may,
from time to time, directly or indirectly, create or otherwise cause to exist
any lien, encumbrance or title retention agreement upon the Leased Property or
any interest therein ("Encumbrance"), whether to secure any borrowing or other
means of financing or refinancing, provided that Lessee shall have no obligation
to make payments under such Encumbrances. Lessee shall subordinate this Lease
to the lien of any such Encumbrance, on the condition that the beneficiary or
holder of such Encumbrance executes a non-disturbance agreement in conformity
with the provisions of Section 20.4. To the extent that any such Encumbrance
consists of a mortgage or deed of trust on Lessor's interest in the Leased
Property the same shall be referred to herein as a "Fee Mortgage" and the holder
thereof shall be referred to herein as a "Fee Mortgagee".
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20.4 SUBORDINATION AND NON-DISTURBANCE. Concurrently with the execution
and delivery of any Fee Mortgage entered into after the date hereof, provided
that the Lessee executes and delivers an agreement of the type described in the
following paragraph, Lessor shall obtain and deliver to Lessee an agreement by
the holder of such Fee Mortgage, pursuant to which, (a) the applicable Fee
Mortgagee consents to this Lease and (b) agrees that, notwithstanding the terms
of the applicable Fee Mortgage held by such Fee Mortgagee, or any default,
expiration, termination, foreclosure, sale, entry or other act or omission under
or pursuant to such Fee Mortgage or a transfer in lieu of foreclosure, (i)
Lessee shall not be disturbed in peaceful enjoyment of the Leased Property nor
shall this Lease be terminated or cancelled at any time, except in the event
that Lessor shall have the right to terminate this Lease under the terms and
provisions expressly set forth herein, (ii) Lessee's option to purchase the
Leased Property shall remain in force and effect pursuant to the terms hereof
and (iii) in the event that Lessee elects its option to purchase the Leased
Property and performs all of its obligations hereunder in connection with any
such election, the holder of the Fee Mortgage shall release its Fee Mortgage
upon payment by Lessee of the purchase price required hereunder, PROVIDED, THAT
(1) such purchase price is paid to the holder of the Fee Mortgage, in the event
that the Indebtedness secured by the applicable Fee Mortgage is equal to
or greater than the purchase price or (2) in the event that the purchase price
is greater than the Indebtedness secured by the Fee Mortgage, a portion of the
purchase price equal to the Indebtedness secured by the Fee Mortgage is paid to
the Fee Mortgagee and the remainder of the purchase price is paid to Lessor.
At the request from time to time by any Fee Mortgagee, Lessee shall (a)
subordinate this Lease and all of Lessee's rights and estate hereunder to the
Fee Mortgage held by such Fee Mortgagee and (b) agree that Lessee will attorn to
and recognize such Fee Mortgagee or the purchaser at any foreclosure sale or any
sale under a power of sale contained in any such Fee Mortgage as Lessor under
this Lease for the balance of the Term then remaining. To effect the intent and
purpose of the immediately preceding sentence, Lessee agrees to execute and
deliver such instruments in recordable from as are reasonably requested by
Lessor or the applicable Fee Mortgagee; PROVIDED, HOWEVER, that such Fee
Mortgagee simultaneously executes, delivers and records a written agreement of
the type described in the preceding paragraph.
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ARTICLE 21
LESSOR OBLIGATIONS
21.1 QUIET ENJOYMENT. As long as Lessee shall pay all Rent and all other
sums due under any of the Lease Documents as the same become due and shall fully
comply with all of the terms of this Lease and the other Lease Documents and
fully perform its obligations thereunder, Lessee shall peaceably and quietly
have, hold and enjoy the Leased Property throughout the Term, free of any claim
or other action by Lessor or anyone claiming by, through or under Lessor, but
subject to all the Permitted Encumbrances and such Liens as may hereafter be
consented to by Lessee. No failure by Lessor to comply with the foregoing
covenant shall give Lessee any right to cancel or terminate this Lease, or to
fail to perform any other sum payable under this Lease, or to fail to perform
any other obligation of Lessee hereunder. Notwithstanding the foregoing, Lessee
shall have the right by separate and independent action to pursue any claim it
may have against Lessor as a result of a breach by Lessor of the covenant of
quiet enjoyment contained in this Article 21.
21.2 MEMORANDUM OF LEASE. Lessor and Lessee shall, promptly upon the
request of either, enter into a short form memorandum of this Lease, in form
suitable for recording under the laws of the State, in which reference to this
Lease and all options contained herein shall be made. Lessee shall pay all
recording costs and taxes associated therewith.
21.3 DEFAULT BY LESSOR. Lessor shall be in default of its obligations
under this Lease only if Lessor shall fail to observe or perform any term,
covenant or condition of this Lease on its part to be performed and such failure
shall continue for a period of thirty (30) days after notice thereof from Lessee
(or such shorter time as may be necessary in order to protect the health or
welfare of any residents of the Facility or to ensure the continuing compliance
of the Facility with applicable Legal Requirements), unless such failure cannot
with due diligence be cured within a period of thirty (30) days, in which case
such failure shall not be deemed to continue if Lessor, within said thirty (30)
day period, proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof within one hundred twenty (120) days
after notice thereof.
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ARTICLE 22
NOTICES
Any notice, request, demand, statement or consent made hereunder or under
any of the other Lease Documents shall be in writing and shall be deemed duly
given if personally delivered, sent by certified mail, return receipt requested,
or sent by a nationally recognized commercial overnight delivery service with
provision for a receipt, postage or delivery charges prepaid, and shall be
deemed given when so personally delivered, three (3) business days following the
date postmarked or the next business day when placed in the possession of such
mail delivery service and addressed as follows:
If to Lessee: c/o Emeritus Corporation
Market Place One
2003 Western Avenue, Suite 660
Seattle, WA 98121-2162
Attention: Daniel R. Baty, Chief Executive Officer
With a copy to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, WA 98101
Attn: Randi S. Nathanson, Esquire
If to the Guarantor: Emeritus Corporation
Market Place One
2903 Western Avenue, Suite 660
Seattle, WA 98121-2162
Attention: Daniel R. Baty, Chief Executive Officer
With a copy to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, WA 98101
Attn: Randi S. Nathanson, Esquire
If to Lessor: Meditrust Acquisition Corporation I 197 First Avenue
Needham Heights, Massachusetts 02194
Attn: President
With copies to: Meditrust Acquisition Corporation I
197 First Avenue
Needham Heights, Massachusetts 02194
Attn: General Counsel
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and Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: Joshua Davis, Esquire
or such other address as Lessor, Lessee or the Guarantor shall hereinafter from
time to time designate by a written notice to the others given in such manner.
Any notice given to Lessee or the Guarantor by Lessor at any time shall not
imply that such notice or any further or similar notice was or is required.
ARTICLE 23
LIMITATION OF MEDITRUST LIABILITY
The Declaration of Trust establishing the sole shareholder of Lessor,
Meditrust, a Massachusetts business trust ("Meditrust"), dated August 6, 1985
(the "Declaration"), as amended, a copy of which is duly filed in the office of
the Secretary of State of the Commonwealth of Massachusetts, provides that the
name "Meditrust" refers to the trustees under the Declaration collectively as
trustees, but not individually or personally; and that no trustee, officer,
shareholder, employee or agent of Meditrust or any of its Subsidiaries shall be
held to any personal liability, jointly, or severally, for any obligation of, or
claim against Meditrust or any of its Subsidiaries. All Persons dealing with
Meditrust or Lessor, in any way, shall look only to the assets of Meditrust or
Lessor, as applicable, for the payment of any sum or the performance of any
obligation. Furthermore, in no event shall Meditrust or Lessor ever be liable
to Lessee or any other Person for any indirect or consequential damages incurred
by Lessee or such other Person resulting from any cause whatsoever.
Notwithstanding the foregoing, Lessee hereby acknowledges and agrees that
Meditrust is not a party to this Lease and that Lessee shall look only to the
assets of Lessor for the payment of any sum or performance of any obligation due
by or from Lessor pursuant to the terms and provisions of the Lease Documents.
ARTICLE 24
MISCELLANEOUS PROVISIONS
24.1 BROKER'S FEE INDEMNIFICATION. Lessee and Lessor each shall and hereby
agrees to indemnify, defend (with counsel acceptable to the other) and hold the
other harmless from and against any and all claims for premiums or other
charges, finder's fees, taxes, brokerage fees or commissions and other
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similar compensation due to a broker or finder allegedly employed or retained by
it in connection with any of the transactions contemplated by the Lease
Documents. Notwithstanding the foregoing, the indemnified party shall have the
option of conducting its own defense against any such claims with counsel of
such party's choice, but at the expense of the indemnifying party, as aforesaid.
This indemnification shall include all reasonable attorneys' fees and expenses
and court costs reasonably incurred by the indemnified party in connection with
the defense against any such claims and the enforcement of this indemnification
agreement and shall survive the termination of this Lease.
24.2 NO JOINT VENTURE OR PARTNERSHIP. Neither anything contained in any of
the Lease Documents, nor the acts of the parties hereto, shall create, or be
construed to create, a partnership or joint venture between Lessor and Lessee.
Lessee is not the agent or representative of Lessor and nothing contained herein
or in any of the other Lease Documents shall make, or be construed to make,
Lessor liable to any Person for goods delivered to Lessee, services performed
with respect to the Leased Property at the direction of Lessee or for debts or
claims accruing against Lessee.
24.3 AMENDMENTS, WAIVERS AND NOTIFICATIONS. None of the terms, covenants,
conditions, warranties or representations contained in this Lease or in any of
the other Lease Documents may be renewed, replaced, amended, modified, extended,
substituted, revised, waived, consolidated or terminated except by an agreement
in writing signed by all parties to this Lease or the other Lease Documents, as
the case may be, in the case of any renewal, replacement, amendment,
modification, extension, substitution, revisions, consolidation or termination
and by the Person against whom enforcement is sought in the case of a waiver or
except as otherwise expressly provided for herein or in any other Lease
Document. The provisions of this Lease and the other Lease Documents shall
extend and be applicable to all renewals, replacements, amendments, extensions,
substitutions, revisions, consolidations and modifications of any of the Lease
Documents, the Management Agreements, the Related Party Agreements, the Permits
and/or the Contracts. References herein and in the other Lease Documents to any
of the Lease Documents, the Management Agreements, the Related Party Agreements,
the Permits and/or the Contracts shall be deemed to include any renewals,
replacements, amendments, extensions, substitutions, revisions, consolidations
or modifications thereof.
Notwithstanding the foregoing, any reference contained in any of the Lease
Documents, whether express or implied, to any renewal, replacement, amendment,
extension, substitution, revisions, consolidation or modification of any of the
Lease Documents or any Management Agreement, Related Party Agreement,
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Permit and/or the Contract is not intended to constitute an agreement or
consent by Lessor to any such renewal, replacement, amendment, substitution,
revision, consolidation or modification; but, rather as a reference only to
those instances where Lessor may give, agree or consent to any such renewal,
replacement, amendment, extension, substitution, revision, consolidation or
modification as the same may be required pursuant to the terms, covenants and
conditions of any of the Lease Documents.
24.4 CAPTIONS AND HEADINGS. The captions and headings set forth in this
Lease and each of the other Lease Documents are included for convenience and
reference only, and the words contained therein shall in no way be held or
deemed to define, limit, describe, explain, modify, amplify or add to the
interpretation, construction or meaning of, or the scope or intent of, this
Lease, any of the other Lease Documents or any parts hereof or thereof.
24.5 TIME IS OF THE ESSENCE. Time is of essence of each and every term,
condition, covenant and warranty set forth herein and in the other Lease
Documents.
24.6 COUNTERPARTS. This Lease and the other Lease Documents may be
executed in one or more counterparts, each of which taken together shall
constitute an original and all of which shall constitute one in the same
instrument.
24.7 ENTIRE AGREEMENT. This Lease and the other Lease Documents set forth
the entire agreement of the parties with respect to the subject matter and shall
supersede in all respect the letter of intent, dated January 31, 1996 (and all
prior iterations thereof), from Meditrust to Lessee.
24.8 WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE
LAW, LESSOR AND LESSEE HEREBY MUTUALLY, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT WHICH ANY PARTY HERETO MAY NOW OR HEREAFTER HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THE LEASE OR ANY OF THE LEASE DOCUMENTS. Lessee hereby certifies that neither
Lessor nor any of Lessor's representatives, agents or counsel has represented
expressly or otherwise that Lessor would not, in the event of any such suit,
action or proceeding seek to enforce this waiver to the right of trial by jury
and acknowledges that Lessor has been induced by this waiver (among other
things) to enter into the transactions evidenced by this Lease and the other
Lease Documents and further acknowledges that Lessee (a) has read the provisions
of this Lease, and in particular, the paragraph containing this waiver, (b) has
consulted legal counsel, (c) understands the rights that it is granting in this
Lease and the rights that it waiving in this paragraph in particular and (d)
makes the waivers set forth herein knowingly, voluntarily and intentionally.
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24.9 SUCCESSORS AND ASSIGNS. This Lease and the other Lease Documents
SHALL be binding upon and inure to the benefit of (a) Lessee and Lessee's legal
representatives and permitted successors and assigns and (b) Lessor and any
other Person who may now or hereafter hold the interest of Lessor under this
Lease and their respective successors and assigns.
24.10 NO THIRD PARTY BENEFICIARIES. This Lease and the other Lease
Documents are solely for the benefit of Lessor, its successors, assigns and
participants (if any), the Meditrust Entities, Lessee, the Guarantor, the other
members of the Leasing Group and their respective permitted successors and
assigns, and, except as otherwise expressly set forth in any of the Lease
Documents, nothing contained therein shall confer upon any Person other than
such parties any right to insist upon or to enforce the performance or
observance of any of the obligations contained therein. All conditions to the
obligations of Lessor to advance or make available proceeds of insurance or
Awards, or to release any deposits held for Impositions or insurance premiums
are imposed solely and exclusively for the benefit of Lessor, its successors and
assigns. No other Person shall have standing to require satisfaction of such
conditions in accordance with their terms, and no other Person shall, under any
circumstances, be a beneficiary of such conditions, any or all of which may be
freely waived in whole or in part by Lessor at any time, if, in Lessor's sole
and absolute discretion, Lessor deems it advisable or desirable to do so.
24.11 GOVERNING LAW. This Lease shall be construed and the rights and
obligations of Lessor and Lessee shall be determined in accordance with the laws
of the State.
Lessee hereby consents to personal jurisdiction in the courts of the State
and the United States District Court for the District in which the Leased
Property is situated as well as to the jurisdiction of all courts from which an
appeal may be taken from the aforesaid courts, for the purpose of any suit,
action or other proceeding arising out of or with respect to any of the Lease
Documents, the negotiation and/or consummation of the transactions evidenced by
the Lease Documents, the Lessor's relationship of any member of the Leasing
Group in connection with the transactions evidenced by the Lease Documents
and/or the performance of any obligation or the exercise of any remedy under any
of the Lease Documents and expressly waives any and all objections Lessee may
have as to venue in any of such courts.
24.12 GENERAL. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease or any of the other Lease
Documents shall survive such termination.
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If any provision of this Lease or any of the other Lease Documents or any
application thereof shall be invalid or unenforceable, the remainder of this
Lease or the other applicable Lease Document, as the case may be, and any other
application of such term or provision shall not be affected thereby.
Notwithstanding the foregoing, it is the intention of the parties hereto that if
any provision of any of this Lease is capable of two (2) constructions, one of
which would render the provision void and the other of which would render the
provision valid, then such provision shall be construed in accordance with the
construction which renders such provision valid.
If any late charges provided for in any provision of this Lease or any of
the other Lease Documents are based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges shall be fixed
at the maximum permissible rate.
Lessee waives all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and notices
of acceptance and waives all notices of the existence, creation, or incurring of
new or additional obligations, except as to all of the foregoing as expressly
provided for herein.
ARTICLE 25
SUBSTITUTION OF PROPERTY
25.1 SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY. Provided that no
Event of Default has occurred under this Lease (excluding any Event of Default
which has been waived, in writing, by the Lessor), nor any event which, with the
giving of notice or the passage of time or both, would constitute such an Event
of Default, Lessee shall have the right from time to time (referred to herein as
the "Substitution Right"), exercisable upon not less than ninety (90) days'
prior written notice to Lessor (referred to herein as a "Substitution Notice")
to substitute, on a date specified in such Substitution Notice (such date, as
the same may be extended by express written agreement of lessor, shall be
referred to herein as a "Substitution Date"), the Leased Property with a
Comparable Facility. As used herein, the term "Comparable Facility" shall be
defined as a health care facility or facilities which Lessor determines (a) has
an appraised Fair Market Value greater than or equal to the greater of (i) the
appraised Fair Market Value of the Leased Property as of the Conversion Date or
(ii) the appraised Fair Market Value of the Leased Property at the time that the
applicable Substitution Notice is furnished to Lessor (based on appraisal
criteria then in effect), (b) has a Facility Debt Coverage Ratio greater than or
equal to the greater of (i) the Facility Debt Coverage Ratio of the Leased
Property as of the
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second anniversary of the Conversion Date (ii) the Facility Debt Coverage Ratio
of the Leased Property at the time that the applicable Substitution Notice is
furnished to Lessor, (c) provides a mix of services similar to the Leased
Property and (d) is otherwise reasonably acceptable, in all respects, to Lessor
(based on Lessor's usual and customary property evaluation criteria then in
effect). Lessee may not exercise its Substitution Right more than once in any
calendar year.
25.2 CONDITIONS TO SUBSTITUTION. Without limiting the foregoing, as
conditions precedent to the consummation of any proposed substitution:
(a) as of the applicable Substitution Date, no Event of Default shall have
occurred under the Lease (excluding any Event of Default which has been waived,
in writing, by Lessor), nor any event which with the giving of notice or the
passage of time or both would constitute such an Event of Default;
(b) Lessor shall have received engineering and inspection reports relating
to the assisted living facility identified by Lessee in the applicable
Substitution Notice (referred to herein as a "Proposed Facility"), reasonably
satisfactory in all respects to Lessor;
(c) Lessee shall have delivered to Lessor(i) an MAI appraisal of the
Proposed Facility (prepared by an appraiser selected by Lessee and approved by
Lessor), in form and substance reasonably satisfactory to Lessor and (ii) an
instrument survey of the premises upon which the Proposed Facility is located
acceptable to Lessor and the title insurance company providing insurance with
respect to the Proposed Facility;
(d) Lessor shall be satisfied as to compliance of Lessee, the Proposed
Facility, the owner of the Proposed Facility (to the extent such owner is not
Lessee as provided in subsection (1) below) and/or the proposed substitution, as
the case may be, with (1) all applicable land use, zoning, subdivision and
environmental laws and regulations, (ii) all applicable assisted living
licensure laws and regulations and (iii) such other matters as Lessor reasonably
deems relevant (including, without limitation, whether the conveyance of the
property to Lessor in connection with the proposed substitution may be avoided
under the Bankruptcy Code);
(e) Lessee shall have delivered to Lessor a valid and binding owner's or
lessee's (as applicable) title insurance commitment issued by a title insurer
reasonably acceptable to Lessor (the "Title Company"), in an amount equal to the
Fair Market Value of the Proposed Facility, with such endorsements and
affirmative coverages, and in such form, as Lessor may reasonably require
insuring Lessor's fee title or leasehold title to the
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Proposed Facility, subject to No Liens except those approved or assumed by
Lessor and arrangements satisfactory to Lessor shall have been made for the
issuance of a title insurance policy on the Substitution Date in accordance with
such title insurance commitment;
(f) Lessee shall have delivered an environmental site assessment report
relating to the Proposed Facility, in form and substance reasonably acceptable
to Lessor and prepared by an environmental consultant reasonably acceptable to
Lessor;
(g) Lessor shall have obtained, at Lessee's cost, an opinion of Lessor's
counsel, in form and substance acceptable to Lessor, confirming that (i) the
substitution of the Proposed Facility for the Leased Property will qualify as an
exchange solely of property of a like-kind under Section 1031 of the Code, in
which, generally, except for "boot" such as cash needed to equalize exchange
values or discharge indebtedness, no gain or loss is recognized to Lessor, (ii)
the substitution or sale will not result in ordinary recapture income to Lessor
pursuant to Code Section 1250(d)(4) or any other Code provision, (iii) the
substitution or sale will result in income, if any, to Lessor of a type
described in Code Section 856(c)(2) or (3) and will not result in income of the
types described in Code Section 856(c)(4) or result in the tax imposed under
Code Section 857(b)(6) and (iv) the substitution or sale, together with all
other substitutions and sales made or requested by Lessee or any Affiliate of
Lessee or of any Guarantor pursuant to any other leases with Lessor ( or any of
its Affiliates) or any other transfers of the Leased Property or the properties
leased under other such leases, during the relevant time period, will not
jeopardize the qualification of Lessor as a real estate investment trust under
Code Sections 856-860;
(h) Lessor shall have received opinions of Lessee's counsel as to (i) the
compliance of the Proposed Facility with land use, zoning, subdivision and
environmental laws and regulations, (ii) the compliance of Lessee, the owner of
the Proposed Facility (to the extent such owner is not Lessee as provided in
subsection (1) below), the proposed substitution and the Proposed Facility with
applicable assisted living laws and regulations, (iii) the due authorization,
execution and enforceability of the Substitution Documents and (iv) such other
matters as are reasonably requested; in form and substance reasonably acceptable
to Lessor;
(i) Lessee and each Guarantor shall have executed and delivered, or caused
to be executed and delivered, such documents as are reasonably required by
Lessor to effectuate the substitution (collectively, the "Substitution
Documents"), including, without limitation,(i) a deed with full warranties or
assignment of a leasehold estate with full warranties (as applicable) conveying
to Lessor title to the Proposed Facility
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free and clear of all Liens, except those approved or assumed by Lessor, (ii) a
facility lease (the "Substitution Lease") duly executed, acknowledged and
delivered by Lessee, containing the same terms and conditions as are contained
herein except that (1) the legal description of the land shall refer to the
Proposed Facility, (2) the Minimum Repurchase Price of the Proposed Facility
shall be an amount equal to the Minimum Repurchase Price of the Leased Property
increased by any Cash Adjustment paid by Lessor, (3) the Rent under the
Substitution Lease in all respects shall provide Lessor with a substantially
equivalent yield at the time of the substitution (i.e., annual return on its
equity in such Proposed Facility) to that received (and reasonably expected to
be received thereafter) from the Leased Property, taking into account the Cash
Adjustment, if any, paid by Lessor and any other relevant factors and (4) such
other changes therein as may be necessary or appropriate under the circumstances
shall be made; (iii) a collateral assignment of permits, licenses, approvals and
contracts relating to the Proposed Facility, substantially in the form of the
Permits Assignment; (iv) UCC financing statements; (v) a guaranty substantially
in the form of the Guaranty of Lease Obligations shall be executed by Guarantor,
(vi) an affiliated party subordination agreement, substantially in the form of
the Affiliated Party Subordination Agreement, shall be executed by the Lessee,
and such other Affiliates of the Lessee as are deemed necessary or appropriate
by the Lessor and (vii) the Agreement Regarding Related Transactions shall be
amended to reflect the substitution of the Proposed Facility. The Substitution
Documents shall be based upon and contain the same terms and conditions as are
set forth in Lessee Documents in effect prior to the substitution, except that
such changes shall be made as may be necessary or reasonably appropriate under
the circumstances to effectuate the substitution and secure the protection and
priority of the property and security interests conveyed and/or granted to
Lessor;
(j) without limiting any other provision contained herein, Lessee shall
have delivered to Lessor such other information and materials relating to
Lessee, the owner of the Proposed Facility (to the extent that such owner is not
Lessee as provided in subsection (l) below) and the Proposed Facility as Lessor
may reasonably request, including, without limitation, leases, receipted bills,
management agreements and other Contracts, Provider Agreements, cost reports,
Permits, evidence of legal and actual access to the Proposed Facility, evidence
of the availability and sufficiency of utilities servicing the Proposed
Facility, historical and current operating statements, detailed budgets and
financial statements and Lessor shall have found the same to be satisfactory in
all respects;
(k) Lessee or an Affiliate of Lessee shall be the licensed operator of the
Proposed Facility as of the date of the consummation of the substitution;
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(l) the Proposed Facility shall be owned or leased by Lessee or an
Affiliate of Lessee; PROVIDED, HOWEVER that in the event that the Proposed
Facility is owned by any such Affiliate, (i) said Affiliate shall execute and
deliver to Lessor such Substitution Documents as may be reasonably required by
Lessor and (ii) Lessor shall be provided with such evidence as it may require to
determine that the conveyance of the Proposed Facility (or a leasehold interest
therein) to Lessor does not constitute a fraudulent conveyance (under applicable
federal or state law);
(n) Lessee shall have delivered to Lessor an insurance certificate
evidencing compliance with all of the insurance requirements set forth in the
Substitution Documents;
(m) Lessee shall have delivered to Lessor an Officer's Certificate
certifying as of the Substitution Date that (i) the Proposed Facility has been
accepted by Lessee for all purposes of the Substitution Lease and there has been
no material damage to the improvements located on the Proposed Facility, nor is
any condemnation or eminent domain proceeding pending with respect thereto; (ii)
all Permits (including, but not limited to, a permanent, unconditional
certificate of occupancy and all certificates of need, licenses and Provider
Agreements) which are necessary to permit the use of the Proposed Facility in
accordance with the provisions of the Substitution Lease have been obtained and
are in full force and effect; (iii) under applicable zoning and use laws,
ordinances, rules and regulations, the Proposed Facility may be used for the
purposes contemplated by Substitution Documents and all necessary subdivision
approvals have been obtained; (iv) to the best knowledge of Lessee, there exists
no Event of Default under this Lease, and no defense, offset or claim exists
with respect to any sums to be paid by Lessee hereunder, and (v) any exceptions
to Lessor's title to the Proposed Facility do not materially interfere with the
in-tended use of the Proposed Facility by Lessee;
(o) Lessor shall have determined that the Proposed Facility constitutes a
Comparable Facility, and
(p) Lessor shall have received all Rent due and payable hereunder through
the Substitution Date.
In the event that the equity value of the Proposed Facility (i.e., the Fair
Market Value of the Proposed Facility minus the Liens to which Lessor will take
the Proposed Facility subject) as of the Substitution Date is greater than the
equity value of the Leased Property (i.e., the Fair Market Value of the Leased
Property MINUS the Liens to which Lessee will take the Leased Property subject
other than those Liens which Lessee is obligated to pay or discharge pursuant to
the terms of this Lease) as of the Substitution Date, subject to the limitation
set forth below,
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Lessor shall pay an amount equal to the difference to Lessee; PROVIDED, HOWEVER,
that Lessor shall not be obligated to consummate such substitution if Lessor
would be required to make a payment to Lessee of an amount equal to or in excess
of fifteen percent (15%) of said Fair Market Value of the Leased Property (the
amount of cash paid by Lessor to Lessee being referred to herein as the "Cash
Adjustment"). Without limiting the generality or effect of the preceding
sentence, in the event that, on the Substitution Date, Lessor is obligated to
pay a Cash Adjustment to Lessee and Lessor does not have sufficient funds
available, or elects not to make such payment in cash, Lessor shall provide
Lessee with (and Lessee shall accept) a purchase money note and mortgage for a
term not to exceed eighteen (18) months from the Substitution Date and bearing
interest, payable monthly, at the rate described in Section 10.2.
25.3 CONVEYANCE TO LESSEE. If the Lessor shall have determined that the
Proposed Facility constitutes a Comparable Facility, on the Substitution Date,
after the consummation of a substitution in accordance with the terms hereof,
Lessor will convey the Leased Property to Lessee in accordance with the
provisions of Article 18 (except as to payment of any expenses in connection
therewith which shall be governed by Section 22.4 below) and this Lease shall
thereupon terminate as to the Leased Property. Upon completion of the purchase
of the Leased Property, no Rent shall thereafter accrue with respect thereto.
25.4 EXPENSES. Whether or not any proposed substitution is consummated,
Lessee shall pay all of the out-of-pocket expenses and other costs incurred or
expended by Lessor in connection with any proposed substitution (collectively
referred to herein as "Substitution Closing Costs"), including, without
limitation, reasonable attorneys, fees and expenses, engineering costs,
consultants' fees, appraisal costs, audit and tax review costs, out-of-pocket
travel expenses, inspection fees, title insurance premiums and other title fees,
survey expenses, mortgage taxes, transfer, documentary stamp and other taxes,
search charges of any nature, recording, registration and filing costs, broker's
fees and commissions, if any, escrow fees, fees and expenses, if any, incurred
in qualifying Lessor and maintaining its right to do business in the state where
the Proposed Facility is located, the cost of obtaining, preparing and recording
a release of the Leased Property from the lien of any Fee Mortgage on the
Facility (other than the amount necessary to payoff such Fee Mortgage) and any
other costs expended or incurred by Lessor in connection with the preparation
for and the documentation and/or the closing of the proposed substitution. The
Substitution Closing Costs shall be a demand obligation of Lessee to Lessor and,
if not paid within ten (10) days after demand, shall thereafter (to the extent
permitted by applicable law) bear interest at the Overdue Rate until the date of
payment.
128
<PAGE>
25.5 LIMITATION. No Substitution Right may be exercised earlier than the
fifth anniversary of the Conversion Date.
(Intentionally left blank]
129
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease to be executed and
attested by their respective officers thereunto duly authorized.
WITNESS: LESSEE: EMERITUS PROPERTIES I,
INC., a Washington corporation
/s/Jim Wright By: /s/Raymond R. Brandstrom
- --------------------- -------------------------------
Name: Jim Wright Name: Raymond R. Brandstrom
Title: President
WITNESS: LESSOR: MEDITRUST ACQUISITION
CORPORATION I, a
Massachusetts corporation
/s/Lila Brazao By: /s/ Michael F. Bushee
- --------------------- ------------------------------
Name: Lila Brazao Name: MICHAEL F BUSHEE
Title: CHIEF OPERATING OFFICER
130
<PAGE>
THE FOLLOWING AGREEMENT IS SUBSTANTIALLY THE SAME FOR THE FOLLOWING PROPERTIES
EXCEPT FOR THE FOLLOWING:
Greenville: $5,926,684
Lakewood Inn: $7,052,071
Ocean Shores: $3,501,349
<PAGE>
LEASEHOLD IMPROVEMENT AGREEMENT
AMONG
MEDITRUST ACQUISITION CORPORATION I
AND
EMERITUS PROPERTIES I, INC.
AND
EMERITUS CORPORATION
<PAGE>
LEASEHOLD IMPROVEMENT AGREEMENT
THIS LEASEHOLD IMPROVEMENT AGREEMENT is made as of 1996 by
and among EMERITUS PROPERTIES I, INC., a WASHINGTON corporation (the
"Lessee"), and MEDITRUST ACQUISITION CORPORATION I, a Massachusetts
corporation (the "Lessor").
1. BACKGROUND
1.1 LESSEE.
Lessee is a corporation which is a wholly-owned Subsidiary of the
Guarantor (as hereinafter defined). The Guarantor is a corporation the stock
of which is publicly traded on the American Stock Exchange.
1.2 THE LAND AND EXISTING IMPROVEMENTS.
Lessor is the owner of a certain parcel of land located in
and more particularly described on EXHIBIT A
(the "Land").
1.3 THE FACILITY LEASE.
<PAGE>
Lessor and Lessee have entered into that certain Facility Lease Agreement
of even date herewith, relating to the Land (the "Facility Lease"), a
Memorandum of which is to be recorded with the real
estate records.
1.4 PROJECT.
Lessee proposes to construct a 62 unit 80 bed assisted living facility
consisting of a 56 unit 62 bed assisted living addition and a 6 unit 12 bed
cottage addition and other improvements, including, without limitation,
accessory parking and landscaping on the Land (collectively, the
"Improvements"). The Land and the Improvements are collectively referred to
herein as the "Project".
1.5 LESSOR'S AGREEMENT TO FUND THE PROJECT AND LESSEE'S AGREEMENT TO
SUPERVISE THE PROJECT.
Lessee and Lessor have agreed that the Project will be a benefit to the
premises demised under the Facility Lease and to Lessee's and Lessor's
respective interests therein. Lessor and Lessee have further agreed that,
pursuant to, and in accordance with, the terms and conditions of this
Agreement, Lessor shall fund an amount not to exceed
of the cost of the Project (the
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"Project Funds"). Lessee has agreed to supervise and manage the construction
of the Project and Lessor has agreed to advance the Project Funds to pay for
the cost of the construction of the Project; all pursuant to the terms and
conditions of this Agreement.
1.6 PLANS; THE ARCHITECT AND ARCHITECT'S CONTRACT.
The Improvements are to be constructed and equipped in accordance with
the plans and specifications to be delivered as provided herein
(collectively, the "Project Plans"), prepared or to be prepared by
(the "Architect") pursuant to the contract to be
entered into by and between Lessee and the Architect and approved by Lessor
(the "Architect's Contract").
1.7 CONSTRUCTION CONTRACTS.
All of the Improvements are to be constructed pursuant to a guaranteed
maximum contract (the "Construction Contract") to be delivered as provided
herein by and between Lessee and Robert B. Goebel General Contractors, Inc.
and approved by Lessor (the "General Contractor").
1.8 SCHEDULE OF WORK AND COMPLETION DATE; SCHEDULE OF DRAWS.
The work necessary to complete and fully equip the Project is to be (a)
undertaken and completed in accordance with the schedule of work and schedule
of values ("Schedules") to be delivered as provided herein and approved by
Lessor; and (b) substantially completed lay the first anniversary of the date
hereof (the "Completion Date") in accordance with the terms hereof.
1.9 PROJECT BUDGET.
Lessee shall submit in accordance with the terms hereof prior to the
making of the first advance which includes amounts to be expended on the
construction or equipping of the Improvements, to Lessor a line item budget
(the "Project Budget"), for the design and construction of the Project,
including (a) a breakdown of construction costs (itemized as to trade
category, subdivision of the work to be performed and the names of each
contractor), (b) a breakdown of all soft costs in connection with the
construction of the Project, including, without limitation, costs for such
items as real estate taxes, legal and accounting fees, survey costs, permits
and inspection fees, insurance premiums, architect's and engineer's fees,
marketing, management, leasing and advertising expenses, and all amounts due
in connection with the Advance of Project Funds pursuant to this Agreement,
(c) a projected draw schedule and (d) a projected progress schedule for the
construction of the Project.
1.10 USE OF PROJECT FUNDS.
The Project Funds are to be used, to the extent sufficient therefore,
solely for the payment of Project costs set forth in the Project Budget.
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<PAGE>
1.11 PROJECT FUNDS.
Subject to all of the terms, conditions and provisions of this Agreement,
and of the agreements and instruments referred to herein, Lessor agrees to
advance the Project Funds and Lessee agrees to supervise and manage the
construction of the Project and to pay the Rent (as hereinafter defined) due
under the Facility Lease (as the same may from time to time be adjusted
pursuant to the terms and conditions set forth therein); it being understood
that Lessee shall be liable for the payment of Rent regarding such sums as
shall have been advanced from time to time under this Agreement to Lessee.
1.12 GUARANTIES AND INDEMNITIES.
As an inducement to Lessor to enter into this Agreement, advance the
Project Funds and enter into the Facility Lease, the
Guarantor has agreed to furnish certain guaranties as hereinafter described.
2. DEFINITIONS
In this Agreement, except as otherwise expressly provided in the text of
this Agreement or unless the context otherwise requires, all capitalized
terms shall have the meaning ascribed to them in EXHIBIT E.
3. LEASEHOLD IMPROVEMENT FEE.
Lessee shall pay the Leasehold Improvement Fee to Lessor simultaneously
with the execution of this Agreement; PROVIDED, HOWEVER, that, at Lessor's
option, the Leasehold Improvement Fee shall be held in an escrow account
established with a Person designated by Lessor pursuant to an escrow
arrangement satisfactory to Lessor, with interest thereon benefiting Lessor.
If Lessor exercises its option to require that the Leasehold Improvement Fee
be held in such an escrow account (a) the Leasehold Improvement Fee shall be
disbursed from said escrow account only upon the joint instructions of Lessee
and Lessor (which instructions from Lessee shall be immediately given upon
the request of Lessor) and in no event shall the Leasehold Improvement Fee be
disbursed therefrom, in whole or in part, unless and until so requested by
Lessor and (b) Lessor shall bear the risk of loss of or misappropriation of
the Leasehold Improvement Fee by such escrow agent.
4. LEASE DOCUMENTS; COLLATERAL SECURITY
4.1 LEASE DOCUMENTS.
The Project Funds shall be advanced, evidenced, administered and
governed by all of the terms, conditions and provisions of each of the
following:
A. an Agreement Regarding Related Transactions of even date herewith by
and among Lessee, Lessor and ESC G.P. I Inc., as the same may be
amended from time to time;
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<PAGE>
B. this Agreement;
C. the Facility Lease;
D. a Collateral Assignment of Permits, Approvals, Licenses, and
Contracts of even date granted by Lessee to Lessor (the "Permits
Assignment") and related UCC Financing Statements;
E. a Security Agreement of even date by and between Lessee and Lessor
(the "Security Agreement")
F. a Completion Guaranty of even date executed by the Guarantor for the
benefit of Lessor guarantying the completion of the Project and the
satisfaction of the other Guaranteed Obligations (the "Completion
Guaranty");
G. a Guaranty of Lease Obligations of even date executed by the
Guarantor for the benefit of Lessor guarantying the payment and
performance of the Lease obligations (the "Guaranty of Lease
Obligations");
H. an Environmental Indemnity Agreement of even date by and among
Lessee, the Guarantor and Lessor (the "Environmental Indemnity
Agreement");
I. a Deposit Pledge Agreement of even date by and between Lessee and
Lessor (the "Deposit Pledge Agreement");
J. a Group One Negative Pledge (Development) Agreement of even date by
and among Lessee, Lessor and Guarantor (the "Negative Pledge
Agreement");
K. an Assignment of Construction Contract granted by Lessee to Lessor
and containing the consent of the General Contractor (the "Construction
Assignment");
L. an Assignment of Architect's Contract of even date granted by Lessee
to Lessor and containing the consent of the Architect (the "Architect's
Assignment");
M. an Affiliated Party Subordination Agreement of even date by and among
Lessee, the Guarantor, various Affiliates of Lessee and Lessor (the
"Affiliated Party Subordination Agreement"); and
N. an Assignment of that certain Consulting Agreement by and between
Emeritus Corporation and Paul Aigner, AIA, d/b/a/ Paul Aigner Medical
Facility Consultants, dated ________, (the "Consultant Assignment") of
even date granted by Emeritus Corporation to Lessor;
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<PAGE>
0. all other documents, instruments, or agreements now or hereafter
evidencing or securing the obligations under this Agreement and the
Facility Lease.
Items (A) through (L) above, as the same from time to time may be hereinafter
amended, modified or supplemented, are referred to herein as the "Lease
Documents".
4.2 LEASE OBLIGATIONS.
Lessee agrees to pay and perform all indebtedness, covenants,
liabilities, obligations, agreements and undertakings (other than Lessor's
obligations) under this Agreement and all of the other Lease Documents
(collectively, the "Lease Obligations").
4.3 COLLATERAL SECURITY.
The Lease Obligations shall be secured by the following:
A. a perfected first priority security interest in all Permits and
Contracts pursuant to the Permits Assignment;
B. a security interest in Tangible Personal Property, and certain other
Collateral and a security interest in Receivables, all pursuant to
the Security Agreement;
C. the Completion Guaranty;
D. the Guaranty of Lease Obligations;
E. the Environmental Indemnity;
F. a perfected first priority interest in the Cash Collateral pursuant
to the Deposit Pledge Agreement;
G. all other security interests in such other property for which
provision is made in the Lease Documents or at law or in equity; and
H. certain other Related Party Agreements.
All of the property in which security interests are granted as described in
items (A) through (H) above are referred to herein as the "Collateral".
5. REPRESENTATIONS AND WARRANTIES
In order to induce Lessor to advance the Project Funds pursuant to the
terms and conditions of this Agreement, Lessee represents and warrants to
Lessor that:
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<PAGE>
5.1 ARCHITECT'S CONTRACT AND CONSTRUCTION CONTRACT.
The Architect's Contract and the Construction Contract, at the time of
the execution thereof will be, validly executed by, and will upon execution
be binding upon Lessee. Lessee has no
reason to believe that such agreements will not be validly executed by and
binding upon the other parties thereto;
5.2 PROJECT PLANS.
The Project Plans which will be delivered to Lessor by Lessee in
accordance with Section 7.1 will be (a) filed with and approved by all
appropriate Governmental Authorities. All necessary Permits relating to the
Project Plans to be issued or granted by any applicable Governmental
Authority having or claiming jurisdiction over the Leased Property which can
be obtained in the ordinary course as of the date hereof have been obtained
and all such Permits are in full force and effect, are not subject to any
unexpired appeal periods or any appeals or challenges which have not been
fully resolved in favor of Lessee, and do not contain any conditions or terms
relating to the Leased Property which have not been fully satisfied or which
will not be fully satisfied by the completion of the construction of the
Project (in accordance with the Project Plans and the terms and provisions of
this Agreement). Furthermore, the Project Plans will be the plans and
specifications which shall be approved in writing by Lessor and all future
construction on the Project shall be performed in accordance with the Project
Plans, as the same may be amended or modified from time in accordance with
Section 6.3.2 hereof, and the terms and conditions of this Agreement. There
are no structural defects in the Project of which Lessee has been advised or
of which Lessee has notice or knowledge except as otherwise described in
writing to Lessor or actually known by Lessor. Lessee has not received any
notice claiming that, and Lessee has no knowledge that, the Project Plans
violate any Legal Requirement;
5.3 PRIOR CONSTRUCTION WORK.
No Person has performed any construction work or furnished any services
in connection with any construction carried on or to be carried on at the
Leased Property who or which remains unpaid at the time of execution of this
Agreement, except as indicated in the requisition submitted simultaneously
herewith or otherwise expressly approved by Lessor and, if applicable, the
Other Permitted Uses;
5.4 SUITABILITY OF PROJECT PLANS.
The Project Plans shall provide for the construction and renovation of
all buildings and related improvements necessary, both legally and
practically, for the construction of the Project in accordance with the terms
of this Agreement and, after the completion of the construction thereof, for
the operation of the Project for its Primary Intended Use;
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<PAGE>
5.5 COMPLIANCE WITH LEGAL REQUIREMENTS AND APPLICABLE AGREEMENTS.
Upon the completion of construction of the Project, which shall be
constructed in accordance with the Project Plans and the terms and provisions
of this Agreement, the Project shall be in compliance with (a) all Legal
Requirements; (b) all Permits and Contracts and (c) all applicable by-laws,
codes, rules, regulations and restrictions of the Board of Fire Underwriters
or other insurance underwriters or similar bodies.
5.6 PERMITS AND CONTRACTS.
All Permits and Contracts required by or entered into with any
Governmental Authority or quasi-governmental authority or agency for, or in
connection with, the construction of the Project which can be obtained in the
ordinary course as of the date hereof have been obtained or executed, as the
case may be. All such Permits and Contracts are in full force and effect,
are not subject to any unexpired appeal periods or any appeals or challenges
which have not been conclusively resolved in favor of any member of the
Leasing Group, and do not contain any conditions or terms which have not been
fully satisfied or which will not be fully satisfied by the completion of the
construction of the Project (if constructed in accordance with the Project
Plans and the terms and provisions of this Agreement). There is no action
pending, or, to the best knowledge and belief of Lessee, recommended by the
applicable Governmental Authority having jurisdiction thereof, either to
revoke, repeal, cancel, modify, withdraw or suspend any such Permit or
Contract relating to the construction of the Project, or any other action of
any other type which would have a material adverse effect on the Project.
All other Permits and Contracts required for the completion of the
construction of the Project and the operation of the Facility are described
on SCHEDULE 5.6 annexed hereto and Lessee has no reason to believe such
Permits and Contracts shall not be obtainable as and when needed.
5.7 FIRST ADVANCE.
As of the date of the first advance of Project Funds to Lessee
pursuant to this Agreement, the amount of the money expended by Lessee on
account of the construction of the Project in accordance with the Project
Plans and the items listed on Project Budget will not be less than the amount
of such first advance.
5.8 VALID AND BINDING.
Lessee is duly authorized to make and enter into all of the Lease
Documents to which Lessee is a party and to carry out the
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<PAGE>
transactions contemplated therein. All of the Lease Documents to which
Lessee is a party have been duly executed and delivered by Lessee, and each
is a legal, valid and binding obligation of Lessee, enforceable in accordance
with its terms.
5.9 NO VIOLATION.
The execution, delivery and performance of the Lease Documents and the
consummation of the transactions thereby contemplated shall not result in any
breach of, or constitute a default under, or result in the acceleration of,
or constitute an event which, with the giving of notice or the passage of
time, or both, would result in default or acceleration of any obligation of
any member of the Leasing Group under any of the Permits or contracts or any
other contract, mortgage, lien, lease, agreement, instrument, franchise,
arbitration award, judgment, decree, bank loan or credit agreement, trust
indenture or other instrument to which any member of the Leasing Group is a
party or by which any member of the Leasing Group may be bound or affected
and do not violate or contravene any Legal Requirement.
5.10 CONSENTS AND APPROVALS.
Except as already obtained or filed or as reasonably expected to be
obtained in the ordinary course of business prior to or upon the Completion
of the Project, as the case may be, no consent or approval or other
authorization of, or exemption lay, or declaration or filing with, any Person
and no waiver of any right by any Person is required to authorize or permit,
or is otherwise required as a condition of the execution, delivery and
performance of its obligations under the Lease Documents, the Construction
Contract if and when the same is duly executed by the parties thereto or the
Architect's Agreement by any member of the Leasing Group or as a condition to
the validity (assuming the due authorization, execution and delivery by
Lessor of the Lease Documents to which it is a party) and the priority of any
Liens granted to Lessor under the Lease Documents, except the filing of the
Financing Statements.
5.11 PENDING ACTIONS, NOTICES AND REPORTS.
(a) There is no action or investigation pending or, to the best
knowledge and belief of Lessee, threatened, anticipated or contemplated (nor,
to the knowledge of Lessee, is there any reasonable basis therefor) against
or affecting the Leased Property or any member of the Leasing Group (or any
Affiliate thereof) before any Governmental Authority, which could prevent or
hinder the consummation of the transactions contemplated hereby or call into
question the validity of any of the Lease Documents or any action taken or to
be taken in connection with the transactions contemplated thereunder or which
in any single
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case or in the aggregate might result in any material adverse change in the
business, prospects, condition, affairs or operations of any member of the
Leasing Group or the Leased Property (including, without limitation, any
action to revoke, withdraw or suspend any Permit necessary or desirable for
the construction of the Project for its Primary Intended Use.
(b) No member of the Leasing Group has received any notice of any claim,
requirement or demand of any Governmental Authority, to take action so as to
make the Project or the Leased Property conform to or comply with any
applicable Legal Requirement.
6. COVENANTS
6.1 COLLECTION AND ENFORCEMENT COSTS.
Upon demand, Lessee shall reimburse Lessor for all costs and expenses,
including, without limitation, attorneys, fees and expenses and court costs,
paid or reasonably incurred by Lessor in connection with the collection of
any sum due hereunder, or in connection with the enforcement of any of
Lessor's rights or any member of the Leasing Group's obligations under this
Agreement or any of the other Lease Documents. Any amount due and payable to
Lessor pursuant to the provisions of this Section shall be a demand
obligation and, to the extent permitted by law, shall be added to the Lease
Obligations and shall be secured by the Liens created by the Lease Documents
as fully and effectively and with the same priority as every other obligation
of Lessee secured thereby and, if not paid within ten (10) days after demand,
shall thereafter, to the extent permitted by applicable law, bear interest at
the Overdue Rate until the date of payment. The obligation of Lessee to pay
all costs, charges and sums due hereunder or under any of the other Lease
Documents shall continue in full force and effect and in no way shall be
impaired, until the actual payment thereof to Lessor. In the event of (a) a
sale, conveyance, transfer or other disposition of the Leased Property, (b)
any further agreement given to secure the payment of the obligations set
forth herein or (c) any agreement or stipulation extending the time or
modifying the terms of payment set forth herein, Lessee shall nevertheless
remain obligated to pay the indebtedness evidenced by this Agreement, as
extended or modified by any such agreement or stipulation, unless Lessee is
released and discharged from such obligation by a written agreement executed
by Lessor.
6.2 CONTINUING EFFECT OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties contained in this Leasehold
Improvement Agreement shall constitute continuing
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representations and warranties which shall remain true, correct and complete
throughout the Term.
6.3 CONSTRUCTION COVENANTS.
6.3.1 COMMENCEMENT OF CONSTRUCTION.
If construction of the Project has not already begun, Lessee shall
commence construction of the Project within thirty (30) days from the later
of the date hereof or of issuance of a building permit for the Project.
Lessee shall diligently and continuously cause the Project to be
constructed and completed and made ready for occupancy and use in
accordance with the Project Plans all in a manner satisfactory to Lessor
on or before the Completion Date. Notwithstanding anything to the contrary
contained herein, Lessee shall be and shall remain unconditionally liable
to Lessor for (a) the complete construction of the Project in accordance
with the Project Plans on or before the Completion Date and whether or not
proceeds of the Project Funds remaining to be disbursed hereunder, if any,
are sufficient to cover all costs of construction and (b) the complete
performance of all other obligations, covenants, agreements and liabilities
of Lessee hereunder.
6.3.2 QUALITY OF MATERIALS AND WORKMANSHIP.
The materials used in the Project shall be of the quality called
for by the Project Plans, and the workmanship shall be in conformity with
the Construction Contract and this Agreement, and both the quality of such
materials and such workmanship shall be satisfactory to Lessor. Lessee
shall not make any changes in, and shall not permit the General Contractor
or the Architect to make any changes in, the quality of such materials,
the Project Plans or the Project Budget, whether by change order or
otherwise, without the prior written consent of Lessor, in each instance
(which consent may be withheld in Lessor's reasonable discretion);
PROVIDED, HOWEVER, that such consent shall not be required for any
individual change which has been approved by the Architect, which does
not materially affect the structure or exterior of the Project, and the
cost of which does not exceed TEN THOUSAND DOLLARS ($10,000) or which
changes, in the aggregate, do not exceed ONE HUNDRED THOUSAND DOLLARS
($100,000) in cost. Notwithstanding the foregoing, prior to making any
change in Project Plans, copies of all change orders shall be submitted
by Lessee to
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Lessor and Lessee shall also deliver to Lessor evidence satisfactory to
Lessor, in its reasonable discretion, that all necessary Permits and/or
Contracts required by any Governmental Authority in connection therewith
have been obtained or entered into, as the case may be.
6.3.3 PROJECT BUDGET.
Upon the request of Lessor, Lessee shall furnish Lessor with revisions
for the Project Budget to reflect (a) any changes approved by Lessor to the
Project Budget, (b) the total cost of the construction of the Project
completed through any specific date and (c) the remaining cost to complete
the construction of the Project in accordance with the Project Plans and
the terms and provisions of this Agreement.
6.3.4 ARCHITECT CERTIFICATES.
Lessee agrees to cause the Architect to furnish such statements as
to progress and certificates of completion as Lessor may reasonably require
from time to time during such period as this Agreement may be in effect,
all without expense to Lessor; provided, however, that to the extent the
delivery of such certificates will require a visit to the Project, Lessee
shall have no obligation to deliver the same. more frequently than with
every other advance request hereunder. Lessee agrees to cause the Architect
to make the Project Plans available to Lessor without expense to Lessor,
and to agree that, in the event that Lessor shall take over the Project by
reason of an occurrence of a Lease Default, Lessor shall be entitled to use
said Project Plans without any additional compensation to the Architect
above what is required (and was not previously paid) under the Architect's
Contract.
6.3.5 INTENTIONALLY DELETED.
6.3.6 LESSOR'S CONSULTANTS.
Lessee agrees to pay the costs and expenses reasonably incurred by
Lessor to retain the Consultants to perform various services to Lessor in
connection with the construction of the Project and the advances of Project
Funds contemplated hereunder, including, without limitation, the following:
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A. to review and analyze the Project Plans and advise Lessor whether
the same are satisfactory for the intended purposes thereof;
B. to make periodic inspections of the Leased Property for the purpose
of assuring that construction performed in connection with the Project
prior to the date of such inspection has been completed in accordance
with the Project Plans and this Agreement;
C. to review Lessee's then current requisition to determine whether it
is consistent with the obligations of Lessee under this Agreement, and
to advise Lessor of the anticipated costs of, and the time for, the
completion of the Project in accordance with the Project Plans, and
the adequacy of reserves and contingencies related thereto;
D. to review and analyze any proposed changes to the Project Plans and
advise Lessor regarding the same;
E. to review and analyze the Project Budget and advise Lessor as to the
sufficiency thereof; and
F. to review and analyze the Architect's Contract and the Construction
Contract entered into by Lessee in connection with the construction of
the Project and advise Lessor regarding the same.
Except as otherwise expressly provided herein, Lessee agrees
promptly to make such changes or corrections in the construction of the
Project as may be required by Lessor, based on the recommendation of any of
the Consultants, unless Lessee demonstrates to Lessor's satisfaction that
such corrective work is inconsistent with the Project Plans.
6.3.7 TITLE TO MATERIALS AND SECURITY INTEREST GRANTED TO LESSOR.
Except as otherwise expressly provided herein, Lessee shall not
suffer the use in connection with any construction relating to the Project
of any materials, fixtures or equipment intended to become part of the
Project which are purchased upon lease or conditional bill of sale or to
which Lessee does not have absolute and unencumbered title. Lessee
covenants to cause to be paid punctually all sums becoming due for labor,
materials, fixtures or equipment used or purchased in
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connection with any such construction and, in recognition of the fact
that it is intended that the Project Funds be used to pay for the costs of
the construction of the Project on behalf of the Lessor, Lessee agrees that
title to all materials, fixtures and equipment that are incorporated into
the Project shall automatically pass to Lessor upon such incorporation
without the need for the execution or delivery of any further instrument of
conveyance.
Notwithstanding the foregoing, in order to more fully secure Lessor
with reference to all advances of Project Funds made hereunder, Lessee
hereby conveys to Lessor a security interest in all of Lessee's right,
title and interest in materials on the Leased Property which are not at
any relevant time incorporated into the Project and materials, wherever
located, intended for incorporation into the Project. Lessee agrees:
A. that Lessor shall have all the rights, with reference to such
security, as a secured party is entitled to hold with reference to any
security interest under the UCC;
B. that such security interest shall cover cash and non-cash proceeds
of such materials;
C. that such materials will not be held for sale to others or disposed
of by Lessee without the prior written consent of Lessor and, if at any
time located on the Leased Property shall be suitably stored, secured
and insured and furthermore, shall not be removed from the Leased
Property; and
D. that such security interest shall be prior to the rights of any other
Person other than the Permitted Prior Security Interests.
The undertakings of Lessee in this Section shall also be applicable to
any personal property that is owned by Lessee and that is used (or to be
used) in connection with the Project, whether or not the purchase thereof was
financed by advances of Project Funds made by Lessor.
Lessee agrees to execute such instruments as Lessor may from time to
time request to perfect the security interest of Lessor in any and all rights
under this Agreement and the other Lease Documents, and any and all property
of Lessee which, under applicable provisions of this Agreement and/or any of
the other Lease Documents, may or shall stand as
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security for advances of Project Funds under this Agreement and for the
complete performance of the Lease Obligations.
6.3.8 COMPLIANCE WITH LEGAL REQUIREMENTS AND APPLICABLE AGREEMENTS.
Lessee, the Project Plans and the Leased Property and all uses thereof
(including, without limitation, the construction of the Project) shall
comply with (a) all Legal Requirements, (b) all Permits and Contracts,
(c) all applicable by-laws, codes, rules, regulations and restrictions
of the Board of Fire Underwriters or other insurance underwriters or
similar body and (d) the Lease Documents, except to the extent any of
the matters represented in clause (a) or (c) are being duly contested
in accordance with the terms of the Lease.
6.3.9 LIENS.
The Leased Property shall at all times be free from any attachment,
encumbrance, lis pendens, mechanic's or materialmen's lien or notice
arising from the furnishing of materials or labor and, with the exception
of the Permitted Encumbrances, all other Liens of any kind except to the
extent the same is being duly contested in accordance with the terms of
the Lease or the terms hereof. Lessee shall not permit the recording of
any notice of contract or mechanic's or materialmen's lien relating to
construction of the Project or otherwise affecting the Leased Property
except to the extent the same is being duly contested in accordance with
the terms of the Lease or the terms hereof. Notwithstanding the foregoing
provisions of this Section 6.3.09, the existence of an attachment or lis
pendens for a period not in excess of thirty (30) days shall not be deemed
to be a default hereunder provided that (a) there shall be no cessation of
construction of the Project, (b) a Lease Default has not occurred and (c)
Lessee shall proceed promptly to cause such attachment or lis pendens to be
removed, but Lessor shall not be obliged to make any further advance under
this Agreement while such attachment or lis pendens remains outstanding,
unless a bond, satisfactory to Lessor, has been posted as security for such
attachment or lis pendens.
6.3.10 BOOKS AND RECORDS.
Lessee shall cause to be kept and maintained, and shall permit
Lessor and its representatives to inspect at all reasonable times, accurate
books of accounts in
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which complete entries will be made in accordance with GAAP, if applicable,
reflecting all financial transactions of Lessee relating to the Project
(showing, without limitation, all materials ordered and received and all
disbursements, accounts payable and accounts receivable in connection with
the construction of the Project and the operation of the Leased Property).
Such books and records must accurately reflect that all funds advanced
hereunder for construction of the Project have been used solely for the
payment of obligations and expenses properly incurred in accordance with
the Project Budget.
6.3.11 INSPECTION OF CONSTRUCTION.
Lessor and its representatives including, without limitation, the
Consultants, shall, at all times as long as this Agreement remains in
effect, have the right to enter the Leased Property, upon reasonable
notice to Lessee and at reasonable times (except in the event of an
emergency) for the purpose of inspecting the Project and the progress
of the work and materials thereon, and if any such inspection reveals
that Lessee is not in compliance herewith (in its sole and absolute
discretion), then Lessor shall not be obligated to make any further
advances under this Agreement to Lessee.
6.3.12 NOTICE OF DELAY.
Lessee shall give to Lessor prompt written notice of any fire,
explosion, accident, flood, storm, earthquake or other casualty or strike,
lock out, act of God or interruption of the construction of the Project
which is reasonably anticipated to interfere with the ability of Lessee to
complete the Project by the Completion Date.
6.3.13 BONDS.
Performance, payment and lien bonds, in form and substance and
guaranteed by sureties satisfactory to Lessor (in its sole and absolute
discretion), shall be furnished to Lessor in connection with the
Construction Contract in amounts at least equivalent to the amount of
such contract, naming Lessor as a dual obligee and shall be furnished
to Lessor prior to the commencement of any work pursuant to such contract.
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6.3.14 USE OF PROJECT FUNDS.
Lessee shall utilize all advances by Lessor pursuant to the terms of
this Agreement only for those items for which requisitions are permitted
under this Agreement or for reimbursement of expenditures already made for
items for which requisitions are so permitted. Lessee agrees to hold all
advances by Lessor hereunder as a trust fund for the purpose of payment of
the costs and expenses permitted under this Agreement.
6.3.15 OCCUPANCY OF THE PROJECT.
Lessee shall not permit any occupancy of the Project (other than
such occupancy as is required in connection with the construction thereto)
prior to (a) the substantial completion of that portion of the Project
being occupied and (b) the issuance by the appropriate Governmental
Authorities of a Certificate of Occupancy (or its equivalent) permitting
the occupancy of the Project for its Primary Intended Use and, if
applicable, the Other Permitted Uses. The Project shall not be deemed
to have been completed unless and until constructed in accordance with
this Agreement and a Certificate of Occupancy (or its equivalent)
permitting the occupancy of the Project for its Primary Intended Use has
been issued by the applicable Governmental Authorities.
7. CONSTRUCTION ADVANCES
7.1 CONDITIONS PRECEDENT TO FIRST ADVANCE OF PROJECT FUNDS.
Prior to the first advance of Project Funds contemplated by this
Agreement, and as a condition of Lessee's right to receive any of the
proceeds of the Project Funds, there shall have been furnished to Lessor:
A. An owner's title insurance policy in form and substance satisfactory
to Lessor, in its sole and absolute discretion, issued by a title
insurance company or companies satisfactory to Lessor (the "Title
Company") with such endorsements, reinsurance and/or co-insurance as
Lessor may require, insuring Lessor's fee title to the Leased Property
free from all Liens and without exception for (i) filed or unfiled
mechanics' liens, (ii) survey matters, (iii) rights of parties in
possession, (iv) environmental liens and (v) any other matters of any
kind or nature whatsoever other than the Permitted Encumbrances
(the "Title Policy");
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B. Such evidence as Lessor may require that the use contemplated for the
Project, and all of the improvements and construction contemplated by
the Project Plans, comply with all applicable Legal Requirements, to
the extent in force and applicable;
C. Insurance policies and/or Certificates of Insurance required
pursuant to the terms and provisions of the Facility Lease;
D. Such evidence as Lessor may require to determine that the total cost
of completion of the Project in all respects, including all related
direct and indirect costs as previously approved by Lessor, will not
exceed the amount set forth in the Project Budget;
E. Such evidence as Lessor may require that Lessee's representations and
warranties contained herein and in all of the other Lease Documents are
true and correct in every material respect;
F. Such evidence as Lessor may require as to the satisfaction of such of
the terms and conditions of this Agreement and of the other Lease
Documents as may by their nature be satisfied prior to the making of
such advance;
G. Such evidence as Lessor may require that all outstanding Impositions
which are due and payable as of the date of the First Advance
pertaining to the Leased Property have been paid in full in accordance
with the terms of the Facility Lease;
H. A current instrument survey, satisfactory in form and content to
Lessor, prepared in accordance with the requirements set forth in
EXHIBIT G (the "Survey") and a certificate substantially in the form
of EXHIBIT H (the "Surveyor's Certificate"), prepared and signed by a
surveyor licensed to do business in the state where the Leased Property
is located with his or her seal affixed thereto;
I. True and correct copies of the Construction Contract and the
Architect's Contract in effect with respect to the Project, as well as
all receipted bills paid by Lessee to the General Contractor and the
Architect for goods and/or services rendered with respect to the Project
prior to the date hereof;
J. A certificate from an engineer and/or architect, registered as such
in the state where the Leased
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Property is located, substantially in the form attached hereto as
EXHIBIT H, certifying as to the (i) compliance of the Leased Property
with all applicable Legal Requirements, (ii) the availability and
adequacy of access/egress to and from the Leased Property and (iii)
the availability and adequacy of sewer, drainage, water, electric
and other utility services to the lot line of the Leased Property;
together with such other assurances concerning the design of the
Project as Lessor may require;
K. Lessor's receipt of opinions, in forms satisfactory to Lessor (in its
sole and absolute discretion), from Lessee's counsel and the Guarantor's
counsel, regarding (i) the due execution, authority and enforceability
of the Lease Documents; (ii) the compliance of the Leased Property and
the Project, in all material respects, with applicable zoning and
other land-use Legal Requirements (except in such instances in which a
satisfactory title insurance zoning endorsement has been issued);
(iii) the valid issuance of the Certificate of Need, if applicable,
and all other Permits required for the construction of the Project, the
continuing effectiveness of said Certificate of Need, if applicable, and
other Permits and Lessee's and Project's compliance therewith and (iv)
much other matters as Lessor may reasonably request (collectively, the
"Opinions");
L. Payment of the Leasehold Improvement Fee (subject, however, to the
provisions of Section 3 hereof);
M. True and correct Copies of all Permits and Contracts relating to the
construction and operation of the Project (including, without
limitation, an unconditional building permit or a building permit
which is subject only to such conditions as will be fully satisfied
by the completion of the construction of the Project in accordance
with the Project Plans and this Agreement);
N. Such evidence as Lessor may require that there has been no material
adverse change in the financial condition and strength of Lessee and the
Guarantor, and that the Leased Property shall have sustained no
impairment, reduction, loss or damage which has not been fully restored
and repaired, and that no Condemnation proceedings or other governmental
action is or shall be pending against or with respect thereto;
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0. Such evidence as Lessor may require that the General Contractor and
the Architect maintain adequate insurance, as determined in Lessor's
reasonable discretion;
P. True and correct copies of all payment, performance and completion
bonds required pursuant to 6.3.13 hereof;
Q. A fully executed Construction Assignment, in form and substance
satisfactory to Lessor; and
R. A fully executed and authorized Architect's Assignment, in form and
substance satisfactory to Lessor.
S. The Project Plans, in form and substance satisfactory to Lessor;
T. The Schedules, in form and substance satisfactory to Lessor;
U. The Project Budget, in form and substance satisfactory to Lessor;
V. Funding forecasts, in form and substance satisfactory to Lessor;
W. A fully executed and authorized Consultant Assignment, in form and
substance satisfactory to Lessor.
7.2 LESSOR'S RIGHT TO ADVANCE THE PROJECT FUNDS.
Without at any time waiving any of Lessor's rights hereunder, Lessor
shall have the right to make the first advance of a portion of the Project
Funds hereunder without the satisfaction of each and every condition
precedent to Lessor's obligation to make such advance, and Lessee agrees to
accept such advance as Lessor may elect to make. The making of any advance
hereunder shall not constitute an approval or acceptance by Lessor of any
work on the Project theretofore completed.
7.3 SUBMISSION OF REQUESTS FOR ADVANCES OF THE PROJECT FUNDS.
Advances under this Agreement shall be made not more than once each
month and at least ten (10) days before the date upon which an advance is
requested, Lessee shall give notice to Lessor, specifying the total advance
which will be desired, accompanied by:
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A. Itemized requisitions for advances or, at Lessee's option, for
reimbursements to Lessee for prepaid items, signed by Lessee, the
Architect and the General Contractor on A.I.A. Forms G702, G702A
or G703 or such other form(s) as Lessor may reasonably require
(together with copies of invoices or receipted bills relating to
items covered by such requisitions when so requested by Lessor).
All such requisitions shall include an indemnification of Lessor
by the Architect, the General Contractor and Lessee, jointly and
severally, to the extent such indemnification is available from
the General Contractor and the Architect upon Lessee's best efforts
to obtain such indemnification, against any and all claims of any
subcontractors, laborers and suppliers;
B. A certificate executed by Lessee substantially in the form attached
hereto as EXHIBIT I;
C. A certificate executed by the General Contractor substantially in the
form attached hereto as EXHIBIT J;
D. With respect to every other Advance requested, a certificate executed
by the Architect substantially in the form attached hereto as EXHIBIT K.
E. At Lessor's request, certificates executed by the Consultants in
such form as Lessor may reasonably require;
F. To the event the Advance is not clearly subject to effective
coverage, an endorsement of the Title Policy issued by the Title
Company, satisfactory in form and substance to Lessor, redating
the Title Policy to the date that the then current advance will be
made, increasing the coverage afforded by the Title Policy so that
the same shall constitute insurance in an amount at least equal to
the sum of the amount of the insurance then existing under the Title
Policy PLUS the amount of the then current advance of Project Funds
to be disbursed to Lessee under this Agreement and subject
to no additional exceptions other than the Permitted Encumbrances;
G. If and when reasonably requested by Lessor, satisfactory assurance
that the construction of the Project has been performed in accordance
with the requirements of the Construction Contract, the Project Plans,
this Agreement and all of the other Lease Documents and has been
inspected and found satisfactory by the parties hereto;
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H. If and when reasonably requested by Lessor, an updated Surveyor's
Certificate substantially in the form attached hereto as EXHIBIT G
and/or updated Engineer's/Architect's Certificate substantially in
the form attached hereto as EXHIBIT H;
I. If and when requested by Lessor, updated Opinions from Lessee's
counsel and the Guarantor's counsel (in form and substance satisfactory
to Lessor in its sole and absolute discretion);
J. If and when requested by Lessor, satisfactory evidence that the funds
remaining unadvanced under this Agreement are sufficient for the
payment of all related direct and indirect costs for the completion
of the Project in accordance with the terms and provisions hereof.
If the evidence furnished shall not be satisfactory to Lessor, in its
sole and absolute discretion, it shall be a condition to the making of
any further advance hereunder that Lessee will provide Lessor with such
financial guaranties (whether in the form of a bond, cash deposit,
letter of credit or otherwise) as are acceptable to Lessor, in its sole
and absolute discretion, to assure the completion of the construction of
the Project in accordance with the Project Plans and the terms and
conditions of this Agreement. In the event that Lessor requires a cash
deposit from Lessee, Lessee shall deposit with Lessor such funds, to be
held in an interest bearing account with the interest accruing thereon
to the benefit of Lessee, which, together with such unadvanced funds
of the Loan, shall be sufficient to pay all of the aforesaid
costs. All funds so deposited with Lessor along with the proceeds
thereof, shall be disbursed prior to any further advance hereunder and
upon completion of the Project any remaining funds so deposited or any
unadvanced portion of the Project Funds, shall be remitted to Lessee;
K. A certification of work completed by the General Contractor, together
with a statement of the payment due therefor;
L. Partial lien waivers from the General Contractor for all work
theretofore performed, and from all other contractors and all
subcontractors and suppliers for all work, the cost of which in each
instance exceeds ONE THOUSAND DOLLARS ($1,000.00), which was the
subject of a requisition in the immediately preceding month;
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M. if and when reasonably requested, Lessee shall deliver to Lessor an
updated Survey of the Leased Property, acceptable to Lessor (in its
reasonable discretion);
N. Evidence satisfactory to Lessor (in its reasonable discretion) that
all materials and other property furnished by any contractors,
subcontractors, materialmen or other Persons, the cost of which will be
paid with the proceeds of the advance to be made by Lessor, are free
and clear of all Liens, except (a) encumbrances, if any, (securing
indebtedness due to Persons whose names, addresses and amounts due to
them are identified to Lessor) that shall be discharged upon. the
disbursement of the funds then being requested, (b) the Liens created
lay the Lease Documents and (c) the Permitted Encumbrances;
0. Such evidence as Lessor may require that there has been no material
adverse change in the financial condition and strength of Lessee and the
Guarantor, and that the Leased Property shall have sustained no
impairment, reduction, loss or damage which has not been fully restored
and repaired and that no condemnation is or shall be pending against or
with respect thereto; and
P. Prior to the first advance which includes amounts to be expended on
the construction or equipping of the Improvements, Lessee shall, to the
extent not previously delivered to Lessor, submit to Lessor true and
correct copies of (i) the Project Budget, (ii) the Project Plans, (iii)
the Schedules and (iv) the Construction Contract, each of which shall
be in form and content satisfactory to Lessor (in its sole and absolute
discretion);
Lessee hereby designates George Lenes as Lessee's construction
representative with authority to approve requisitions and to execute
certificates to be delivered pursuant to Section 13.3B on behalf of Lessee.
7.4 ADVANCES BY WIRE TRANSFER.
All advances hereunder shall be made by wire transfer of funds into a
bank account maintained by either Lessee or an authorized agent of Lessee.
7.5 CONDITIONS PRECEDENT TO ALL ADVANCES.
A. Advances hereunder shall be made solely for the payment of the costs
and expenses incurred by Lessee directly in connection with the
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construction of the Project, consistent with the Project Budget, which
are required to be paid out-of-pocket to all other Persons or to
reimburse Lessee for out-of-pocket costs incurred by it pursuant to
the Project Budget. No funds advanced by Lessor shall be utilized for
any purpose other than as specified herein and none of the Project Funds
shall be paid over to any officer, stockholder or employee of any member
of the Leasing Group or to any of the Persons collectively constituting
any member of the Leasing Group or those holding a beneficial interest
in any member of the Leasing Group, or any employee thereof, except to
the extent funds are used to pay compensation to an employee for and
with respect to activity of such employee in construction of the
Project.
B. The amount of each requisition shall represent M the cost of the work
completed on the Project as of the date of such requisition, which has
not been paid for under prior requisitions, (ii) the cost of all
equipment, fixtures and furnishings included within the Project Budget
approved by Lessor, which has not been paid for under prior
requisitions, but not incorporated into any contract and which have
been delivered to the Leased Property for incorporation into the
Project; provided that, in Lessor's judgment, such materials are
suitably stored, secured and insured and that Lessee can furnish
Lessor with evidence satisfactory to Lessor of Lessee's unencumbered
title thereto and (iii) approved soft costs, which have not been
paid for under prior requisitions.
C. All requisitions for the first fifty percent (50%) of the Project
Funds shall be subject to a ten percent (10%) retainage for the
completion of the Project, and no retainage shall be required with
respect to all requisitions thereafter. It is understood that such
retainage is intended to provide a contingency fund to assure that the
construction of the Project shall be fully completed in accordance with
the Project Plans and the terms and provisions of this Agreement. All
amounts so withheld shall be disbursed after (i) construction of the
Project has been fully completed in accordance with the Project Plans
and the terms and provisions of this Agreement, (ii) all of the items
set forth in Section 7.6 hereof have been delivered to Lessor and (iii)
the
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expiration of the period during which liens may be perfected with
respect to any work performed or labor or materials supplied in
connection with the construction of the Project or the receipt of
such evidence as may be required to assure Lessor that no claim may
thereafter arise with respect to any work performed or labor or
materials supplied in connection with the construction of the Project.
D. At the time of each advance, no event which constitutes, or which,
with notice or lapse of time, or both, would constitute, a Lease Default
shall have occurred and be continuing.
E. Without at any time waiving any of Lessor's rights under this
Agreement, Lessor shall always have the right to make an advance
hereunder without satisfaction of each and every condition upon
Lessor's obligation to make an advance under this Agreement, and
Lessee agrees to accept any advance which Lessor may elect to make
under this Agreement. Notwithstanding the foregoing, Lessor shall
have the right, notwithstanding a waiver relative to the first
advance or any subsequent advance hereunder, to refuse to make any
and all subsequent advances under this Agreement until each and every
condition set forth in this Section has been satisfied. The making of
any advance hereunder shall not constitute an approval or acceptance by
Lessor of any work on the Project theretofore completed.
F. If, while this Agreement is in effect, a claim is made that the
Project does not comply with any Legal Requirement or an action is
instituted before any Governmental Authority with jurisdiction over
the Leased Property or Lessee in which a claim is made as to whether
the Project does so comply, Lessor shall have the right to defer any
advance of Project Funds which Lessor would otherwise be obligated to
make until such time as any such claim is finally disposed of favorably
to the position of Lessee, without any obligation on the part of Lessor
to make a determination of, or judgment on, the merits of any such
claim. For the purposes of the foregoing sentence, the term "claim"
shall mean an assertion by any Governmental Authority or Person as to
which, in each case, Lessor has made a good faith determination
that the assertion may properly be made by the party asserting the
same, that the
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assertion, on its face, is not without foundation and that the interests
of Lessor require that the assertion be treated as presenting a bona
fide risk of liability or adverse effect on the Project.
If any such proceeding is not favorably resolved within thirty (30) days
after the commencement thereof, Lessor shall also have the right, at its
option, to treat the commencement of such action as a Lease Default, for
which Lessor shall have all rights herein specified for a Lease Default.
As aforesaid, Lessor shall have no obligation to make a determination
with reference to the merits of any such claim. No waiver of the
foregoing right shall be implied from any forbearance by Lessor in
making such election or any continuation by Lessor in making advances
under this Agreement.
In all events, Lessee agrees to notify Lessor forthwith upon learning
of the assertion of any such claim or the commencement of any such
proceedings.
G. It is contemplated that all advances of the Project Funds made by
Lessor to Lessee will be pursuant to this Agreement.
H. No inspections or any approvals of the Project during or after
construction shall constitute a warranty or representation by Lessor or
any of the Consultants as to the technical sufficiency, adequacy or
safety of any structure or any of its component parts, including,
without limitation, any fixtures, equipment or furnishings, or as to
the subsoil conditions or any other physical condition or feature
pertaining to the Leased Property. All acts, including any failure to
act, relating to the Leased Property by any agent, representative or
designee of Lessor (including, without limitation, the Consultants)
are performed solely for the benefit of Lessor to assure the
payment and performance of the Obligations and are not for the benefit
of Lessee or the benefit of any other Person.
7.6 COMPLETION OF THE PROJECT.
Upon the completion of the construction of the Project in accordance
with the Project Plans and the terms and provisions of this Agreement,
Lessee shall
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provide Lessor with (A) true, correct and complete copies of (i) a final
unconditional Certificate of occupancy (or its equivalent) issued by the
appropriate governmental authorities, permitting the occupancy and use of
the Project for its Primary Intended Use and (ii) all Permits issued by
the appropriate Governmental Authorities which are necessary in order to
operate the Project as a fully licensed assisted living facility, (B) a
certification from the Architect or the Consultants stating that the
Project was completed in accordance with the Project Plans, (C) an
updated Survey of the Leased Property, acceptable to Lessor (in its
sole and absolute discretion), (D) updated Opinions and such other
items relating to the operation and/or construction of the Project
as may be reasonably requested by Lessor.
8. LESSOR'S RIGHT TO MAKE PAYMENTS AND TAKE OTHER ACTION
Lessor may, after ten (10) Business Days' prior notice to Lessee of its
intention so to do (except in an emergency when such shorter notice shall be
given as is reasonable under the circumstances), under Lessee demonstrates
the same has already been paid, pay any sums due or claimed to be due for
labor or materials furnished in connection with the ownership, construction,
development, maintenance, management, repair, use or operation of the Leased
Property, and any other sums which in the reasonable opinion of Lessor, or
its attorneys, it is expedient to pay, and may take such other and further
action which in the reasonable opinion of Lessor is reasonably necessary in
order to secure (A) the completion of the Project in accordance with the
Project Plans and the terms and conditions of this Agreement, (B) the
protection and priority of the security interests granted to Lessor pursuant
to the Lease Documents and (C) the performance of all obligations under the
Lease Documents. Lessor, in its sole and absolute discretion, may charge any
such payments against any advance that may otherwise be due hereunder to
Lessee or may otherwise collect such amounts from Lessee, and Lessee agrees
to repay to Lessor all such amounts, which may exceed the line item amount
therefor in the Project Budget. Any amount which is not so charged against
advances due hereunder and all costs and expenses reasonably incurred by
Lessor in connection therewith (including, without limitation, attorneys'
fees and expenses and court costs) shall be a demand obligation of Lessee
and, to the extent permitted by applicable law, shall be added to the Lease
Obligations and secured by the Liens created by the Lease Documents, as fully
and effectively and with the same priority as every other obligation of
Lessee thereunder and, if not paid within ten (10) days after demand, shall
thereafter, to the extent permitted under applicable law, bear interest at
the Overdue Rate until the date of payment.
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If Lessee fails to observe or cause to be observed any of the provisions
of this Agreement and such failure continues beyond any applicable notice or
cure period provided for under this Agreement, Lessor or a lawfully appointed
receiver of the Leased Property, at their respective options, from time to
time may perform, or cause to be performed, any and all repairs and such
other work as they deem necessary to bring the Leased Property into
compliance with the provisions of this Agreement may enter upon the Leased
Property for any of the foregoing purposes, and Lessee hereby waives any
claim against Lessor or such receiver arising out of such entry or out of
any other act carried out pursuant to this Section. All amounts so expended
or incurred by Lessor and by such receiver and all costs and expenses
reasonably incurred in connection therewith (including, without limitation,
attorneys' fees and expenses and court costs), shall be a demand obligation
of Lessee to Lessor or such receiver, and, to the extent permitted by law,
shall be added to the Obligations and shall be secured by the Liens created
by the Lease Documents as fully and effectively and with the same priority as
every other obligation of Lessee secured thereunder and, if not paid within
ten (10) days after demand, shall thereafter, to the extent permitted by
applicable law, bear interest at the Overdue Rate until the date of payment.
9. INSURANCE; CASUALTY; TAKING
9.1 GENERAL INSURANCE REQUIREMENTS.
Lessee shall at its sole cost and expense keep the Leased Property and
the business operations conducted thereon insured as required under the
Facility Lease.
9.2 FIRE OR OTHER CASUALTY OR CONDEMNATION.
In the event of any damage or destruction to the Leased Property by
reason of fire or other hazard or casualty (a "Casualty") or a taking by
power of eminent domain or conveyance in lieu thereof of all or any portion
of the Leased Property (a "Condemnation"), Lessee shall give immediate
written notice thereof to Lessor and comply with the provisions of the
Facility Lease governing Casualties and Condemnations.
10. EVENTS OF DEFAULT
Each of the following shall constitute an "Event of Default" hereunder
and shall entitle Lessor to exercise its remedies hereunder and under any of
the other Lease Documents:
A. any failure of Lessee to pay any amount due hereunder or under any
of the other Lease Documents within ten (10) days following the
date when such payment was due;
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B. any failure in the observance or performance of any other covenant,
term, condition or warranty provided in this Agreement or any of the
other Lease Documents, other than the payment of any monetary
obligation and other than as specified in subsections (C) through (F)
below (referred to herein as a "Failure to Perform"), continuing for
thirty (30) days after the giving of notice by Lessor to Lessee
specifying the nature of the Failure to Perform; except as to matters
not susceptible to cure within thirty (30) days, provided that with
respect to such matters, (i) Lessee commences the cure thereof within
thirty (30) days after the giving of such notice by Lessor to Lessee,
(ii) Lessee continuously prosecutes such cure to completion, (iii)
such cure is completed within one hundred twenty (120) days after the
giving of such notice by Lessor to Lessee and (iv) such Failure to
Perform does not impair Lessor's rights with respect to the Leased
Property or otherwise impair the Collateral or Lessor's security
interest therein;
C. the occurrence of any default or breach of condition continuing
beyond the expiration of the applicable notice and grace periods, if
any, under any of the other Lease Documents;
D. if any representation, warranty or statement contained herein or in
any of the other Lease Documents proves to be untrue in any material
respect as of the date when made or at any time during the Term if
such representation or warranty is a continuing representation or
warranty pursuant to Section 6.2;
E. except as a result of any Casualty or a partial or complete
Condemnation, if a suspension of any work in connection with the
construction of the Project occurs for a period in excess of ten
(10) Business Days, irrespective of the cause thereof, provided
that Lessee shall not be deemed to be in default under this Subsection
if such suspension is for circumstances not reasonably within its
control, but only if Lessor, in its sole and absolute discretion,
shall determine that such suspension shall not create any risk that
the construction of the Project will not be completed (in accordance
with the Project Plans and the terms and conditions of this
Agreement) on or before the Completion Date; and
P. if construction of the Project shall not be completed in accordance
with the Project Plans and this Agreement (including, without
limitation, satisfaction of the
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conditions set forth in Section 7.6) on or before the Completion Date.
11. REMEDIES IN EVENT OF DEFAULT
Upon the occurrence of an Event of Default, at the option of Lessor,
which may be exercised at any time after an Event of Default shall have
occurred, Lessor shall have all rights and remedies available to it, at law
or in equity, including, without limitation, all of the rights and remedies
under the Facility Lease and the other Lease Documents. Subject to the
requirements of applicable law, all materials at that time on or near the
Leased Property which are the property of Lessee and which are to be used in
connection with the completion of the Project shall be subject to the Liens
created by the Lease Documents.
In addition to, and without limitation of, the foregoing, Lessor is
authorized to charge all money expended for completion of the Project against
sums hereunder which have not already been advanced (even if the aggregate
amount of such sums expended and all amounts previously advanced hereunder
exceed the amount of the Project Funds which Lessor has agreed to advance
hereunder); and Lessee agrees to pay to Lessor Rent under the Facility Lease
(calculated, in part, thereunder based upon all sums advanced hereunder,
including, without limitation, all sums expended in good faith by Lessor in
connection with the completion of the Project), and, in addition thereto,
Lessee agrees to pay to Lessor (as Rent under the Facility Lease), for
services in connection with said completion of the Project, such additional
sums as shall compensate Lessor for the time and effort Lessor and its
employees shall have expended in connection therewith. Lessor is authorized,
but not obligated in any event, to do all such things in connection with the
construction of the Project as Lessor, in its sole and absolute discretion,
may deem advisable, including, without limitation, the right to make any
payments with respect to any obligation of Lessee to Lessor or to any other
Person in connection with the completion of construction of the Project and
to make additions and changes in the Project Plans, to employ contractors,
subcontractors and agents and to take any and all such action, either in
Lessor's own name or in the name of Lessee, and Lessee hereby grants Lessor
an irrevocable power of attorney to act in its name in connection with the
foregoing. This power of attorney, being coupled with an interest, shall be
irrevocable until all of the Obligations are fully paid and performed and
shall not be affected by any disability or incapacity which Lessee may suffer
and shall survive the same. The power of attorney conferred on Lessor by the
provisions of this Section 11 is provided solely to protect the interests of
Lessor and shall not impose any duty an Lessor to exercise any such power and
neither Lessor nor such attorney-in-fact shall be liable for any act,
omission, error in judgment
- 30 -
<PAGE>
or mistake of law, except as the same may result from its gross negligence or
wilful misconduct. In the event that Lessor takes possession of the Leased
Property and assumes control of the Project as aforesaid, it shall not be
obligated to continue the construction of the Project and/or the operation of
the Project for any period of time longer than Lessor shall see fit (in its
sole and absolute discretion), and Lessor may thereafter, at any time,
abandon its efforts and refuse to make further payments for the account of
Lessee, whether or not the Project has been completed.
In addition, at Lessor's option and without demand, notice or protest,
the occurrence of any Event of Default shall also constitute a default under
any one or more of the Related Party Agreements.
12. GENERAL
The provisions set forth in Article 23 and Sections 2.2, 16.8 through
16.10, 24.2 through 24.6, and 24.8 through 24.12 of the Lease are hereby
incorporated by reference, MUTATIS, MUTANDIS, and shall be applicable to this
Agreement as if set forth in full herein.
This Agreement, the other Lease Documents and the other Lease Documents
set forth the entire agreement of the parties with respect to the subject
matter and shall supersede in all respect the Letter of Intent.
13. LEASE PROVISIONS PARAMOUNT.
In the event of a conflict between the provisions hereof and the
provisions of the Lease, the provisions of the Lease are paramount.
- 31 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement under seal on the day and year first above written.
WITNESS: LESSEE:
EMERITUS PROPERTIES I, INC.
/s/ Jim Wright By: /s/ Raymond R. Brandstrom
- ------------------------------ ----------------------------------
Name: Jim Wright Name: Raymond R. Brandstrom
Title: President
WITNESS: LESSOR:
MEDITRUST ACQUISITION CORPORATION
I, a Massachusetts corporation
/s/ Lila Brazao By: /s/ Michael F. Bushee
- ------------------------------- ------------------------------
Name: Lila Brazao Name: Michael F. Bushee
Title: Chief Operating Officer
- 32 -
<PAGE>
AGREEMENT TO PURCHASE CONSTRUCTION LOAN
THIS AGREEMENT TO PURCHASE CONSTRUCTION LOAN (this "Agreement")
is made effective as of the 30th day of May , 1996, by and between RMI
CAPITAL MANAGEMENT CO., whose address is 3773 Cherry Creek North Drive, Suite
640, Denver, Colorado 80209 ("Construction Lender") and EMERITUS CORPORATION
("Emeritus"), whose address is Market Place One, 2003 Western Avenue, Suite 660,
Seattle, Washington 98121.
RECITALS
WHEREAS, Construction Lender has agreed to make a loan in the amount of up
to Four Million Six Hundred Ninety-Five Thousand Dollars ($4,695,000.00) (the
"Loan") to Emeritus Properties II, Inc. (the "Borrower"); and
WHEREAS, the Borrower will use the Loan to acquire certain property and
construct improvements consisting of an assisted and independent living facility
in Bozeman, Montana on real estate legally described in EXHIBIT "A- 1 " attached
to this Agreement (the "Property"); and
WHEREAS, the Borrower is executing this date its promissory note (the
"Note") payable to Construction Lender in the amount of the Loan; a Deed of
Trust, Assignment of Rents, Security Agreement and Financing Statement (the
"Deed of Trust") encumbering the Property; an Assignment of Lessor's Interest; a
Construction Loan Agreement; an Environmental Indemnity Agreement; and other
documents given to further evidence the Loan or secure repayment of the Note
(collectively the "Loan Documents"); and
WHEREAS, repayment of the Note is guaranteed by that certain Guaranty
Agreement executed by Emeritus Corporation ("Guarantor"); and
WHEREAS, as a condition to making such loan, Construction Lender requires
an absolute and unconditional agreement and undertaking by Emeritus to purchase
the Note in the event it is not paid in full for any reason on its maturity
date; and
WHEREAS, Emeritus acknowledges and warrants that it derived or expects to
derive financial and other advantage and benefit directly or indirectly from the
Loan and each and every advance thereof,
NOW THEREFORE, the parties agree as follows:
1. AGREEMENT TO PURCHASE LOAN. If for any reason the Note is not
paid in full on the date which is thirty-six (36) months from the date hereof,
or at an earlier time upon the conditions set forth in Section 6 below, then
Emeritus hereby absolutely and unconditionally agrees to purchase
<PAGE>
the Note within three (3) business days following written demand from
Construction Lender to Emeritus.
2. PURCHASE PRICE. Construction Lender agrees to sell the Note and
Emeritus agrees to purchase the Note by paying the then unpaid principal balance
thereof together with accrued and unpaid interest, late charges, and other
charges and advances made by Construction Lender pursuant to the Loan Documents,
including but not limited to advances to complete construction of the
Improvements as defined in and provided by the terms of the Construction Loan
Agreement ("Purchase Price"). Payment of the Purchase Price shall be made by
wire transfer to the account of Construction Lender.
3 ASSIGNMENT OF LOAN DOCUMENTS. Upon receipt of the Purchase
Price, Construction Lender agrees to endorse the Note to Emeritus without
recourse, to execute an assignment of the Deed of Trust in recordable form and
to deliver to Emeritus the original Loan Documents, the original Lender's Title
Insurance Policy, the legal opinions of Borrower's counsel, and copies of such
other due diligence documentation related to the Loan in the possession of
Construction Lender as requested by Emeritus.
4. REVIEW OF LOAN DOCUMENTS. Emeritus acknowledges its receipt,
review and approval of the Loan Documents. In addition, Emeritus represents and
warrants that it has conducted its own due diligence concerning the Property and
the Loan and is satisfied with the results of such due diligence investigation.
5. USE OF LOAN PROCEEDS. Emeritus agrees that Construction Lender
is under no obligation or duty nor has Construction Lender represented that it
will see to the application of the Loan proceeds by the person or persons to
whom the Construction Lender disburses such proceeds, and any application or use
of such proceeds for purposes other than construction of improvements on the
Property shall not defeat the agreement made herein by Emeritus to purchase the
Loan.
6. REPRESENTATION AND WARRANTY. Emeritus has reviewed its cash
balances, cash flow projections, unused balances of fines of credit, its ability
to issue additional stock and other sources of liquidity and hereby represents
and warrants to Construction Lender that it has made a determination that
Emeritus has the financial ability to purchase the Note in accordance with the
terms hereof
7. FINANCIAL INFORMATION. Emeritus agrees to furnish quarterly 10Q
financial information to Construction Lender sixty (60) days after the end of
each calendar quarter commencing August 30, 1996 and annual 10K financial
information one hundred (100) days after the end of each calendar year beginning
April 1997. Emeritus shall certify in writing the accuracy and completeness
2
<PAGE>
of such financial information and, with the annual 10K report, will reaffirm its
representation and warranty set forth in paragraph 6 above.
In the event that Emeritus fails to provide the annual certification or
cannot reaffirm its representation and warranty as set forth in #6 above or
doesn't provide annual or quarterly financial information or in the event that
Emeritus' outside auditor gives a qualified opinion of the Emeritus financial
statements based upon a going concern risk, then Construction Lender shall give
Emeritus ten (10) days notice of such qualified opinion or failure to provide
documentation, in which event Emeritus shall have ten (10) days in which to
provide the missing information or to substantiate to Construction Lender's
reasonable satisfaction that Emeritus' financial ability has not been materially
impaired. If the Construction Lender is not reasonably assured during said ten
day period of the continued viability of the Emeritus representation and
warranty set forth in paragraph 6 above, then Lender may elect to sell the Note
and Purchaser agrees to purchase the Note at any time thereafter upon written
demand from Construction Lender to Emeritus.
8. NOTICE OF DEFAULT; OPPORTUNITY TO CURE. If a Event of Default
shall occur under the Loan Documents as defined therein, Construction Lender
agrees not to accelerate the maturity of the Note nor to commence foreclosure
proceedings until it has given Emeritus written notice of such Event of Default
and of its intention to accelerate and foreclose its liens and security
interests. In addition, Construction Lender agrees to furnish copies to
Emeritus of any default notices delivered to Borrower.
9. SEVERABILITY. If any provision of this Agreement or its
application to any party or circumstances shall be determined by any court of
competent jurisdiction to be invalid or unenforceable to any extent, the
remainder of this Agreement shall not be affected thereby, and each provision
hereof shall be valid and shall be enforced to the fullest extent permitted by
law.
10. TIME. Time is of the essence of this Agreement.
11. CONTROLLING LAW; VENUE. This Agreement shall be performed in,
governed by and interpreted in accordance with the laws of the State of
Colorado. The parties mutually consent to the jurisdiction of any local, state
or federal court situated in the City and County of Denver, Colorado, and waive
any objection which they may have pertaining to improper or FORUM NON CONVIENS
to the conduct of any proceeding in such court unless any foreclosure,
litigation, or other proceeding relating to the Property is pending in Montana
in which event jurisdiction and venue shall be in Montana. The parties hereto
agree that venue for any action in connection herewith, shall be in the City and
County of Denver, Colorado unless any foreclosure, litigation, or other
proceeding relating to the Property is pending in Montana in which event
jurisdiction and venue shall be in Montana.
3
<PAGE>
12. AMENDMENT. This Agreement may be altered, amended or revoked
only by an instrument in writing signed by the party to be charged thereby.
13. NOTICE. Any notice, request, demand, consent, approval, or other
communication required or permitted hereunder shall be in writing and shall be
deemed to have been given when personally delivered, or one day after delivery
to a national overnight delivery courier service, cost prepaid, or three days
following deposit in the United States mail, certified mail, return receipt
requested, postage prepaid, addressed to the party for whom it is intended at
their addresses
set forth on page 1; provided, however, that a party may change its address for
purposes of receipt of any such communication by giving ten (1O) days prior
written notice of such change to the other party in the manner above prescribed.
14. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes and
cancels any prior understandings and agreements between the parties with respect
to the subject matter hereof except as specifically set forth herein.
15. WAIVER. The failure of a party to insist upon strict performance
of any of the terms or provisions of this Agreement or to exercise any option,
right or remedy herein contained or available pursuant to applicable law, shall
not be construed as a waiver or relinquishment of such term, provision, option,
right or remedy, but the same shall continue and remain in full force and
effect. No waiver by a party of any term or provision hereof shall be deemed to
have been made unless expressed in writing and signed by such party.
16. ATTORNEYS' FEES. In the event of any controversy, claim,
dispute, or litigation between the parties hereto to enforce or interpret any of
the provisions of this Agreement or any right of a party hereto, the non-
prevailing party to such dispute or litigation agrees to pay to the prevailing
party all costs and expenses, including reasonable attorneys' fees, incurred by
the prevailing party including without limitation, fees incurred during a trial
of any action and any fees incurred as a result of an appeal from a judgment
entered in such litigation.
17. COUNTERPARTS. This Agreement and any attached Consents or
Exhibits requiring signatures may be executed in counterparts, but all
counterparts shall constitute but one and the same document.
18. FURTHER ASSURANCES. The parties shall each execute and deliver
to the other all such additional documents and instruments and shall perform
such further acts as are reasonably requested by any other party to effectuate
the transactions contemplated hereby.
19. AUTHORITY. Each person signing on behalf of Emeritus represents
that it is fully authorized to execute this Agreement and to bind Emeritus
according to the terms hereof.
IN WITNESS WHEREOF, the parties have signed this Agreement to be effective
the date first above written.
RMI CAPITAL MANAGEMENT CO.
By: /s/ W. Bradley Frizell
---------------------------
Managing Director
4
<PAGE>
EMERITUS CORPORATION
By: /s/ Raymond R. Brandstrom
---------------------------
PRESIDENT
5
<PAGE>
CONSTRUCTION LOAN AGREEMENT
R E C I T A L S
RMI CAPITAL MANAGEMENT CO. (the "Lender") has agreed to make a loan in the
amount of up to Four Million Six Hundred Ninety-Five Thousand Dollars
($4,695,000.00)(the "Loan") to EMERITUS PROPERTIES II, INC. (the "Borrower") .
The Borrower will use the Loan to acquire the property and construct
improvements consisting of an assisted and independent living facility (the
"Improvements") on such property (the "Property") legally described in EXHIBIT
"A-1" attached to this Agreement. The Borrower will also use the Loan to pay
other costs and expenses related to the development of the Property and approved
by the Lender.
The Borrower is executing its promissory note (the "Note") payable to the
Lender in the amount of the Loan concurrently with Borrower's execution of this
Agreement. The Note is to be secured by a Deed of Trust, Assignment of Rents,
Security Agreement, and Financing Statement (the "Deed of Trust") encumbering
the Property.
This Agreement describes how the Loan will be disbursed by Lender and
contains various covenants of the Borrower and other provisions relating to
construction of the Improvements.
I. DISBURSEMENTS.
A. GENERAL DISBURSEMENT PROCEDURES.
1. Disbursements of the Loan will be made by the Lender in the
manner provided in the Disbursement Schedule attached as EXHIBIT "B" to this
Agreement. Subject to paragraph 2 below, all disbursements will be made into a
non-interest bearing special account of the Disbursement Agent (defined below)
or Lender, or if the Lender so chooses, upon direct advance by the Lender to
subcontractors, laborers or materialmen, or charge against Loan funds as
provided in paragraph 2 below.
2. Notwithstanding the provisions of paragraph 1 above, the
Lender may elect, without further notice to or authorization by the Borrower, to
use the Loan funds to pay, as and when due, any Loan fees owing to Lender,
interest on the Loan, release charges under prior deeds of trust on the
Property, legal fees and disbursements of the Lender's attorneys which are
payable by the Borrower, and such other sums as may be owing from time to time
by the Borrower to the Lender with respect to the Loan. Such payments may be
made, at the option of the Lender, by (i) debiting or charging the Loan funds in
the amount of such payments without first disbursing such amount into any
special disbursement account,
<PAGE>
or (ii) disbursing all or any part of the amount of such payments into any
special disbursement account and then debiting such account for such payments or
invoicing Borrower therefor.
B. COST INFORMATION. All disbursements will be based upon a
detailed breakdown of the costs of construction of the Improvements and any
financing or development costs for which the Borrower might request
disbursement. The initial cost breakdown, as approved by the Lender, is
attached as EXHIBIT "C" to this Agreement. In the event that the Borrower
becomes aware of any change in the approved construction costs which would
increase the total cost of construction of the Improvements shown on the
attached cost breakdown, as that breakdown is revised from time to time and
approved by the Lender, the Borrower must immediately notify the Lender in
writing and promptly submit to the Lender for its approval a revised cost
breakdown. No further disbursements need be made by the Lender unless and until
the revised cost breakdown is approved. The Lender reserves the right to
approve or disapprove any revised cost breakdowns in its discretion. If
requested by Lender, Borrower shall furnish documentation evidencing the
continuing availability of all funds necessary to complete the Improvements free
of liens.
C. REQUIRED DEPOSIT OF FUNDS BY BORROWER. If after reasonably
consulting with Borrower about increases in estimated project costs, the
Lender's Architect at any time reasonably determines that the amount of the
undisbursed Loan proceeds will not be sufficient fully to pay for all costs
required to complete the construction of the Improvements in accordance with the
approved plans and specifications and for all financing and development costs to
be incurred by the Borrower, whether such deficiency is attributable to changes
in the work or construction or in the plans and specifications or to any other
cause, the Lender may make written demand on the Borrower to deposit with the
Lender in a money market fund approved by Lender funds equal to the amount of
the shortage reasonably determined by the Lender ("Borrower's Construction
Funds"). The Borrower must then deposit Borrower's Construction Funds with the
Lender within ten (10) days after the date of the Lender's written demand. No
further disbursements need be made by the Lender until Borrower's Construction
Funds are deposited by the Borrower with the Lender. Whenever the Lender has
any Borrower's Construction Funds on deposit, all disbursements will be
considered to be made by the Lender first from Borrower's Construction Funds
until they are exhausted.
D. ADDITIONAL SECURITY. The Borrower irrevocably assigns to the
lender and grants to the Lender a security interest in, as additional security
for the performance of the Borrower's obligations under this Agreement, the Note
and the Deed of Trust
2
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and all guaranties of same, its interest in all Loan funds held by the Lender,
whether or not disbursed, all funds deposited by the Borrower with the Lender
under this Agreement, all governmental permits obtained for the lawful
construction of the Improvements, and all reserves, deferred payments, deposits,
refunds, cost savings, tap fees, utility deposits, and payments of any kind
relating to the construction of the Improvements. The Borrower irrevocably
assigns to the Lender and grants to the Lender a security interest in all
licenses and permits and in all engineering reports, land planning maps, plans
and specifications, soils tests, surveys, environmental reports, feasibility
studies, and other similar documents prepared for the construction of the
Improvements. Upon any Event of Default of the Borrower, the Lender shall use
any of the foregoing for any purpose for which the Borrower could have used them
under this Agreement or with respect to the construction or financing of the
Improvements. The Lender will also have all other rights and remedies as to any
of the foregoing which are provided under applicable law or in equity.
E. FIRST DISBURSEMENT. The Lender will not make the first
disbursement of the Loan until the Borrower has fulfilled to the Lender's
satisfaction all pre-closing conditions of the Lender's written loan commitment
dated February 1, 1996 (the "Commitment"), the terms of which are incorporated
herein by this reference, and all of the Lender's customary and reasonable loan
opening conditions for construction loans.
The first Loan advance will occur at closing and will include
funds for the purchase or refinance of the Property, title premiums and fees,
recording costs, Lender's legal fees, soil tests, building permits and fees, and
loan closing costs certified by Lender. If in the reasonable opinion of Lender,
the cost breakdown and construction budget indicate that the Loan proceeds are
insufficient to complete construction, Borrower shall bring such shortfall to
closing in cash or certified funds. Thereafter, Lender shall not be obligated
to make any further loan advances (but Lender may make advances in its
discretion on its sole authorization) until all conditions as specified in the
Commitment and this Agreement are fulfilled by Borrower and construction has
commenced. At the option of Lender, advances may be disbursed through a title
Company or other agent (Disbursement Agent) in which event, Borrower shall
comply with the Disbursement Agent's reasonable and normal requirements.
F. SUBSEQUENT DISBURSEMENTS. Additional funds will be made
available on a monthly basis as construction of Improvements related to the
Project progresses but shall be limited to amounts actually paid or obligations
actually incurred by the Borrower for the Improvements. Therefore, the actual
Loan proceeds disbursed may be less than $4,695,000.00. Lender shall disburse
proceeds from
3
<PAGE>
the Loan funds subject to retainage, if any, in the amount payable to the
General Contractor as shown upon the latest application for payment for work
completed. Material and labor costs shall be evidenced by the Contractor's
billings showing the applicable retainage on hard costs. All requests for
drawdowns shall be on forms approved by Lender and shall be supported by the
following:
1. Evidence satisfactory to the Lender of the payment by the
Borrower to the Contractor of the aggregate amounts theretofore approved for
payment;
2. A certificate in form reasonably acceptable to the Lender
executed by the Borrower certifying all representations and warranties of the
Borrower made in this Agreement to the date of the advance have been fulfilled;
3. A certificate in form reasonably acceptable to the Lender
executed by Borrower's and Lender's Architects certifying that work finished to
the date of the requested draw has been completed in a good and workmanlike
manner in compliance with the plans and specifications and that the amount of
work completed is in relation to the amount of funds requested;
4. A monthly endorsement date down from the Title Company
obtained by Lender indicating the ownership of the Property to be in the
Borrower and further indicating that there are no liens or encumbrances against
the Property other than as expressly approved by the Lender in writing;
5. Unconditional mechanics' lien waivers or releases in form
approved by the Lender from such subcontractors, materialmen and laborers as the
Lender may designate, for prior disbursement; conditional waivers or releases
for current disbursement;
6. A monthly report of the worker-hours worked for each trade.
7. A monthly narrative status report by Lender's Architect or
licensed engineer.
Lender shall use its best efforts to disburse Loan advances on or
about the tenth (10th) of each month provided that Borrower has submitted all
appropriate documentation described above by the 25th of the preceding month,
said advances to include the interest due and payable to Lender. The request
for advances must be approved by Lender and certified by Borrower.
G. RETAINAGE. Until the Improvements are 50% complete as certified
by Lender's Architect, Lender shall disburse proceeds
4
<PAGE>
from the loan funds only to the extent of 90% of the contractor's billings for
labor and materials. Thereafter, Lender shall disburse proceeds to the extent
of 95% of the contractor's billings for labor and materials.
H. DISBURSEMENT DISCONTINUANCE. Once the Lender begins making
disbursements of Loan funds, the Lender need not make any further disbursements
if:
1. The Improvements are materially damaged by fire or other
casualty and not repaired, unless the Lender actually receives insurance
proceeds or Borrower Construction Funds sufficient in the Lender Architect's
judgment to pay for the repair of the Improvements in a timely manner; or
2. The Lender reasonably believes that the disbursement might
not be entitled to priority over mechanics' or materialmen's liens or any
intervening or subordinate liens on the property, unless the Lender receives, at
the Borrower's expense, a title policy endorsement satisfactory to the Lender
insuring priority; or
3. The Borrower fails to provide to the Lender, at the
Borrower's expense, a foundation survey upon the completion of the foundation
for the Improvements and showing no encroachments; or
4. The Lender reasonably believes that withholding a
disbursement in whole or in part is required by applicable mechanics' lien laws;
or
5. The Borrower fails to deliver to Lender any assignments,
agreements, permits or licenses required to be furnished hereunder, or any
estoppel certificates or subordination agreements which Lender reasonably
requires from tenants or proposed occupants of pre-leased space; or
6. The Borrower enters into lease agreements containing terms,
conditions and provisions which have not been previously approved by Lender;
provided that, Borrower may execute resident agreements substantially in the
form approved by Lender and leases of less than 10% of the floor area of the
Improvements without Lender's consent; or
7. Borrower's Contractor is using labor other than union labor
or union trades in the construction of the Improvements without Lender's written
consent; or
8. The Borrower is otherwise in Event of Default under this
Agreement; or
5
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9. The Lender reasonably believes, or the Lender's Architect
reasonably believes, that if a disbursement is made, there would thereafter
remain insufficient funds not previously advanced under the Loan to fully
complete the Improvements free of liens; or
10. The Borrower fails to post the sign identifying Lender as
construction lender as required herein.
I. FINAL DISBURSEMENT. The Lender will not be obligated to make its
final disbursement of Loan funds (including any of the undisbursed retainage) as
set forth in EXHIBIT "B" attached hereto unless and until Completion of
Improvements (defined below). Completion of Improvements must occur within
twelve (12) months of closing, subject to the Force Majeure clause of this
Agreement, but in no event later than 24 months from the date of this Agreement.
J. COMPLETION OF IMPROVEMENTS. Completion of Improvements shall be
evidenced by:
1. A Certificate of Completion signed by Borrower's Architect
or engineer, attesting to the Completion of the Improvements in a good and
workmanlike manner and in accordance with the Plans and Specifications.
2. Certificate of Occupancy from the appropriate governmental
authority subject to tenant finish requirements.
3. Survey showing the completed Improvements as-built.
4. Photographs of the completed Improvements.
5. Detailed schedule of all chattels, fixtures, equipment,
furniture and furnishings which will be used in the operation of the
Improvements.
6. List of all contractors, subcontractors, laborers and
materialmen who worked on the project, together with unconditional lien waivers
from each and total worker hours by trade worked.
7. Title insurance endorsements to the Lender's policy which
insure the lien-free completion of the Improvements, and any other endorsements
required to close the permanent loan, if applicable.
8. Lender approval of the completed Improvements and
confirmation that all conditions precedent to the initial
6
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funding of the permanent loan or other take-out have been fulfilled as
applicable.
9. The Borrower must not be in Event of Default under this
Agreement.
II. BORROWER'S COVENANTS.
A. CONSTRUCTION.
1. COMMENCEMENT OF CONSTRUCTION. No materials shall be
delivered to the site nor any labor be performed prior to Lender's authorization
to commence construction. The Borrower will immediately commence construction
of the Improvements not later than thirty (30) days from the date hereof subject
to the Force Majeure clause of this Agreement ("Commencement of Construction"),
and will diligently prosecute construction in accordance with the plans and
specifications approved by the Lender.
2. CHANGES TO PLANS. The Borrower must obtain the Lender's
prior written approval of any material change in the plans and specifications
for the Improvements approved by the Lender and also of any change in any work
or materials for the Improvements which exceed an amount individually of Fifteen
Thousand and No One-Hundredths Dollars ($15,000.00) or Forty Thousand and No
One-Hundredths Dollars ($40,000.00) collectively. The Improvements shall be
completed in compliance with such plans and specifications. In the event that
changes are made to the plans and specifications which decrease the gross square
footage of the Improvements, Borrower must obtain a new appraisal of the
Property and the Loan amount will be adjusted as necessary to meet a 75% loan-
to-value ratio.
In addition, if construction of the Improvements is being
accomplished under one or more general contracts, the Borrower must obtain the
Lender's prior written approval of such contracts. The Borrower must also
obtain all approvals of any changes in plans, specifications, work, materials or
contracts that are required by law, or under any lease, loan commitment or other
agreement relating to the Property.
The Lender will have a reasonable time to evaluate any
requests for its approval of any changes referred to in this paragraph, and will
not be required to consider approving any changes unless all other approvals
that are required from other parties have been obtained. Lender will be deemed
to have approved if it fails to respond within ten (10) working days after
Lender receives all information requested by Lender relating to such
7
<PAGE>
changes or if it fails to include a reasonable statement of its reasons with its
disapproval. If it reasonably appears to the Lender that any change may
increase the total cost of completing the Improvements, the Lender may require
the Borrower to deposit additional Borrower Construction Funds sufficient to
cover the increased costs as a condition to giving its approval. All contracts
and subcontracts relating to the construction of the Improvements must contain
provisions satisfactory to the Lender implementing the provisions of this
paragraph.
3. UNION COVENANT. Borrower covenants and agrees that all work
performed at the Property, including tenant improvements, which is covered by or
the subject of collective bargaining agreements ("Agreements")in effect from
time to time for all the appropriate building trades shall be done in its
entirety by contractors signed to and ABIDING BY those Agreements unless
otherwise approved by Lender in writing. In addition, all contracts and
subcontracts shall contain a provision that in the event the contractor or
subcontractor fails to pay fringe benefit contributions then the Borrower shall
have the right to withhold the amount of such contributions for direct payment
to the benefit funds. A breach of these covenants shall be an event of default
hereunder. Further, Borrower agrees that this foregoing construction covenant
will be included in all contracts and subcontracts relating to this Project.
The General Contractor shall also be a signatory to the Agreements. This
covenant shall continue in full force and effect until Completion of
Improvements and 90% occupancy of the project have occurred.
B. PERMITS AND LEGAL REQUIREMENTS. The Borrower will comply with
and keep in effect all permits and approvals obtained from any governmental
agencies that relate to the lawful construction of the Improvements. The
Borrower will comply with all existing and future laws, regulations, orders and
requirements of all governmental, judicial or legal authorities having
jurisdiction over the Property or Improvements, (including parking requirements)
and with all recorded restrictions affecting the Property.
C. SOIL ENGINEER'S REPORT. The Borrower shall faithfully comply
with all recommendations and requirements of the soil report for the Property
and furnish copies to Lender of the periodic inspection reports required
therein.
D. LISTS OF CONTRACTORS AND SUBCONTRACTORS. The Borrower will
furnish to the Lender from time to time on request by the Lender, in a form
acceptable to the Lender, correct lists of all contractors and subcontractors
and union trades affiliated with each employed in connection with construction
of the Improvements and true and correct copies of all executed contracts and
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<PAGE>
subcontracts. The Lender may contact any contractor or subcontractor to verify
any facts disclosed in the lists, and all contracts and subcontracts relating to
construction of the Improvements must require the disclosure of the listed
information to the Lender.
E. PURCHASE OF MATERIALS; CONDITIONAL SALES CONTRACTS. No
materials, equipment, fixtures or articles of personal property of the Borrower
placed in the Improvements shall be purchased or installed under any security
agreement or other agreement where the seller reserves or purports to reserve
title or the right of removal or repossession, or the right to consider them
personal property after their incorporation in the work of construction, unless
authorized by the Lender in writing.
F. FOUNDATION SURVEY. Upon completion of the foundation, Borrower
shall provide a foundation survey showing said foundations to be in the lot
lines, not infringing on established easements and placed in accordance with the
approved plans and ordinances.
G. INSPECTION; RIGHT TO STOP WORK.
1. The Lender, and its respective agents and representatives,
will each have the right at any reasonable time to enter the Property and
inspect the work of construction and all materials, plans, specifications,
change orders and other matters relating to the construction. The Lender will
also have the right to examine, copy and audit the books, records, accounting
data and other documents of the Borrower and contractors relating to the
Property or construction of the Improvements.
2. If the Lender in good faith determines that any work or
materials do not conform to the approved plans and specifications or sound
building practice, or otherwise depart from any of the requirements of this
Agreement, then after notice to Borrower and 14 calendar days to cure, if
Borrower has not corrected such deficiencies, then Lender may require the work
to be stopped and withhold disbursements until the matter is corrected. In such
event, the Borrower will promptly correct the work to Lender's satisfaction. No
such action by the Lender will affect the Borrower's obligation to complete the
Improvements on or before the Completion Date, nor be deemed to trigger an
extension pursuant to the Force Majeure provision contained in this Agreement.
3. The Lender is under no duty to supervise or inspect
construction, inspect for compliance with building codes, or examine any books
and records. Any inspection or examination by the Lender or agent of Lender is
for the sole purpose of protecting the Lender's security and preserving the
Lender's rights under this
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Agreement. No default of the Borrower will be waived by any inspection by
the Lender. In no event will any inspection by the Lender be a representation
that there has been or will be compliance with the plans and specifications or
that the construction is free from defective materials or workmanship.
H. PROTECTION AGAINST LIEN CLAIMS. The Borrower will promptly pay
and discharge all claims and liens for labor done and materials and services
furnished in connection with the construction of the Improvements. The Borrower
will have the right to contest in good faith any claim or lien, provided that it
does so diligently and without prejudice to the Lender. Upon the Lender's
request, the Borrower will promptly provide a bond, cash deposit or other
security reasonably satisfactory to the Lender to protect the Lender's interest
and security should the contest be unsuccessful.
I. SIGNS AND PUBLICITY. The Borrower at its sole cost will post a
sign in a prominent location on the Property for the purpose of identifying RMI
CAPITAL MANAGEMENT CO. and the participating pension funds as the "Construction
Lenders", said sign to be approximately four (4) feet by eight (8) feet in size
and in place within 30 days of closing. At the request of the Lender, the
Borrower will use its best efforts to identify the Lender as the construction
lender in publicity concerning the Property. In addition, within 30 days from
closing, Borrower shall furnish to Lender 2 copies, approximately 8 x 10 inches
in size, of a color artist's rendering showing the completed Improvements.
J. INSURANCE. Prior to the loan closing, and until payment in full,
Borrower agrees to carry insurance in amounts and by such insurance companies as
is satisfactory to Lender and its legal counsel. Such coverage shall include,
but not be limited to: Builder's Risk during period of construction, and fire
and extended coverage insurance thereafter. In addition, Lender will require a
certificate of insurance evidencing Borrower's liability insurance coverage,
$2,000,000.00 limits, a certificate of contractor's worker's compensation
insurance and certificate of contractor's public liability and property damage
insurance, $2,000,000.00 limits. All insurance policies shall contain standard
mortgagee clauses (without contribution) in favor of Lender and shall be
deposited with Lender as evidence of such insurance until the Loan is fully
paid.
K. BORROWER COOPERATION. The Borrower agrees to cooperate at all times
with the Lender in bringing about the timely Completion of the Improvements, and
the Borrower will resolve all disputes arising during the work of construction
in a manner which will allow work to proceed expeditiously.
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L. PAYMENT OF EXPENSES. The Borrower agrees to pay the Lender's
reasonable out-of-pocket costs and expenses incurred in connection with the
making or disbursement of the Loan or in the exercise of any of its rights or
remedies under this Agreement, including, but not limited to, title insurance,
title insurance endorsements, and escrow charges, recording charges and mortgage
taxes, reasonable legal fees and disbursements, appraisal and survey charges,
real estate taxes and special assessments, charges in connection with the
delivery of the mortgage and reasonable travel expenses for Lender's monthly
site inspections. The Borrower also agrees to pay reasonable Lender's Architect
fees for review of the plans, specifications and documents relating to the
construction of Improvements. The provisions of this paragraph will survive the
termination of this Agreement and the repayment of the Loan.
M. ACCOUNTING; CHANGES IN CONDITION. The Borrower will keep true and
correct financial books and records on a cash basis for the construction of the
Improvements, and will maintain adequate reserves for all contingencies. If
required by the Lender, the Borrower will submit to the Lender at such times as
the Lender requires (which will in no event be more often than monthly) a
statement which accurately shows the application of all funds expended to date
for construction of the Improvements and the source of those funds as well as
the Borrower's best estimate of the funds needed to complete the Improvements
and the source of those funds. The Borrower will promptly supply the Lender
with any financial statements or other information concerning its affairs and
properties as the Lender may reasonably request, and will promptly notify the
Lender of any material adverse change in its financial condition or in the
physical condition of the Property or Improvements.
N. GOVERNMENTAL AGENCIES. The Borrower agrees to comply with the
requirements of any commitment or agreement entered into by any governmental
agency to assist the construction, sale, lease or financing of the Improvements,
and with the terms of all applicable laws, regulations and requirements
governing such assistance.
0. INDEMNITY. The Borrower agrees to indemnify and hold the Lender
harmless from and against all liabilities, claims, damages, costs and expenses
(including, but not limited to, reasonable legal fees and disbursements) arising
out of or resulting from any defective workmanship or materials occurring in the
construction of the Improvements. Upon demand by the Lender, the Borrower will
defend any action or proceeding brought against the Lender alleging any
defective workmanship or materials, or the Lender may elect to conduct its own
defense at the expense of the
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Borrower. The provisions of this paragraph will survive the termination of this
Agreement and the repayment of the Loan.
P. ENTITY AGREEMENT. Prior to Completion of Improvements, Borrower
agrees not to amend, or permit any amendment of, its corporate articles and
bylaws without the prior written approval of Lender, which approval will not be
unreasonably withheld; provided that, Borrower may make non-material amendments
to its articles or bylaws which have no adverse effect on Lender without
Lender's prior written approval. In any case of amendment, Borrower agrees to
furnish a copy of such amended articles or bylaws to Lender within seven (7)
days following the effective date of the amendment.
Q. LEASES. The form and content of all leases shall be subject to
review and approval by Lender, except as otherwise provided herein.
III. DEFAULT AND REMEDIES.
A. EVENTS OF DEFAULT. The Borrower will be in default under this
Agreement if any of the following occurs ("Event of Default"):
1. The Borrower fails to make any deposit of Borrower
Construction Funds required under this Agreement within ten (10) days after
written notice from the Lender; or
2. The Borrower fails to comply with any other covenant
contained in this Agreement which calls for the payment of money within seven
(7) days after written notice from Lender; or
3. The Borrower fails to comply with any obligation, agreement
or covenant contained in this Agreement other than those covenants referred to
in (1) and (2) above, and such failure shall either be incurable or, if curable,
shall remain uncured during any specific time period, if any, set out herein or
if none shall remain uncured for a period of fifteen (15) days after the date of
written notice thereof from Lender to Borrower. In the event that such failure,
refusal or neglect, is susceptible of cure but is not cured within said fifteen
(15) days, so long as Borrower is diligently and continuously pursuing such
cure, Lender shall permit Borrower an additional thirty (30) days to effectuate
such cure; provided that prior to Completion of Improvements, such additional
thirty (30) days shall not apply where such failure, refusal or neglect results,
in Lender's reasonable determination, in a matter which is of an emergency
nature.
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4. Construction of the Improvements is abandoned, or is not
completed on or before the Completion Date subject to the Force Majeure
provision of this Agreement; or
5. Construction of the Improvements is halted prior to
Completion of Improvements for any period of ten (10) consecutive days for any
cause which is not beyond the reasonable control of the Borrower; or
6. An Event of Default occurs under the Note, the Deed of Trust
or any other Loan document.
B. REMEDIES. If there is an Event of Default under this Agreement,
the Lender may exercise any right or remedy which it has under the Deed of
Trust, this Agreement or any other agreement with the Borrower relating to the
Loan, or under any agreement guaranteeing the Loan or the completion of
construction of the Improvements, or otherwise available at law or in equity or
by statute, and all of the Lender's rights and remedies will be cumulative.
Upon an Event of Default, the Lender may withhold any one or more disbursements
in its discretion, and no disbursement of Loan funds by the Lender will cure any
default of the Borrower, unless the Lender agrees otherwise in writing. The
Lender will also have the right in its discretion to enter the Property and take
any and all actions necessary in its judgment to complete construction of the
Improvements, including, but not limited to, making changes in plans,
specifications, work or materials and entering into, modifying or terminating
any contractual arrangements, subject to the Lender's right at any time to
discontinue any work without liability. If the Lender elects to complete the
Improvements, it will not assume any liability to the Borrower or any other
person for completing the Improvements or for the manner or quality of
construction of the Improvements and the Borrower expressly waives any such
liability. The Borrower irrevocably appoints the Lender as its attorney-in-
fact, with full power of substitution, to complete the Improvements in the
Borrower's name, or the Lender may elect to complete construction in its own
name. In any event, all sums expended by the Lender in completing construction
will be considered to have been disbursed to the Borrower and will be secured by
the Deed of Trust and any other instruments or documents securing the Loan, and
any such sums that cause the principal amount of the Loan to exceed the face
amount of the Note will be considered to be an additional loan to the Borrower
bearing interest at the rate provided in the Note and will be secured by the
Deed of Trust and any other instrument or documents securing the Loan.
13
<PAGE>
IV. MISCELLANEOUS.
A. NO WAIVER; CONSENTS. Any waiver by the Lender must be in writing
and will not be construed as a continuing waiver. No waiver will be implied
from any delay or failure by the Lender to take action on account of any default
of the Borrower. Consent by the Lender to any act or omission by the Borrower
will not be construed to be a consent to any other or subsequent act or omission
or to waive the requirement for the Lender's consent to be obtained in any
future or other instance. However, the Lender reserves the right to waive any
requirement, if it determines in its sole discretion that such waiver is
advisable.
B. THIRD PARTIES NOT BENEFITTED. This Agreement is made and entered
into for the sole protection and benefit of the Lender and the Borrower and
their successors and assigns. No trust fund is created by this Agreement and no
other persons or entities will have any right of action under this Agreement or
any right to the Loan funds.
C. JOINT AND SEVERAL LIABILITY. If the Borrower consists of more
than one person or entity, each will be jointly and severally liable to the
Lender for the faithful performance of this Agreement.
D. NOTICES. All notices given under this Agreement must be in
writing and delivered in accordance with the notice provisions of the Deed of
Trust.
E. AUTHORITY TO FILE NOTICES. The Borrower irrevocably appoints the
Lender as its attorney-in-fact, with full power of substitution, to file for
record, at the Borrower's cost and expense and in the Borrower's name, any
notices of completion, notices of cessation of labor, or any other notices that
the Lender considers necessary or desirable to protect its security.
F. LEGAL ACTIONS. The Lender will have the right, but not the
obligation, to commence, appear in, and defend any action or proceeding that
affects its security or its rights, duties or liabilities relating to the Loan,
the Property, the Improvements, or this Agreement. The Borrower will pay
promptly on demand all of the Lender's reasonable out-of-pocket costs, expenses,
and legal fees and disbursements incurred in those actions or proceedings.
G. APPLICABLE LAW. This Agreement will be governed by Montana law.
H. HEIRS, SUCCESSORS AND ASSIGNS. The terms of this Agreement will
bind and benefit the heirs, legal representatives, successors and assigns of the
parties; provided, however, that
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<PAGE>
except in connection with a permitted transfer of the Property as set forth in
the Deed of Trust, the Borrower may not assign this Agreement or any Loan funds,
or assign or delegate any of its rights or obligations, without the prior
written consent of the Lender, which consent shall not be unreasonably withheld.
The Lender shall have the right to sell participations in the Loan to any other
persons or entities without the consent of or notice to the Borrower, provided
that no such action by the Lender shall relieve the Lender of its obligation to
make disbursements of the Loan when required by this Agreement and to service
the Loan. The Lender may disclose to any participants or prospective
participants any information or other data or material in the Lender's
possession relating to the Borrower, the Loan and the construction project,
without the consent of or notice to the Borrower.
I. ATTORNEYS' FEES. If any lawsuit is commenced to enforce any of
the terms of this Agreement, the prevailing party will have the right to recover
its reasonable attorneys' fees and costs of suit from the other party.
J. SEVERABILITY. The invalidity or unenforceability of any one or
more provisions of this Agreement will in no way affect any other provisions.
K. INTERPRETATION. Whenever the context requires, all words used in
the singular will be construed to have been used in the plural, and vice versa,
and each gender will include any other gender. The captions of the paragraphs
of this Agreement are for convenience only and do not define or limit any terms
or provisions.
L. TIME IS OF THE ESSENCE. Time is of the essence in the
performance of this Agreement by the Borrower.
M. AMENDMENTS. This Agreement may not be modified or amended except
by a written agreement signed by the parties.
N. COUNTERPARTS. This Agreement and any attached Consents or
Exhibits requiring signatures may be executed in counterparts, but all
counterparts shall constitute but one and the same document.
0. RELATION TO LOAN COMMITMENT. The terms and provisions of this
Agreement, the Note and the Deed of Trust supersede any inconsistent terms and
conditions of the Lender's Construction Loan Commitment to the Borrower;
provided that all obligations of the Borrower under the commitment to pay any
fees to the Lender or any costs and expenses relating to the Loan or the
commitment shall survive the execution and delivery of this Agreement, the Note
and the Deed of Trust, and any failure of the
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<PAGE>
Borrower to perform any such obligations shall constitute a default hereunder.
P. FORCE MAJEURE. The date for commencement of construction and
Completion of Improvements shall be advanced for the period of time that
construction is delayed by acts of God, war, riot, fire, strike, lockout, or
other causes beyond Borrower's reasonable control (which shall not include
inability for any reason to meet its financial obligations), provided that
Completion of Improvements shall occur no later than 24 months from the date of
this Agreement.
Dated this 30th day of May, 1996.
BORROWER:
EMERITUS PROPERTIES II, INC.
By: /s/ Raymond R. Brandstrom
--------------------------------
By: President
--------------------------------
Address:
Market Place One
2003 Western Avenue, Suite 660
Seattle, Washington 98121
LENDER:
RMI CAPITAL MANAGEMENT CO.,
a Colorado Corporation
By: /s/ W. Bradley Frizell
--------------------------------
By: Managing Director
--------------------------------
Address:
RMI Capital Management Co.
Ptarmigan Place, Suite 640
3774 Cherry Creek North Drive
Denver, Colorado 80209
16
<PAGE>
PROMISSORY NOTE
$4,695,000.00 May 30, 1996
FOR VALUE RECEIVED, the undersigned (sometimes called "Maker") promises to
pay to the order of RMI CAPITAL MANAGEMENT CO. ("Holder"), at Ptarmigan Place,
3773 Cherry Creek North Drive, Suite 640, Denver, Colorado 80209, or at such
other place as the Holder may from time to time designate to Maker in writing,
the principal sum of Four Million Six Hundred Ninety-Five Thousand Dollars
($4,695,000.00) or so much thereof as may have been disbursed, together with all
subsequent advances made, expenditures authorized and additional payments
provided for in this Note, the Deed of Trust securing it, the Loan Agreement and
any other documents executed to secure this Note, with interest thereon, payable
as follows:
Commencing on the first day of the month following the date of this Note
and continuing on the same day of each month until paid in full, Maker shall pay
interest only on the outstanding advances hereunder from the date each advance
is made (the annual rate of interest to be computed on a 360 day basis) at a
fixed rate of interest equal to 9.25% per annum for the first Loan Year (defined
below); 9.75% per annum for the second Loan Year; and 10.25% per annum for the
third Loan Year, continuing until the date which is 36 months from the date
hereof (the "Maturity Date") when the entire principal sum together with accrued
interest and any other charges due to Holder shall be due and payable in full.
A Loan Year is any twelve month period commencing on the date of the Note
or anniversary thereof.
In the event that any payment required to be made by Maker is not received
by Holder on or before ten days (10) after the due date thereof, Maker agrees to
pay a Default Charge of Five Cents (5 CENTS) for each Dollar ($1.00) overdue for
the purpose of deferring the expense incident to the handling of said delinquent
payment. This Default Charge will be payable each successive month that a
payment remains unpaid. In addition, so long as Maker is in default hereunder,
the unpaid principal balance shall bear interest at the Default Rate which shall
be the lesser of (1) five percent (5%) per annum higher than the rate otherwise
payable by Maker prior to default, or (2) the maximum permitted by law.
The principal and interest thereon shall be payable in lawful money of the
United States, which shall be legal tender for public and private debts at the
time of payment.
<PAGE>
Maker may not prepay this Note prior to Completion of Improvements as
defined in the Loan Agreement. Following Completion of Improvements, Maker may
at any time or from time to time pay all or any part of the principal hereof
prior to its maturity, without the payment of any penalty or premium, but only
if there is simultaneously paid all accrued and unpaid interest on any principal
hereof so prepaid and only upon thirty (30) days prior written notice.
The occurrence of any of the following shall constitute an Event of
Default:
Maker shall fail to pay when due any payment of interest or principal
hereunder following ten (10) days notice;
Maker shall fail to comply with any agreement or covenant contained in this
Note or in the Deed of Trust, Assignment of Rents, Security Agreement, and
Financing Statement, Assignment of Lessor's Interest, Construction Loan
Agreement or any other instrument given to secure this Note (subject to any cure
rights set forth therein), then the balance of said principal sum, with all
accrued interest thereon, shall, at the option of the Holder of this Note and
without notice become and be due and payable immediately, anything contained to
the contrary notwithstanding, time being of the essence of this contract.
The Maker and all endorsers, guarantors and all persons liable or to become
liable on this Note waive presentment, protest and demand, notice of protest,
demand and dishonor and extensions in the time of payment hereof, and agree
further that at any time and from time to time without notice, the terms of
payment herein may be modified or the security described in the documents
securing this Note released in whole or in part or increased, changed or
exchanged by agreement between the Holder hereof and any owner of the property
affected by said documents securing this Note without affecting the liability of
any party to this instrument or any person liable or to become liable with
respect to any indebtedness evidenced hereby. No delay or omission on the part
of Holder in exercising any right hereunder shall operate as a waiver of such
right or of any other right under this Note. A waiver on one occasion shall not
be construed as a bar to or waiver of any such right and/or remedy on any future
occasion.
As additional consideration for the extension of credit, each maker,
endorser or guarantor understands and agrees that the loan evidenced by this
Note will be construed in accordance with the laws of the State of Montana; and
such parties further agree that in the event of default, this Note shall be
enforced in any court of competent jurisdiction in the State of Montana in the
county in
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<PAGE>
which the real estate securing this Note is located, and they do hereby submit
to the jurisdiction of such Court regardless of their residence or where this
Note or any endorsement hereof may be executed.
In the event the interest provisions hereof or any exactions provided for
herein or in any other instrument securing this Note shall result, because of
the monthly reduction of principal, or for any reason at any time during the
term of this loan, in an effective rate of interest which, for any month,
transcends the limit of the usury or any other law applicable to the loan
evidenced hereby, all sums in excess of those lawfully collectible as interest
for the period in question shall, without further agreement or notice between or
by any party hereto, be applied upon principal immediately upon receipt of such
moneys by Holder, with the same force and effect as though the payer had
specifically designated such extra sums to be so applied to principal and Holder
had agreed to accept such extra payment as a premium-free prepayment. In no
event shall any agreed to or actual exaction as consideration for this loan
transcend the limits imposed or provided by the laws applicable to this
transaction or the Maker hereof in the jurisdiction in which the property
securing such loan is located for the use or detention of money or for
forbearance in seeking its collection.
In the event this Note is placed in the hands of an attorney for collection
or is collected through any legal proceedings, the undersigned promises to pay
(in addition to costs and disbursements otherwise allowed), to the extent
permitted by law, a reasonable attorney's fee.
This Note is secured by a certain Deed of Trust, Assignment of Rents,
Security Agreement, and Financing Statement of even date herewith, executed and
delivered by the Maker encumbering certain property therein described together
with any other security given to further secure this Note. Said documents and
the Loan Agreement are hereby made a part of this Note by reference and the
Maker hereby covenants to abide by and comply with each and every covenant and
condition contained therein.
EMERITUS PROPERTIES II, INC.
By: /s/ Raymond R. Brandstrom
----------------------------------------
PRESIDENT
3
<PAGE>
SECURITY AGREEMENT
DEBTOR: EMERITUS PROPERTIES II, INC.
One Market Place
2003 Western Avenue, Suite 660
Seattle, Washington 98121
SECURED PARTY: RMI CAPITAL MANAGEMENT CO.
Ptarmigan Place, Suite 640
3773 Cherry Creek North Drive
Denver, Colorado 80209
DATE: May 30, 1996
1. GRANT OF SECURITY INTEREST AND COLLATERAL ASSIGNMENT. As collateral
security for the due and punctual payment and performance of the obligations (as
hereinafter defined), the Debtor hereby grants to the Secured Party, with full
power and authority to exercise all rights and powers granted by the Debtor
hereunder, a lien upon, and a security interest under the Uniform Commercial
Code in effect in the State of Montana as from time to time amended (the "UCC")
to the extent that the same shall apply, in and to, and hereby collaterally
assigns to the Secured Party, all of Debtor's interest in the Collateral,
defined below, located at the real property in Gallatin County, Montana, and
more particularly described on EXHIBIT A-1 attached hereto (collectively the
"Real Property"). Debtor's personal property is more particularly described on
EXHIBIT B-1, attached hereto (the "Collateral"). The Real Property, together
with the Collateral are collectively referred to herein as the "Property".
2. OBLIGATIONS SECURED. "Obligations" shall mean the loan evidenced by
the promissory note dated the date hereof in the principal amount of
$4,695,000.00 payable by Debtor, to the order of Secured Party ("Note"),
including without limitation, any future advances, and any and all interest,
commissions, obligations, liabilities, indebtedness, charges, and expenses now
or hereafter chargeable against Debtor by Secured Party or owing by Debtor to
Secured Party in connection with such loan, whether direct or indirect, joint or
several, absolute or contingent, due to or become due, now existing or hereafter
arising, and the performance and fulfillment by Debtor of all of the terms,
conditions, promises, covenants, and provisions contained in this Agreement or
in the Note or in any present or future agreement or instrument between Debtor
and Secured Party evidencing or securing said Note, including the Deed of Trust,
Assignment of Rents, Security
<PAGE>
Agreement and Financing Statement executed by Debtor simultaneously herewith
(the "Deed of Trust").
3. WARRANTIES AND COVENANTS OF THE DEBTOR.
a. The Debtor has all power, statutory and otherwise, to execute and
deliver this Agreement, to perform its obligations hereunder and to subject the
Collateral to the security interest created hereby, all of which has been duly
authorized by all necessary action. The execution and delivery of this
Agreement, and the performance of this Agreement and the enforcement of the
security interest granted hereby, will not result in any violation of or be in
conflict with or constitute a default under any term of any agreement or
instrument, or, to the best of the knowledge of the Debtor, any judgment,
decree, order, law, statute, rule or governmental regulation applicable to this
Debtor or the Collateral.
b. Subject to subsection g. below, the Debtor is the sole record and
beneficial owner of the Collateral, and neither the Collateral nor the proceeds
thereof are subject to any pledge, lien, security interest, charge or
encumbrance except (i) the lien created pursuant to this Agreement, and (ii) the
lien of the UCC financing statement delivered by the Debtor to the Secured Party
with respect thereto. The Debtor shall defend the Collateral against all claims
and demands of all persons at any time claiming any interest therein.
C. The Collateral shall be located at the Debtor's places of business
shown above or at the Property. Debtor shall not remove the Collateral from
either of said locations without the prior written consent of the Secured Party
except as contemplated by section 3.g. below. Debtor shall notify Secured Party
of any change in its place of business prior to making the change.
d. Debtor shall pay all taxes and assessments of every
nature which may be levied or assessed against the Collateral.
e. The Debtor shall keep the Collateral at all times insured against risk
of loss or damage by fire (including so-called extended coverage), theft and
such other casualties as the Secured Party may reasonably require, all in such
amounts, under such forms of policies, upon such terms, for such periods and
written by such companies or underwriters as the Secured Party may approve in
its reasonable discretion, losses in all cases to be payable to the Secured
Party and the Debtor as their interests may appear. All policies of insurance
shall provide for at least ten (10) days prior written notice of cancellation to
the Secured Party; and the Debtor shall furnish the Secured Party with
certificates of such insurance or other evidence satisfactory to the Secured
Party as to compliance with the provisions of this paragraph.
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f. The Collateral is in good condition. At Debtor's expense, Debtor
shall keep the same in good condition, ordinary wear and tear excepted, and from
time to time shall replace and repair all such parts of the Collateral as may be
broken, worn out, or damaged without allowing any lien to be created upon the
Collateral on account of such replacement or repairs, and shall not waste or
destroy the Collateral. The Secured Party may examine and inspect the
Collateral at any time, wherever located.
g. Except for sales of inventory in the ordinary course of business,
Debtor shall not sell, lease, convey, encumber or in any manner transfer,
without the prior written consent of Secured Party, any tangible personal
property now or hereafter owned by Debtor and attached to or contained in and
used in connection with the operation of the assisted living facility or
otherwise forming a part of the Collateral (except such tangible personal
property as is discarded as obsolete or damaged and is replaced by substitute
items having equivalent or greater book value); provided that, notwithstanding
any terms of this Agreement to the contrary, Grantor reserves the right to
lease, finance, substitute and replace personal property and to sell inventory
in the ordinary course of business without consent from Lender. In addition,
Grantor may permit its personal property to be subject to equipment financing
and security interests in connection therewith. None of Grantor's reserved
rights described in this subsection g. shall constitute an Event of Default.
h. Debtor shall not use the Collateral in violation of any applicable
statutes, regulations or ordinances.
i. The Debtor's entity agreement does not prohibit any term or condition
of this Agreement, and when executed, this Agreement shall be a binding
obligation of the Debtor.
j. Debtor shall notify Secured Party, in writing, prior to the time
Debtor changes its name, identity or partnership structure.
k. The Collateral is used or bought primarily for use in business.
l. Debtor shall: (i) collect its rents only in the ordinary course of
business; and (ii) furnish Secured Party, at such intervals as Secured Party may
prescribe under the Deed of Trust, a copy of the rent roll indicating the
current rent status for each tenant and the amount of security deposit held by
Debtor as landlord.
m. After an Event of Default as defined in the Deed of Trust or the
appointment of a receiver as provided therein, Debtor agrees that Secured Party
shall have full power to notify tenants,
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collect, compromise, endorse, sell or otherwise deal with proceeds in its own
name or that of Debtor at any time. Secured Party may apply cash proceeds to
the payment of any obligations, or may release such cash proceeds to Debtor.
4. EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an Event of Default under this Agreement:
a. Default in the payment or performance of any monetary obligation
contained or referred to herein or in the Note or in the Deed of Trust securing
the same beyond any applicable grace and cure period specified therein;
b. Material, uninsured loss, theft, damage, or destruction of any
material portion of the Collateral which is not replaced within thirty (30)
days; or the making of any levy, seizure or attachment thereof or thereon;
c. Default in the due performance or observance of any term,
covenant or agreement on Debtor's part to be performed or observed pursuant to
any of the provisions of this Agreement, other than payment and performance of
any monetary obligation, and such non-monetary default shall continue beyond a
period of thirty (30) days after written notice of the occurrence thereof; or
d. The occurrence of an Event of Default under the Deed of Trust, as
defined therein, or under any other document securing the Note.
5. RIGHTS UPON DEFAULT. Upon the occurrence of an Event of Default and at
any time thereafter, and whether or not the Secured Party shall declare any or
all of the Obligations to be immediately due and payable in the manner and with
the effect stated in the Deed of Trust, then and in such event:
a. The Secured Party may foreclose upon and take possession of the
Collateral and may exclude the Debtor, and all persons claiming by, through or
under the Debtor, from possession thereof, and may assign the Collateral to a
nominee or a third party. In connection herewith the Secured Party or any third
party assignee or nominee of the Secured Party shall have the right to exercise,
in the name of the Debtor, the Debtor's rights and powers with respect to the
Collateral.
b. The Secured Party shall have all rights and remedies of a secured
party available under the UCC and any other rights and remedies available under
this Agreement and under the Deed of Trust and any other documents securing the
Note or at law or in equity.
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c. The Debtor hereby agrees that if notice of sale or other
disposition of the Collateral is given in the manner and to the address or
addresses then required pursuant to the Deed of Trust at least five (5) business
days before the time of the sale or other disposition, such notice shall be
deemed reasonable and shall fully satisfy any requirement for the giving of said
notice, whether required by the UCC, any other law or otherwise. Any sale or
disposition may occur by private proceedings at Secured Party's election, and
Debtor acknowledges that, due to the nature of the Collateral and its essential
relationship to the operation of the facility, Secured Party may buy at any such
private sale.
d. Secured Party shall have the right, power and authority to sell
the Collateral or any part thereof at public or private sale for cash, upon
credit, or for future delivery, and at such price or prices as Secured Party may
deem best, and Secured Party may be the purchaser of any and all of the
Collateral so sold, in such manner and order as Secured Party may in its sole
discretion elect. Upon any such sale, Secured Party shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral so sold.
Any such public sale shall be held at such time or times, within ordinary
business hours, and at such place or places, as Secured Party may fix in the
notice of such sale. At any sale the Collateral may be sold in one lot as an
entirety or in separate parcels as Secured Party may determine. Secured Party
shall not be obligated to make any sale pursuant to any such notice. Secured
Party may, without notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at any time and
place fixed for the sale, and such sale may be made at any time or place to
which the same may be so adjourned. In case of any sale of all or any part of
the Collateral on credit or for future delivery, the Collateral so sold may be
retained by Secured Party until the selling price is paid by the purchaser
thereof, but Secured Party shall incur no liability in case of the failure of
such purchaser to take up and pay for the Collateral so sold, and in case of any
such failure, such Collateral may again be sold upon like notice. Each and
every method of disposition described in this paragraph shall constitute
disposition in a commercially reasonable manner.
In conjunction therewith, in addition to or in substitution for
those rights and remedies and the rights and remedies provided for herein:
e. It shall not be necessary that the Collateral or any part thereof
be present at the location of such sale.
f. The sale by Secured Party of less than the whole of the
Collateral shall not exhaust the rights of Secured Party hereunder or with
respect to the Collateral, and Secured Party is specifically empowered to make
successive sale or sales hereunder
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until the whole of the Collateral shall be sold; and, if the proceeds of such
sale of less than the whole of the Collateral shall be less than the aggregate
of the indebtedness secured hereby, this Assignment and the security interest
created hereby shall remain in full force and effect as to the unsold portion of
the Collateral just as though no sale has been made.
g. In the event any sale hereunder is not completed or is defective
in the opinion of secured Party, such sale shall not exhaust the rights of
Secured Party hereunder and Secured Party shall have the right to cause a
subsequent sale or sales to be made hereunder.
h. Any and all statements of fact or other recitals made in any bill
of sale or assignment or other instrument evidencing any sale hereunder as to
nonpayment of the indebtedness or as to the occurrence of an Event of Default,
or as to Secured Party having declared all of such indebtedness to be due and
payable, or as to notice of time, place and terms of sale and the properties to
be sold having been duly given, as to any other act or thing having been duly
done by Secured Party shall be taken as prima facie evidence of the truth of the
facts so stated an recited.
i. Secured Party may appoint or delegate any one or more persons as
agent to perform any act or acts necessary or incident to any such sale held by
Secured Party, including the sending of notices and the conduct of sale, but in
the name and on behalf of Secured Party.
j. The proceeds of any sale or other disposition or collection of or
other realization upon all or any part of the Collateral shall be applied in the
following order of priority: first, to pay the cost and expenses of collection,
custody, sale or other disposition or delivery (including, without limitation,
reasonable legal costs and attorneys' fees) and all other charges incurred by
the Secured Party with respect to the Collateral; second, to the payment of the
Obligations in such order as the Secured Party may, in its sole discretion,
determine; and third, to pay any surplus to the Debtor or to any person or party
lawfully entitled thereto, or as a court of competent jurisdiction may direct.
k. Secured Party may use or operate the Collateral for the purpose
of preserving it or its value. Secured Party may require Debtor to assemble the
Collateral and make it available to Secured Party at a place to be designated by
Secured Party which is reasonably convenient to both parties. Expenses of
retaking, holding, preparing for sale, selling, or costs and expenses in
enforcing this Agreement, or the like shall include Secured Party's reasonable
attorneys' fees and legal expenses, and the same,
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<PAGE>
together with all advances made by Secured Party on behalf of the Debtor, shall
be part of the Obligations secured hereby. Debtor shall be liable to Secured
Party for any deficiency.
6. RELEASE OF COLLATERAL. If the obligations are fully paid and
discharged, all Collateral held hereunder shall be returned to the Debtor by the
Secured Party promptly upon demand, all requisite termination statements under
the UCC shall be executed and delivered to the Debtor by the Secured Party, and
the Secured Party shall take such other action in connection with such discharge
as the Debtor may reasonably request.
7. FURTHER AGREEMENTS. The Debtor has previously executed and delivered
to the Secured Party financing statements pursuant to the UCC covering that
portion of the Collateral for which a security interest may be perfected by
filing. The Debtor shall, upon request of the Secured Party, promptly make,
execute and deliver to the Secured Party, from time to time, a listing of the
specific Collateral, including personal property, goods, equipment, furnishings,
furniture acquired and/or owned in connection with the medical office complex,
and such other and further financing statements, instruments, documents and
certificates, and perform such other and further acts and assurances, as the
Secured Party may request to perfect, to maintain the priority of, or from time
to time, to renew, such security interests, to confirm or more fully perfect the
rights granted hereby, or in any way to assure the Secured Party all of its
rights hereunder. The Debtor shall pay the costs of all filings and recordings
in public offices of record, and shall, upon request of the Secured Party, make,
execute and deliver such other and further instruments, and take such other and
further actions, as the Secured Party may deem necessary or appropriate to
enable it to realize upon the Collateral, to exercise fully its rights
hereunder, and to ratify and confirm any sale hereunder.
8. INDEMNIFICATION; WAIVERS. The Debtor shall indemnify and hold harmless
the Secured Party from any and all liability or damage which the Secured Party
may incur in the exercise and performance, in good faith, of any of its powers
and duties specifically set forth herein, but not for any liability or damage
incurred on account of the negligence or willful misconduct of the Secured Party
provided, however, that Debtor shall not indemnify Secured Party from and
against claims asserted by third parties as a consequence of the Secured Party's
negligence or misconduct. No delay or omission on the part of the Secured Party
in exercising any right hereunder shall operate as a waiver of such right or of
any other right hereunder. Any waiver of any such right on any one occasion
shall not be construed as a bar to or waiver of any such right on any such
future occasion. No course of dealing between the Debtor and the Secured Party
nor any failure to exercise, nor any delay in exercising, on the part of the
Secured Party, any
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<PAGE>
right, power or privilege hereunder or under any of the Obligations, shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or thereunder preclude any other or further
exercise thereof or in the exercise of any other right, power or privilege. The
Secured Party shall be under no duty or liability with respect to the Collateral
other than to use reasonable care in the custody of any Collateral while in its
possession and shall not be liable for any failure to take action necessary to
preserve rights against prior or other parties on any instrument constituting
the Collateral.
9. FURTHER TRANSFERS PROHIBITED. The Debtor covenants and agrees that it
will not, at any time during the term of this Agreement, except as contemplated
by section 3.g. hereof, further convey or encumber the Collateral in any manner
whatsoever; and the Debtor agrees that it will do all things necessary to
maintain the enforceability and priority of the Secured Party's security
interest in the Collateral.
10. NOTICES. Any and all notices, demands, consents, and other
communications required or permitted under this Agreement shall be deemed
adequately given only if given in the manner and to the addresses provided in
the Deed of Trust.
11. GENERAL PROVISIONS.
a. No waiver by Secured Party of any default shall operate as a
waiver of any other default or of the same default on a future occasion. The
taking of this Security Agreement shall not waive or impair any other security
said Secured Party may have or hereafter acquire for the payment of the above
indebtedness, nor shall the taking of any such additional security waive or
impair this Security Agreement; but said Secured Party may resort to any
security it may have in the order it may deem proper, and notwithstanding any
collateral security, Secured Party shall retain its rights of setoff against
Debtor.
b. At its option, after an Event of Default, the Secured Party may
discharge taxes, liens, or security interests or other encumbrances at any time
levied or placed on the Collateral, may place and pay for insurance thereon, may
order and pay for the repair, maintenance and preservation thereof and may pay
any necessary filing or recording fees. The Debtor agrees to reimburse the
Secured Party on demand for payment made or any reasonable expense incurred by
the Secured Party pursuant to the foregoing authorization.
c. Until the occurrence of an Event of Default, Debtor may have
possession of the Collateral and use it in any lawful manner not inconsistent
with this Agreement or any policy of
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<PAGE>
insurance thereon, and upon the occurrence of an Event of Default, Secured Party
shall have immediate right to possession of the Collateral, provided, however,
that Secured Party may perfect its interest in the Collateral by possession.
d. All rights of the Secured Party hereunder shall inure to the
benefit of its successors and assigns; and all promises and duties of Debtor
shall bind its legal representatives, successors and assigns.
e. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Montana. Further, the place where this Agreement
is entered into and the place of performance and transaction of business shall
be deemed to be the State of Montana, and in the event of litigation, the
exclusive forum, venue and jurisdiction shall be the State of Montana.
f. Unless the context otherwise requires, all terms used herein
which are defined in the Montana Uniform Commercial Code, shall have the meaning
therein stated.
DATED effective the 30th day of May, 1996.
DEBTOR:
EMERITUS PROPERTIES II, INC.
By: /s/ Raymond R. Brandstrom
--------------------------
Title: PRESIDENT
-----------------------
SECURED PARTY:
RMI CAPITAL MANAGEMENT CO.
By: /s/ W. Bradley Frizell
--------------------------
Title: Managing Director
-----------------------
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<PAGE>
STATE OF Washington )
)ss.
COUNTY OF King )
The foregoing instrument was acknowledged before me this 30th day of May,
1996, by Raymond R. Brandstrom as President of Emeritus Properties II, Inc.
Debtor.
Witness my hand and official seal. [SEAL]
My commission expires: 11-20-98.
/s/Sarah M. Deines
------------------------
Notary Public
STATE OF Washington )
)ss.
COUNTY OF King )
The foregoing instrument was acknowledged before me this 30th day of May,
1996, by W. Bradley Frizell as Managing Director of RMI Capital Management Co.,
Secured Party.
Witness my hand and official seal. [SEAL]
My commission expires: 11-20-98.
/s/Sarah M. Deines
------------------------
Notary Public
10
<PAGE>
DEAD OF TRUST, ASSIGNMENTS OF RENTS
SECURITY AGREEMENT AND FINANCING STATEMENT
(Construction Loan)
THIS DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AND FINANCING STATEMENT
("Deed of Trust") is made this 30th day of May, 1996, between EMERITUS
PROPERTIES II, INC., whose address is Market Place One, 2003 Western Avenue,
Suite 660, Seattle, Washington 98121 (hereinafter referred to as "Borrower" or
"Grantor"), and American Land Title Company, whose address is 1800 W Koch P.O.
Box 396 Bozeman, MT 59771, as "Trustee", and RMI CAPITAL MANAGEMENT CO., whose
address is 3773 Cherry Creek North Drive, Suite 640, Denver, Colorado 80209, as
"Beneficiary" or "Lender."
WITNESSETH:
THAT WHEREAS, the Borrower is justly indebted unto Lender in the aggregate
sum of Four Million Six Hundred Ninety-Five Thousand and no One-Hundredths
Dollars ($4,695,000.00) or so much thereof as may have been disbursed, as
evidenced by the Promissory Note of even date herewith (hereinafter sometimes
referred to as the "Note"), which Note is payable at the office of the Lender or
at such other place as the legal holder or holders thereof may designate in
writing, with interest thereon and payable as provided in said Note. If not
sooner paid, the final payment of principal and interest on said Note shall be
due thirty-six months from the date hereof.
AND WHEREAS, the Borrower is the owner in fee simple of the property (the
"Property") situate in the County of Gallatin and State of Montana as
specifically described in EXHIBIT A-1 attached hereto and by this reference
incorporated herein.
AND WHEREAS, the Borrower is desirous of securing the payment of the
principal and interest of said Note in whosoever hands said Note may be.
NOW, THEREFORE, the said Grantor, in consideration of the premises, and for
the purpose aforesaid, does hereby grant, bargain, sell and convey unto the
Trustee, in trust forever with power of sale, the Property situate in the County
of Gallatin and State of Montana, as more specifically described on EXHIBIT A-1
attached and by this reference incorporated herein and subject to the Permitted
Encumbrances (defined below), which, with the
<PAGE>
property hereinafter described, is referred to herein as the "Mortgaged
Property.
TOGETHER WITH AND INCLUDING:
(1) All right, title and interest which Grantor now has or may
hereafter acquire in and to the Property and in and to all improvements,
tenements, easements, hereditaments and appurtenances thereunto belonging.
(2) All right, title and interest, if any, of Grantor, in and to the
land lying within any street or roadway adjoining the Property; and all right,
title and interest of Grantor in any vacated or hereafter vacated street or
alley adjoining the Property; and all right, title and interest, if any, of
Grantor in and to any strips and gores adjoining the Property.
(3) All and singular the passages, waters, water rights, water
courses, riparian rights, other rights, liberties and privileges thereof or in
any way now or hereafter appertaining to the Property, including homestead and
any other claim at law or in equity, as well as any after-acquired title,
franchise or license, and the reversion and reversions and remainder and
remainders thereof.
(4) All right, title and interest of Grantor in and to any and all
contracts and subcontracts for the construction and supplying and furnishing of
materials and equipment for use on the Property.
(5) All leases, rents, issues, proceeds and profits accruing and to
accrue from said Property, including but not limited to amounts payable under
residential occupancy agreements, whether deemed rents or accounts.
(6) All plans and specifications for the improvements now or
hereafter constructed on the Property; ALL contracts and subcontracts relating
to the Property, ALL deposits (including forfeited tenant's security deposits),
funds, accounts, contract rights, including management agreements for the
Property; instruments, documents, general intangibles (including trademarks,
service marks, trade name and symbols used in connection therewith), contracts
of sale relating to any of the Mortgaged Property (consent to same not granted
or to be implied hereby), and notes or chattel paper arising from the sale,
exchange or transfer (provided any such transaction is consented to by Lender as
required by this Deed of Trust) of any of the Mortgaged Property; all permits,
licenses, franchises, certificates, and other rights and privileges obtained in
connection with any of the Mortgaged Property; the books and records pertaining
to the Property; all
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<PAGE>
proceeds arising from or by virtue of the sale, lease or other disposition of
all or any part of the Mortgaged Property (consent to same not granted or to be
implied hereby).
(7) All proceeds or sums payable in lieu of or as compensation for
the loss of or damage to any of the Mortgaged Property, and all rights in and to
all pertinent present and future fire and/or hazard insurance policies insuring
the Mortgaged Property; all awards made by any public body or decreed by any
Court of competent jurisdiction for a taking or for degradation of value in any
eminent domain proceeding of the Mortgaged Property or any part thereof.
(8) All buildings, structures, open parking areas and improvements of
every kind and description now or hereafter erected or placed on the Property
and all materials intended for construction, reconstruction, alteration and
repairs of such improvements now or hereafter erected thereon including, but not
limited to, lumber, plaster, cement, shingles, roofing, plumbing, fixtures,
pipe, lath, wallboard, cabinets, nails, sinks, toilets, furnaces, heaters,
brick, tile, water heaters, screens, window frames, glass, doors, flooring,
paint, lighting fixtures and unattached refrigerating, cooking, heating and
ventilating appliances and equipment, all of which materials shall be deemed to
be included within the said Property immediately upon the delivery thereof to
the Property.
(9) All machinery, apparatus, equipment, fittings, fixtures, goods
and other articles of personal property now or hereafter owned by Grantor and
attached to or contained in and used in connection with any present or future
operation of the Property, including, but not limited to, all furniture, gas
ranges, mechanical equipment, tools, refrigerators, swimming pool equipment,
recreational equipment, awnings, shades, screens, equipment and other
furnishings and all plumbing, heating, air conditioning, lighting, cooking,
laundry, ventilating, refrigerating, incinerating, and sprinkling equipment and
fixtures and appurtenances thereto; and the property, if any, described in
EXHIBIT A-2, attached hereto and incorporated by this reference; and all
renewals or replacements thereof or articles in substitution therefor, whether
or not the same are or shall be attached to said building or buildings in any
manner.
(10) All inventory used in the operation of the Property.
(11) (a) All of Grantor's rights to further encumber the Property by
debt, except for such encumbrance, which, by its actual terms and specifically
expressed intent, shall be and at all times remain subject and subordinate to
any tenancies thereafter
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<PAGE>
created. Grantor hereby represents as a special inducement to the Lender to
make this loan, that as of the date hereof there are no encumbrances to secure
debt junior to this Deed of Trust and covenants that there are to be none as of
the date when this Deed of Trust becomes of record, except in either case
encumbrances having the prior written approval of the Lender herein; and
(b) All of Grantor's rights to enter into any lease agreement
which would create a tenancy that is or may become subordinate in any respect to
any mortgage or deed of trust encumbering the Property other than this Deed of
Trust.
(12) All other interest of every kind and character which Debtor now
has or at any time hereafter acquires in and to the Mortgaged Property and all
property which is used or useful in connection therewith, including rights of
ingress and egress, easements, licenses, and all reversionary rights or
interests of Debtor with respect to the Mortgaged Property, together with all
additions, accessions, accessories, and the proceeds thereof.
It is specifically understood that the enumeration of any specific
articles of property shall in no wise exclude or be held to exclude any items of
property not specifically mentioned. All of the land, estate and property
hereinabove-described, real, personal and mixed, whether affixed or annexed or
not, and all rights hereby conveyed and mortgaged are intended to be as a unit
and are hereby understood and agreed and declared to be appropriated to the use
of the real estate, and shall for the purposes of this Deed of Trust be deemed
to be real estate and conveyed and mortgaged hereby. The real estate conveyed
by this Deed of Trust does not exceed 30 acres.
TO HAVE AND TO HOLD IN TRUST NEVERTHELESS, that in case of an Event of
Default defined below, the Lender or the legal holder of the indebtedness
secured hereby may declare a violation of any of the covenants herein contained
and elect to demand foreclosure sale. Trustee shall sell the Property in
accordance with the laws of the State of Montana and the Uniform Commercial Code
of the State of Montana, where applicable, at public or private sale as allowed
by law to the highest bidder. Any person (except Trustee) may bid at the
Trustee I s sale. Trustee shall apply the proceeds of the sale as follows: (1)
to the expense of the sale, including a reasonable Trustee's fee and attorney's
fee; (2) to the obligations secured by this Deed of Trust; and (3) the surplus,
if any, shall be distributed in accordance with the laws of Montana. Trustee
shall deliver to the purchaser at the sale a Trustee's deed, without warranty,
which shall convey to the purchaser such interest in the Property which Grantor
had or had the power to convey at the time of the execution of this Deed of
Trust, and such interest as Trustee may have acquired thereafter.
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<PAGE>
The Trustee's deed shall recite the facts showing that the sale was conducted in
compliance with all requirements of law and of this Deed of Trust, which recital
shall be prima facie evidence of such compliance and conclusive evidence thereof
in favor of bona fide purchasers and encumbrancers for value. The power of sale
conferred by this Deed of Trust and by the laws of Montana is not an exclusive
remedy and when not exercised, Beneficiary may foreclose this Deed of Trust
under the laws of Montana as a mortgage and in that event, obtain a deficiency
to the extent allowed by law. At any time Beneficiary may appoint in writing a
successor trustee, or discharge and appoint a new Trustee in the place of any
Trustee named herein, and upon the recording of such appointment in the records
of the county in which this Deed of Trust is recorded, the successor Trustee
shall be vested with all powers of the Original Trustee, Grantor agrees to
surrender possession of the Property to the Purchaser at the aforesaid sale on
or before the tenth day following the sale, in the event such possession has
not previously been delivered.
And the said Grantor, for itself and for its successors and assigns,
covenants and agrees to and with the said Trustee, that at the time of the
ensealing of and delivery of these presents, it is well seized of the Mortgaged
Property in fee simple, and has good right, full power and lawful authority to
grant, bargain sell and convey the same in the manner and form as aforesaid;
thereby fully and absolutely waiving and releasing all rights and claims it may
have in or to said lands, tenements and property as a Homestead Exemption, or
other exemption, under and by virtue of any act of the General Assembly of the
State of Montana, now existing or which may hereafter be passed in relation
thereto; and that the same are free and clear of all liens and encumbrances
whatever, except the lien of general taxes not yet due and payable and the
Permitted Encumbrances set forth on Exhibit A-3, and the above-bargained
Mortgaged Property in the quiet and peaceable possession of the said Trustee,
his successors and assigns against all and every person or persons lawfully
claiming or to claim the whole or any part thereof, the Grantor shall and will
warrant and forever defend.
IT IS FURTHER UNDERSTOOD AND AGREED THAT:
MAINTENANCE, REPAIR AND RESTORATION OF IMPROVEMENTS, PAYMENT OF PRIOR LIENS,
ETC.
1. Borrower shall pay each item of indebtedness secured by this Deed
of Trust when due according to the terms hereof or of the Note and shall (a)
promptly repair, restore or rebuild any buildings or improvements now or
hereafter on the Property which may become damaged or be destroyed subject to
casualty/condemnation clauses in this Deed of Trust; (b) keep the Property in
good
5
<PAGE>
condition and repair, without waste, and free from mechanics' liens or claims
for lien not expressly subordinated to the lien hereof; (c) pay when due any
indebtedness which may be secured by a lien or charge on the Property superior
to the lien hereof, and upon request exhibit satisfactory evidence of the
discharge of such prior lien to Lender; (d) pay when due all utility charges
which are incurred for the benefit of the Property or which may become a charge
or lien against the Property for energy, fuel, gas, electricity, water or sewer
services furnished to the Property and all other assessments or charges of a
similar nature, whether public or private, affecting the Property, or any
portion thereof, whether or not such assessments or charges are liens thereon;
(e) complete within a reasonable time, any building or buildings now or at any
time in process of erection upon the Property; (f) comply with all requirements
of law, municipal ordinances, or restrictions of record with respect to the
Property and the use thereof; (g) operate the Property as a first class assisted
living center; (h) make no material alterations to the Property or any of the
buildings, improvements, fixtures, apparatus, machinery and equipment now or
hereafter erected or located upon said Property, except as required by law or
municipal ordinance, without Lender's written consent; (i) suffer or permit no
change in the general nature of the occupancy of the Property, without Lender's
written consent; (j) initiate or acquiesce in no zoning reclassification without
Lender's written consent; (k) not make-any purchase or conditional sale, lease
or agreement under which title is reserved in the vendor of any such fixtures,
apparatus, machinery, equipment or personal property to be placed in or upon any
of the buildings or improvements on the Property; and (1) not voluntarily create
or otherwise permit to be created or filed against the Mortgaged Property, any
other Deed of Trust or any mortgage lien or other lien or liens or statements of
lien, inferior or superior to this Deed of Trust, without the prior written
consent of Lender. Upon the failure of the Grantor to perform or comply with
these covenants contained in this subsection (1) , or any part hereof, or upon
failure to cause the release of a mechanic's lien or the posting of a bond and
the obtaining of a certificate of release from the Clerk of the District Court
releasing such mechanic's lien within sixty (60) days after the recordation of a
statement of lien, the principal and all accrued interest shall, at the option
of the holder of the Note, become due and payable and this Deed of Trust shall
be subject to foreclosure as herein provided.
PAYMENT OF TAXES
2. Grantor shall pay before any penalty attaches all general taxes,
and shall pay special taxes, special assessments, water charges, sewer service
charges, and other charges against the Property when due and payable, and shall
furnish to Lender receipts evidencing payment of same within thirty (30) days
following their
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respective due dates. To prevent default hereunder, Grantor shall pay in full
under protest, or provide an indemnity bond or other security reasonably
satisfactory to Lender and in the manner provided by statute, as to any tax or
assessment which Grantor may desire to contest.
TAX DEPOSITS
3. Following an Event of Default, Grantor shall deposit monthly with
Lender or at such place as Lender may from time to time designate, a sum equal
to one-twelfth of the last total annual taxes on the Property (unless said taxes
were based upon assessments which excluded the current improvements or any
portions thereof, in which event the amount of such deposits shall be based upon
the Lender's reasonable estimate as to the total amount of taxes to be levied
and assessed). Borrower, concurrently with the payment of the first deposit
under this paragraph, will also deposit with Lender an amount based upon the
taxes and assessments so ascertainable or so estimated by the Lender, as the
case may be, for taxes and assessments on the Property, on an accrual basis for
the period from March 1, succeeding the year for which all taxes and assessments
have been paid, to and including the date of the first deposit in this paragraph
hereinabove mentioned. Such deposits are to be held without any allowance of
interest and are to be used for the payment of taxes and assessments (general
and special) on the Property next due and payable when they become due. If the
funds so deposited are insufficient to pay any such taxes and assessments
(general and special) for any year when the same shall become due and payable,
the Grantor shall, within ten (10) days after receipt of demand therefor,
deposit such additional funds as may be necessary to pay such taxes and
assessments (general and special) in full.
INSURANCE
4. Borrower shall keep all buildings and improvements now or
hereafter situated on the Property insured against loss or damage by fire,
lightning and risks customarily covered by standard extended coverage
endorsement. The insurance policies shall include a standard extended coverage
endorsement, a vandalism and malicious mischief endorsement or an all perils
endorsement, all in amounts not less than the full replacement costs of all
improvements including the cost of debris removal, but excluding foundations and
footings. Unless modified by Lender in writing, Borrower shall also provide:
Comprehensive General Public Liability Insurance in limits satisfactory to
Lender; if there are pressure fired vessels within the Property, Broad Form
Boiler and Machinery Insurance on all equipment and objects customarily covered
by such insurance and providing for full repair and replacement cost coverage;
Rent and Rental Value Insurance in the
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sum of (a) rental for a full year period, (b) real estate taxes, special
assessments and utility charges and (c) the premiums for all insurance required
to be paid whether by the Lessor or by the tenants under each lease of the
Property; during the making of any alterations or improvements to the Property,
(a) owner's contingent liability covering claims not covered by the general
comprehensive insurance referred to above, and (b) Worker's Compensation
Insurance covering all persons engaged in making such alterations or
improvements; if the Property is in a 'If flood plain area" as defined by the
Federal Insurance Administration pursuant to the Federal Flood Disaster
Protection Act of 1973, then Federal Flood Insurance in the maximum obtainable
amount up to the loan amount; and such other coverage as may reasonably be
required by Lender.
All policies for such insurance to be furnished hereunder shall be in
forms, companies and amounts satisfactory to Lender, with first mortgagee
clauses and loss payable clauses attached to all policies in favor of and in
form satisfactory to Lender, including a provision requiring that the coverage
evidenced thereby shall not be terminated or materially modified without ten
(10) days' prior written notice to the Lender and shall contain endorsements
that no act or negligence of the insured or any occupant, and no occupancy or
use of the property for purposes more hazardous than permitted by the terms of
the policy will affect the validity or enforceability of such insurance as
against Lender; shall be in full force and effect on the date hereof. Said
insurance policies shall be written in amounts sufficient to prevent Borrower
from becoming a co-insurer under the applicable policies. Borrower shall
deliver all said policies, including additional and renewal policies, to Lender,
and, in the case of insurance about to expire, shall deliver renewal policies
not less than ten (10) days prior to their respective dates of expiration.
INSURANCE DEPOSITS
5. Following an Event of Default, Grantor shall deposit monthly with
Lender or at such place as Lender may from time to time designate, sufficient
funds, as estimated by Lender in its sole discretion, to permit payment of
annual insurance premiums on the Property next due and payable when they become
due. Concurrently with the payment of the first deposit under this paragraph,
Borrower shall also deposit an amount equal to one-twelfth (1/12th) of the next
maturing annual insurance premiums for each month that has elapsed since the
last date to which such premiums were paid. Such deposits are to be held
without any allowance of interest and are to be used for the payment of
insurance premiums on the Property when they become due and payable. Grantor
shall, within ten (10) days after receipt of demand therefor, deposit such
additional funds as are necessary to
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make up any deficiencies in amounts necessary to pay such premiums when due.
LENDER'S INTEREST IN AND USE OF DEPOSITS
6. Following an Event of Default, the Lender may at its option,
without being required to do so, apply any moneys at the time on deposit
pursuant to paragraphs entitled "Tax Deposits" and "Insurance Deposits" hereof,
as any one or more of the same may be applicable, on any of Grantor's
obligations herein or in the Note contained, in such order and manner as Lender
may elect. When the indebtedness secured hereby has been fully paid, any
remaining deposits shall be paid to Borrower or to the then owner or owners of
the Property. Such deposits are hereby pledged as additional security for the
Note and shall be held in trust to be irrevocably applied for the purposes for
which made hereunder and shall not be subject to the direction or control of the
Grantor; provided, however, that neither the Lender nor said depositary shall be
liable for any failure to apply the deposits or any portion thereof to the
payment of taxes or insurance premiums unless Grantor shall have requested in
writing the application of such funds to the payment of the particular charge
for which they were deposited, accompanied by the bills for such charge.
In the event of a sale or foreclosure of this Deed of Trust or deed in
lieu of foreclosure or other transfer of title to the Property in
extinguishment, in whole or in part, of the indebtedness secured hereby, all
right, title and interest of Grantor in and to all policies of insurance on the
Property, including any right to unearned premiums, are hereby assigned to and
shall inure to the benefit of Lender or purchaser of the Property. Grantor
shall not take out separate insurance concurrent in form or contributing in the
event of loss with that required to be maintained hereunder unless Lender is
included thereon under a standard mortgage clause acceptable to Lender. Grantor
shall immediately notify Lender whenever any such separate insurance is taken
out and shall promptly deliver to Lender the policy or policies of such
insurance.
PAYMENT OF NOTE
7. Borrower shall promptly and punctually pay all principal and
interest, as the rate thereof may be adjusted as provided in the Note (together
with any legal, title insurance or other expenses incurred by Lender in
connection with such rate adjustment), prepayment charge, and all other sums to
become due in respect to the Note, according to the true intent and meaning
thereof. Borrower shall also pay to Lender, together with and in addition to
the monthly payments of principal and interest payable under the terms of the
Note secured hereby, on the date set forth
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therein for the making of monthly payments, until said Note is fully paid, a
sum, as estimated by Lender, equal to the ground rents under Ground Leases which
have not been subordinated to this Deed of Trust, if any.
ADJUSTMENT OF LOSSES WITH INSURER AND APPLICATION OF PROCEEDS OF INSURANCE
8. In case of loss which exceeds $100,000 as determined by Lender's
insurance consultant, the Lender, or after foreclosure, the holder of the
certificate or certificates of purchase, is hereby authorized either (a) to
settle and adjust any claim under such insurance policies with the consent of
Grantor not to be unreasonably withheld, or (b) to allow Grantor to agree with
the insurance company or companies on the amount to be paid upon the loss. In
either case, Lender is authorized to collect and receipt for any such insurance
money. Such insurance proceeds shall be held by the Lender and used to
reimburse Grantor for the cost of rebuilding or restoration of buildings or
improvements on the Property. Such proceeds shall be made available, from
time to time, upon the Lender 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 costs and of payments as the Lender 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. At all times, the undisbursed balance of said proceeds remaining in the
hands of the Lender shall be at least sufficient to pay for the cost of
completion of the work free and clear of liens, or Grantor shall have provided
Lender with reasonable evidence that it has arranged for sufficient funds to
pay the difference.
Notwithstanding the foregoing, in case of loss after foreclosure
proceedings have been instituted, or loss which occurs during the last three
months prior to the maturity date of the Note, Lender is authorized to collect
and receipt for any such insurance money. Said insurance proceeds may, at the
option of Lender, either be applied in reduction of the indebtedness secured
hereby in the inverse order of maturity, whether due or not, or be held by the
Lender and used to rebuild or restore the buildings or improvements located on
the Property and the balance, if any, shall be paid to the Borrower, or if
applicable, to the owner of the equity of redemption if he shall then be
entitled to the same. In case of a judicial foreclosure of this Deed of Trust,
the court in its decree may provide that the mortgagee's clause attached to each
of said insurance policies may be canceled and that the decree creditor may
cause a new loss clause to be attached to each of said policies making the loss
thereunder payable to said decree creditor; and any such foreclosure decree may
further provide that
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in case of one or more redemptions under said decree, pursuant to the statute in
such case made and provided, then and in every such case, each successive
redemptor may cause the preceding loss clause attached to each insurance policy
to be canceled and a new loss clause to be attached thereto, making the loss
thereunder payable to such redemptor. In the event of foreclosure sale, Lender
is hereby authorized, without the consent of Grantor, to assign any and all
insurance policies to the purchaser at the sale, or to take such other steps as
Lender may deem advisable, to cause the interest of such purchaser to be
protected by any of the said insurance policies.
In the case of a casualty which does not occur during the last three
months prior to the maturity date of the Note and which results in a loss which
is $100,000 or less as determined by Lender's insurance consultant, then the
Grantor is authorized to settle and adjust the claim under the insurance
policies, such proceeds may be paid directly to Grantor and Grantor covenants
and agrees to use such proceeds solely for the repair or restoration of
buildings and improvements on the Property.
OBSERVANCE OF LEASE ASSIGNMENT
9. In the event Borrower, as additional security for the payment of
the indebtedness described in and secured by this Deed of Trust, has sold,
transferred and assigned to Lender, its successors and assigns, any interest of
Borrower in any Lease or Leases demising all or a portion of the Property
together with the rents secured thereby, Borrower expressly covenants and agrees
that if Borrower, as Lessor under said Lease or Leases so assigned, fails to
faithfully perform and fulfill any term, covenant, condition or provision in
said Lease or Leases, or any of them, on its part to be performed or fulfilled,
at the times and in the manner in said Lease or Leases provided, resulting in or
making possible forfeiture or termination of any such Lease, without the written
consent of Lender, or if Borrower suffers or permits to occur any breach or
default under the provisions of any Assignment of Lessor's Interest in any Lease
or Leases of the Property given as additional security for the payment of the
indebtedness secured hereby, or if Borrower fails to fully protect, insure,
preserve and cause continued performance or fulfillment of the terms, covenants
or provisions in said Lease or Leases required to be performed or fulfilled by
the Lessee or any of the Lessees therein or if the Borrower, without Lender's
prior agreement, permits or approves an assignment by Lessee of said Lease or
Leases, upon becoming an Event of Default under such assignment, then in any
such event, at the option of Lender, or of the then holder of the Note secured
hereby, such breach or default shall constitute an Event of Default hereunder.
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In the event the Grantor, as the Lessor in said Lease or Leases, shall
neglect or refuse to perform, observe and keep all of the covenants, provisions
and agreements contained in said Lease or Leases, the Lender may, but shall not
be obligated to, perform and comply with any such Lease covenants, agreements
and provisions, in which event all costs and expenses incurred by Lender in
complying with such covenants, agreements and provisions, shall become a part of
the principal indebtedness secured by this Deed of Trust and recoverable as such
in all respects.
COVENANTS WITH RESPECT TO LEASE
10. Intentionally omitted.
EFFECT OF EXTENSIONS OF TIME
11. If the payment of the Note or any part thereof be extended or
varied or if any part of the security be released, all persons now or at any
time hereafter liable therefor, or interested in the Property, shall be held to
assent to such extension, variation or release, and their liability and the lien
and all provisions hereof shall continue in full force, the right of recourse
against all such persons being expressly reserved by the Lender, notwithstanding
such extension, variation or release.
EFFECT OF CHANGES IN LAWS REGARDING TAXATION
12. In the event of the enactment after this date of any law of the
United States or of the state in which the Property is located deducting from
the value of land for the purpose of the taxation of any lien thereon, or
imposing upon the Lender the payment of the whole or any part of the taxes or
assessments or charges or liens herein required to be paid by Grantor, or
changing the laws relating to the taxation of deeds of trust or mortgages or
debts secured by deeds of trust or mortgages or the Lender's interest in the
Property, or the manner of collection of taxes, so as to affect materially and
adversely this Deed of Trust or the Lender's interest in the Mortgaged Property,
or the debt secured hereby or the holder thereof, then, and in any event, the
Grantor, upon demand by the Lender, shall pay such taxes or assessments, or
reimburse the Lender therefor; provided, however, that if in the opinion of
counsel for the Lender (a) it might be unlawful to require Grantor to make such
payment or (b) the making of such payment might result in the imposition of
interest beyond the maximum amount permitted by law, then and in such event, the
Lender may elect, by notice in writing given to the Grantor, to declare all of
the indebtedness secured hereby to be and become due and payable sixty (60) days
from the giving of such notice. Notwithstanding the foregoing, it is understood
and agreed that Borrower shall not be obligated to pay any portion of Lender's
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federal, state, or municipal income tax or any franchise, estate, inheritance,
excess profits or similar tax levied on Lender or the obligations secured
hereby.
LENDER'S PERFORMANCE OF DEFAULTED ACTS
13. Lender may, but need not, make full or partial payments of
principal, interest and other charges due on prior' encumbrances, if any, and
purchase, discharge, compromise or settle any tax lien or other lien or title or
claim thereof; redeem from any tax sale or forfeiture affecting the Property or
contest any tax or assessment; pay any premium on insurance required to be
carried hereunder; or advance funds for the protection of the Property, or for
the purpose of curing any default hereunder. All moneys paid for any of the
purposes herein authorized and all expenses paid or incurred in connection
therewith, including reasonable attorneys' fees, and any other moneys advanced
by Lender to protect the Property and the lien hereof, shall be so much
additional indebtedness secured hereby, and shall become immediately due and
payable without notice and with interest thereon at the Default Rate, as more
particularly defined in the Note. Inaction of Lender shall never be considered
as a waiver of any right accruing to it on account of any default on the part of
Grantor.
LENDER'S RELIANCE ON TAX BILLS, ETC.
14. Lender in making any payment hereby authorized: (a) relating to
taxes and assessments, may do so according to any bill, statement or estimate
procured from the appropriate public office without inquiry into the accuracy of
such bill, statement or estimate or into the validity of any tax, assessment,
lien or title or claim thereof; or (b) for the purchase, discharge, compromise
or settlement of any other prior lien, may do so only upon reasonable inquiry as
to the validity, priority, or amount of any claim for lien which may be asserted
and following 10 days' prior notice to Grantor.
ACCELERATION OF INDEBTEDNESS IN CASE OF DEFAULT
15. The occurrence of any of the following shall constitute an Event
of Default: (a) Grantor shall fail to pay the Note when due, or any installment
due in accordance with the terms thereof, either of principal or interest or any
other monetary obligations due and owing under this Deed of Trust or any other
document securing the Note and such monetary default is not cured within 10 days
after notice thereof; or (b) Grantor shall sell, transfer or convey all or any
part of the Mortgaged Property or any interest therein (except the sale of
inventory in the ordinary course of business) without complying with the
provisions of the section entitled "Sale of Property or Change in Borrower
Entity;"
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in the case of real estate, or without complying with subsection (5) below in
the case of other personal property except as further limited by Grantor's
reserved rights in Section 41; or (c) any nonmonetary default shall be made in
the due observance or performance of any other covenants, agreements or
conditions hereinbefore or hereinafter contained, required to be kept or
performed or observed by the Grantor, and if curable, not cured by Grantor
within the specific cure period, if any, stated herein, or if none shall remain
uncured for a period of fifteen (15) days after the date of written notice
thereof from Lender to Grantor. In the event that such failure, refusal or
neglect, is susceptible of cure but is not cured within said fifteen (15) days,
so long as Grantor is diligently and continuously pursuing such cure, Lender
shall permit Grantor an additional thirty (30) days to effectuate such cure;
provided, that prior to Completion of Improvements, such additional thirty (30)
days shall not apply where such failure, refusal or neglect results, in Lender's
reasonable determination, in a matter which is of an emergency nature.
Upon the occurrence of an Event of Default, the whole of said
principal sum hereby secured shall, at once, at the option of the Lender, become
immediately due and payable, together with accrued interest thereon. In
addition to the aforedescribed events of default, the term "Event of Default"
shall also mean any one or more of the following events:
(1) The Borrower or any guarantor of the Borrower's obligations
hereunder shall generally not pay its debts as they become due or shall admit in
writing its inability to pay its debts, or shall make a general assignment for
the benefit of creditors; or
(2) The Borrower or any such guarantor shall commence any case,
proceeding or other action seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property; or
(3) The Borrower or any such guarantor shall take any action to
authorize any of the actions set forth above in paragraphs (1) or (2); or
(4) A third party shall bring any case, proceeding or other
action against the Borrower or any guarantor of the Borrower's obligations
hereunder, seeking to have an order for relief entered against it as debtor, or
seeking reorganization, arrangement, adjustment, liquidation, dissolution or
composition of
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<PAGE>
it or its debts under any law relating to bankruptcy, insolvency, reorganization
or relief of debtors, or seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
property, and such case, proceeding or other action (i) results in the entry of
an order for relief against it which is not fully stayed within 14 business days
after the entry thereof or (ii) remains undismissed for a period of 60 days
after its commencement.
(5) Grantor shall sell, lease, convey or in any manner transfer
any of the personal property which is part of the Mortgaged Property without
replacing the property with new or substantially the same property.
SALE OF PROPERTY OR CHANGE IN BORROW
16. As an inducement to Lender to make the loan evidenced by the Note
which this Deed of Trust secures, Borrower covenants and agrees that during the
term of the loan, title to the Borrower's interest in the Property shall be
vested solely in Borrower. If at any time during the term all or any part of
the Borrower's interest in said real estate or any interest therein (except
residential occupancy agreements in the ordinary course of business on forms
approved by Lender or Leases of less than 10% of the total rentable floor area
of the improvements), without the prior written consent of Lender, shall be
conveyed or transferred or is further encumbered (whether voluntary or by
operation of law or otherwise), the indebtedness secured hereby shall, at the
option of Lender, become immediately due and payable.
If Borrower or its permitted successor is a partnership, a change in a
general partner shall be considered a change of ownership for purposes of this
paragraph. If Borrower or its permitted successor is a corporation, a change in
the aggregate stock ownership affecting more that 50% of the ownership interest
shall be considered a change of ownership for purposes of this paragraph. If
Borrower or its permitted successor is a limited liability company, a change in
manager or change in the aggregate membership affecting more than 50% of the
ownership interest shall be considered a change in ownership for purposes of
this paragraph. Notwithstanding the foregoing, Borrower may convey all, of the
Mortgaged Property to a successor entity or assignee in which Emeritus
Corporation and/or Daniel R. Baty hold more than 50% of the total ownership
interest ("Permitted Assignee") and so long as the Permitted Assignee agrees to
assume the Note and obligations hereunder.
Lender agrees not to withhold its consent to a change in ownership if the
new owner or owners have a satisfactory credit standing and qualified management
ability to operate the Property
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<PAGE>
in Lender's sole judgment as a prudent lender. Notwithstanding the foregoing,
Lender may withhold consent to a change in ownership if the principals (or
beneficiaries) of such new owner are undisclosed or unavailable for service of
process within the United States. Borrower shall give Lender 30 days' prior
written notice of any proposed transaction which requires Lender's consent and
shall furnish to Lender such information as Lender may reasonably require.
Consent to any one transaction shall not be deemed to be consent to any other.
Upon a sale, conveyance or transfer of the Property requiring Lender's
consent, Lender may: (a) charge Borrower a fee for processing a request for
approval, (b) require the payment of reasonable attorneys' fees in connection
with such transfer, (c) require the express assumption of payment of the Note
and performance of the obligations by the new owner or owners without the
release of Grantor from liability for such Note and obligations), (d) require
the execution of Assumption Agreements, Modification Agreements, Supplemental
Security Documents and Financing Statements satisfactory in form and substance
to Lender, and (e) require endorsements (to the extent available under
applicable law) to any existing mortgage title insurance policies insuring
Lender's liens and security interests covering the Property.
FORECLOSURE; EXPENSE OF LITIGATION
17. Upon an Event of Default, Lender shall have the right to
foreclose the lien hereof. If foreclosure be made by the Trustee, a reasonable
attorneys' fee for services in the supervision of said foreclosure proceedings
shall be allowed by the Trustee as part of the foreclosure costs. If
foreclosure be made through the Court, a reasonable attorneys' fee shall be
allowed as part of the foreclosure costs. In the event of foreclosure of the
lien hereof, whether through the Trustee or through the Court, there shall be
allowed and included as additional indebtedness all reasonable expenditures and
expenses which may be paid or incurred by or on behalf of Lender for attorneys'
fees, appraisers' fees, outlays for documentary and expert evidence,
stenographers' charges, publication costs, and costs (which may be estimated as
to items to be expended after foreclosure sale or entry of the decree) of
procuring all such abstracts of title, title searches and examinations, title
insurance policies, and similar data and assurances with respect to title as
Lender may deem reasonably necessary either to prosecute such suit or to
evidence to bidders at any sale which may be had pursuant to such decree the
true condition of the title to or the value of the Property. All expenditures
and expenses of the nature in this paragraph mentioned, and such expenses and
fees as may be incurred in the protection of the Mortgaged Property, and the
maintenance of the
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lien of this Deed of Trust, and charges permitted by law, including the
reasonable fees of any attorney employed by Lender in any litigation or
proceeding affecting this Deed of Trust, the Note or the Mortgaged Property,
including probate, bankruptcy proceedings, proceedings to obtain a receiver, or
in preparation for the commencement or defense of any proceeding or threatened
suit or proceeding, shall be immediately due and payable by Borrower, with
interest thereon at the Default Rate, as more particularly defined in the Note
and shall be secured by this Deed of Trust.
HAZARDOUS WASTE
18. Grantor shall keep and maintain the Property in compliance with,
and shall not cause or permit the Property to be in violation of any federal,
state or local laws, ordinances, or regulations relating to industrial hygiene
or to the environmental conditions on, under or about the Property including,
but not limited to, soil and ground water conditions. Grantor shall not use,
generate, manufacture, store or dispose of on, under or about the Property or
transport to or from the Property any flammable explosives, radioactive
materials, hazardous wastes, toxic substances or related materials, including,
without limitation, any substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," or "toxic substances" under any
applicable federal or state laws or regulations, excepting from the term
Hazardous Substance materials and/or substances used in the normal course of
business provided said materials an/or substances are kept in approved
containers, at or within approved locations, and in accordance with all
applicable laws, rules and regulations and, if applicable, that all appropriate
licenses are obtained. (collectively referred to hereinafter as "Hazardous
Materials").
Grantor shall immediately advise Lender in writing of (i) any and all
enforcement, cleanup, removal or other governmental or regulatory actions
instituted, completed or threatened pursuant to any applicable federal, state or
local laws, ordinances, or regulations relating to any Hazardous Materials
affecting the Property ("Hazardous Materials Laws") ; (ii) all claims made or
threatened by any third party against Grantor or the Property relating to
damage, contribution, cost recovery compensation, loss or injury resulting from
any Hazardous Materials (the matters set forth in clauses (i) and (ii) above
are hereinafter referred to as "Hazardous Materials Claims"); and (iii)
Grantor's discovery of any occurrence or condition on any real property
adjoining or in the vicinity of the Property that would cause the Property to be
subject to any restrictions on the ownership, occupancy, transferability or use
of the Property under any Hazardous Materials Laws.
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Lender shall have the right to join and participate in, as a party if
it so elects, any legal proceedings or actions initiated in connection with any
Hazardous Materials Claims and to have its reasonable attorneys' fees in
connection therewith paid by Grantor. Grantor shall be solely responsible for,
and shall indemnify and hold harmless Lender, its directors, officers,
employees, agents, successors and assigns (the "Indemnified Parties") from and
against, any loss, damage, cost, expense or liability directly or indirectly
arising out of or attributable to the use, generation, storage, release,
threatened release, discharge, disposal, or presence of Hazardous Materials on,
under or about the Property, including, without limitation: (a) all foreseeable
consequential damages; (b) the costs of any required or necessary repair,
cleanup or detoxification of the Property; and the preparation and
implementation of any closure, remedial or other required plans; and (c) all
reasonable costs and expenses incurred by Lender in connection with clauses (a)
and (b), including but not limited to reasonable attorneys' fees; but not
including (a) - (c) to the extent arising out of the negligence or willful
misconduct of the Indemnified Parties.
Without Lender's prior written consent, which shall not be
unreasonably withheld, Grantor shall not take any remedial action in response to
the presence of any Hazardous Materials on, under, or about the Property, nor
enter into any settlement agreement, consent decree, or other compromise in
respect to any Hazardous Material Claims, which remedial action, settlement,
consent or compromise might, in Lender's reasonable judgment, impair the value
of the Lender's security hereunder; provided, however, that Lender's prior
consent shall not be necessary in the event that the presence of Hazardous
Materials on, under, or about the Property either poses an immediate threat to
the health, safety or welfare of any individual or is of such a nature that an
immediate remedial response is necessary and it is not possible to obtain
Lender's consent before taking such action, provided that in such event Grantor
shall notify Lender as soon as practicable of any action so taken. Lender
agrees not to withhold its consent, where such consent is required hereunder, if
either (i) a particular remedial action is ordered by a court of competent
jurisdiction, or (ii) Grantor establishes to the reasonable satisfaction of
Lender that there is no reasonable alternative to such remedial action which
would result in less impairment of Lender's security hereunder.
APPOINTMENT OF RECEIVER
19. In addition to any other rights and powers conferred on the
Lender hereunder, upon an Event of Default Lender shall have the right to apply
for the appointment of a receiver of rents and profits of any part or the whole
of the above Property, EX PARTE
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and without notice, and the Lender shall be entitled, as a matter of right,
without regard to the value of the Property as security for the amount due or to
the solvency of the Borrower or any other party or parties liable for the
payment of such amount, to the appointment of such a receiver of rents and
profits with power to lease the Property, or such part thereof as may not then
be under lease, and with such other powers as may be deemed necessary, who,
after deducting all proper charges and expenses attending the execution of his
trust as receiver, including the fees of the receiver, and attorney's fees of
the receiver's attorney, shall apply the residue of the said rents and profits
to the payment and satisfaction of the amount remaining secured hereby, or to
any deficiency which may exist after applying the proceeds of the sale of said
Property to the payment of the amount due, including interest and the costs of
any reasonable attorneys' fees for the foreclosure and sale in such order of
priority as Lender shall elect.
ASSIGNMENT OF RENTS AND LEASES
20. To further secure the indebtedness secured hereby, Grantor does
hereby sell, assign and transfer unto the Lender all rents, issues and profits
now due and which may hereafter become due under or by virtue of any lease,
whether written or verbal, or any letting of, or of any agreement for the use or
occupancy of the Mortgaged Property or any part thereof, and all benefits and
advantages to be derived therefrom, which may have been heretofore or may be
hereafter made or agreed to or which may be made or agreed to by the Lender
under the powers herein granted, it being the intention hereby to establish an
absolute transfer and assignment of all such avails, rents, issues and profits
unto the Lender, and the Grantor does hereby appoint irrevocably the Lender its
true and lawful attorney in its name and stead (with or without taking
possession of the Property as provided in the paragraph entitled "Lender's Right
of Possession In Case of Default") following an Event of Default to rent, lease
or let all or any portion of the Mortgaged Property to any party or parties at
such rental and upon such terms as said Lender shall, in its discretion,
determine, and to collect all of said avails, rents, issues and profits arising
from or accruing at any time hereafter, and all now due or that may hereafter
become due under each and every of the leases and agreements, written or verbal,
or other tenancy agreements existing, or which may hereafter exist on the
Mortgaged Property, with the same rights and powers and subject to the same
immunities, exoneration of liability and rights of recourse and indemnity as the
Lender would have upon taking possession pursuant to the provisions of the
paragraph entitled "Lender's Right of Possession In Case of Default" hereof.
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Grantor represents and agrees that no rent has been or will be paid by
any person in possession of any portion of the Property for more than one
installment in advance, and that the payment of none of the rents to accrue for
any portion of the Property has been or will be waived, released, reduced,
discounted or otherwise discharged or compromised by the Grantor. The Grantor
waives any rights of setoff against any person in possession of any portion of
the Mortgaged Property. If any lease provides for the abatement of the rent
during repair of the Property demised thereunder by reason of fire or other
casualty, the Grantor shall furnish to the Lender rental insurance, the policies
to be in amount and form and written by such insurance companies as shall be
satisfactory to the Lender. Grantor agrees that it will not assign any of the
rents or profits of the Mortgaged Property, except to a purchaser or grantee of
the Mortgaged Property, and then only upon condition that said grantee agrees,
in writing, to assume and pay the debt secured hereby.
Nothing herein contained shall be construed as constituting the Lender
a mortgagee in possession in the absence of the taking of actual possession of
the Mortgaged Property by the Lender. In the exercise of the powers herein
granted to the Lender, no liability shall be asserted or enforced against the
Lender, all such liability being expressly waived and released by Grantor.
The Grantor further agrees to further assign and transfer to the
Lender all future leases upon all or any part of the Mortgaged Property and to
execute and deliver, at the request of the Lender, all such further assurances
and assignments in the Mortgaged Property as, the Lender shall from time to time
require.
Although it is the intention of the parties that the assignment
contained in this paragraph entitled "Assignment of Rents and Leases" shall be a
present assignment, it is expressly understood and agreed, anything herein
contained to the contrary notwithstanding, that the Lender shall not exercise
any of the rights or powers conferred upon it by this paragraph until and unless
an Event of Default occurs. Until an Event of Default occurs, Lender grants to
Grantor a revocable license to collect rental and occupancy charges.
LENDER'S RIGHT OF POSSESSION IN CASE OF DEFAULT
21. In any case in which under the provision of this Deed of Trust,
the Lender has a right to institute foreclosure proceedings, whether before or
after the whole principal sum secured hereby is declared to be immediately due
as aforesaid, or whether before or after the institution of legal proceedings to
foreclose the lien hereof or before or after sale thereunder,
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forthwith upon demand of Lender, Grantor shall surrender to Lender and Lender
shall be entitled to take actual possession of the Property or any part thereof
personally, or by its agents or attorneys, as for condition broken, and Lender
in its discretion may, with or without force and with or without process of law,
enter upon and take and maintain possession of all or any part of the Mortgaged
Property, together with all documents, books, records, papers and accounts of
the Grantor or then owners of the Mortgaged Property relating thereto, and may
exclude the Grantor, its agents or servants, wholly therefrom and may, as
attorney-in-fact or agent of the Grantor, or in its own name as Lender and under
the powers herein granted, hold, operate, manage and control the Mortgaged
Property and conduct the business, if any, thereof, either personally or by its
agents, and with full power to use such measures, legal or equitable, as in its
discretion or in the discretion of its successors or assigns may be deemed
proper or necessary to enforce the payment or security of the avails, rents,
issues, and profits of the Mortgaged Property, including actions for the
recovery of rent, actions in forcible detainer and actions in distress for rent,
hereby granting full power and authority to exercise each and every of the
rights, privileges and powers herein granted at any and all times hereafter,
without notice to the Grantor, and with full power to cancel or terminate any
lease or sublease for any cause or on any ground which would entitle Grantor to
cancel the same, to elect to disaffirm any lease or sublease made subsequent to
this mortgage or subordinated to the lien hereof, to make all necessary or
proper repairs, betterments and improvements to the Mortgaged Property as to it
may seem judicious, insure and reinsure the same and all risks incidental to
Lender's possession, operation and management thereof and to receive all of such
avails, rents, issues and profits.
The Lender shall not be obligated to perform or discharge, nor does it
hereby undertake to perform or discharge, any obligation, duty or liability
under any leases, and the Grantor shall and does hereby agree to indemnify and
hold the Lender harmless of and from any and all liability, loss or damage which
it may or might incur under said leases or under or by reason of the assignment
thereof and of and from any and all claims and demands whatsoever which may be
asserted against it by reason of any alleged obligations or undertakings on its
part to perform or discharge any of the terms, covenants or agreements contained
in said leases. Should the Lender incur any such liability, loss or damage,
under said leases or under or by reason of the assignment thereof, or in the
defense of any claims or demands (except claims arising out of Lender's
negligence or willful misconduct), the amount thereof, including costs, expenses
and reasonable attorneys' fees shall be secured hereby, and the Borrower shall
reimburse the Lender therefor immediately upon demand.
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APPLICATION OF INCOME RECEIVED BY LENDER
22. The Lender in the exercise of the rights and powers hereinabove
conferred upon it by the paragraphs entitled "Assignment of Rents and Leases"
and "Lender's Right of Possession in Case of Default" hereof shall have full
power to use and apply the avails, rents, issues and profits of the Mortgaged
Property to the payment of or on account of the following, in such order as
Lender may determine:
(a) To the payment of the operating expenses of the Mortgaged
Property, including cost of management and leasing thereof (which shall include
reasonable compensation to the Lender and its agent or agents, if management be
delegated to an agent or agents, and shall also include lease commissions and
other compensation and expenses of seeking and procuring tenants and entering
into leases), established claims for damages, if any, and premiums on insurance
hereinabove authorized;
(b) To the payment of taxes, special assessments or insurance
premiums now due or which may hereafter become due on the Mortgaged Property;
(c) To the payment of all repairs, decorating, renewals,
replacements, alterations, additions, betterments, and improvements reasonably
necessary for the continued operation of the Mortgaged Property;
(d) To the payment of any indebtedness secured hereby or any
deficiency which may result from any foreclosure sale.
LENDER'S RIGHT OF INSPECTION
23. Lender or its duly appointed agent shall have the right to
inspect the Mortgaged Property at all reasonable times and access thereto shall
be permitted for that purpose.
SECURITY DEPOSITS
24. If any security deposit or advance payments received from tenants
in lieu of security deposits are received by Borrower, said security deposits
shall be kept and maintained in a separate bank account and upon request of
Borrower by Lender, Borrower shall verify the bank account and bank number and
sign such documentation as may reasonably be required by Lender in order to
obtain confirmation of the bank account. Upon Lender's request, Lender shall be
named on the bank account and no funds shall be withdrawn therefrom without the
prior written consent of the Lender, except payment of security deposits to
tenants entitled thereto. Failure
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to comply with the provisions herein shall be deemed an Event of Default
hereunder.
CONDEMNATION
25. Grantor hereby assigns, transfers and sets over unto Lender the
entire proceeds of any award or any claim for damages for any of the Mortgaged
Property taken or damaged under the power of eminent domain or by condemnation.
If the payment of award proceeds occurs during the last three months prior to
the maturity date of the Note, then Lender may elect to apply the proceeds of
the award upon or in reduction of the indebtedness secured hereby, whether due
or not, or to require Grantor to restore or rebuild, in which event the proceeds
shall be held by Lender and used to reimburse Grantor for the cost of rebuilding
or restoring of buildings or improvements on the Property, in accordance with
plans and specifications to be submitted to and approved by Lender. If the
award proceeds exceed $100,000 and are paid prior to the last three months of
the term of the Note, then the proceeds shall be held by Lender and used to
reimburse Grantor for the cost of rebuilding or restoring buildings and
improvements on the Property. In the even that the award proceeds are $100,000
or less and are not paid during the last three months prior to the maturity date
of the Note, then such proceeds may be paid directly to Grantor, and Grantor
covenants and agrees to use such proceeds solely for the restoration and
replacement of buildings and improvements on the Property.
If the Grantor is obligated to restore or replace the damaged or
destroyed building or improvements under the terms of any lease or leases which
are or may be prior to the lien of this Deed of Trust and if such taking does
not result in cancellation or termination of such lease, the award shall be used
to reimburse Grantor for the cost of the rebuilding or restoring of buildings or
improvements on the Property, provided Grantor has not been in default under
this Deed of Trust. In the event Grantor is required or authorized, either by
Lender's election as aforesaid or by virtue of any such lease, to rebuild or
restore, the proceeds of the award shall be paid out in the same manner as is
provided in the paragraph entitled "Adjustment of Losses With Insurer and
Application of Proceeds of Insurance" hereof for the payment of insurance
proceeds toward the cost of rebuilding or restoration. If the amount of such
award is insufficient to cover the cost of rebuilding or restoration, Grantor
shall pay such cost in excess of the award, before being entitled to
reimbursement out of the award. Any surplus which may remain out of said award
after payment of such cost of rebuilding or restoration shall, at the option of
Lender, be applied on account of the indebtedness secured hereby.
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GIVING NOTICE
26. Any notice which Grantor or Lender may desire or be required to
give to the other party shall be in writing, and the mailing thereof by
certified mail addressed to the Grantor or to the Lender at the address stated
above, or at such place as either party hereto may by notice in writing
designate as a place for service of notice, shall constitute service of notice
hereunder and shall be deemed delivered three business days after its deposit in
the United States mail, postage prepaid or one business day after its deposit
with a national overnight air courier, prepaid.
WAIVER OF RIGHTS
27. As to any action brought by Lender prior to any foreclosure sale
by the Trustee held pursuant to this Deed of Trust, Grantor hereby waives the
right to any notice and to any hearing other than as provided herein and by the
statutes and rules of Civil Procedure of the State of Montana now in existence.
Grantor shall not and will not apply for nor avail itself of any appraisement,
valuation, stay, extension or exemption laws, or any so-called "Moratorium
Laws", now existing or hereafter enacted, in order to prevent or hinder the
enforcement or foreclosure of this mortgage, and hereby waives the benefit of
such laws. Grantor for itself and for all who may claim through or under it
waives (a) the right to trial by jury on any issues between Grantor and Lender
and to any issues pertaining to the Note, this Deed of Trust or any other
document securing the Note and as to matters pertaining to the acts of the
Holder of the Note prior to the date hereof; and (b) any and all right to have
the property and estates comprising the Mortgaged Property marshalled upon any
foreclosure of the lien hereof and agrees that any court having jurisdiction to
foreclose such lien may order the property sold as an entirety.
MANAGEMENT
28. So long as any part of the Note secured hereby remains unpaid,
the Grantor will provide and maintain good and efficient management of the
Mortgaged Property satisfactory to Lender.
FINANCIAL STATEMENTS
29. Borrower covenants and agrees to furnish Lender, within one
hundred twenty (120) days after the close of each fiscal year of Borrower, an
annual operating statement setting forth in such detail as Lender may reasonably
require, the income and expenses derived from and attributable to the Mortgaged
Property during the preceding year, certified by Borrower.
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APPROVAL OF CONSTRUCTION PLANS FOR PROPERTY AND CONTIGUOUS LAND
30. Grantor covenants and agrees that there shall be no construction
on the Property or on any adjoining land at any time owned or controlled by the
Borrower, or any related business entities, unless complete plans and
specifications for same shall have first been approved by the Lender as, in its
judgment, entailing no prejudice to the loan secured hereby.
PARKING REQUIREMENTS
31. Grantor covenants and agrees to maintain at all times sufficient
parking spaces to comply with the parking requirements of all tenant leases,
zoning and other regulations affecting the Property.
SECURITY AGREEMENT AND FINANCING STATEMENT UNDER UNIFORM COMMERCIAL CODE
32. To the extent any property covered by this Deed of Trust consists
of rights in action or personal property covered by the Uniform Commercial Code,
this Deed of Trust constitutes a security agreement and financing statement as
defined in the Montana Uniform Commercial Code. Grantor hereby grants to Lender
a security interest in all of the collateral described in this Deed of Trust.
This Deed of Trust shall be self-operative with respect to such property, but
Grantor agrees to execute and deliver on demand a security agreement, financing
statement or other instrument as Lender may request to impose the lien hereof
more specifically upon any of such property and to pay the recording and/or
filing fees associated therewith. The remedies for any violation of the
covenants, terms and conditions of the agreements herein contained shall be (i)
as prescribed herein, or (ii) by general law, or (iii) as to such part of the
security which is covered by the Uniform Commercial Code by the specific
statutory consequences now or hereafter enacted and specified in said Uniform
Commercial Code, all at Lender's sole election. Grantor and Lender agree that
nothing herein contained shall be construed as in anywise derogating from or
impairing this declaration and hereby stated intention of the parties hereto,
that everything used in connection with the production of income from the
Property and/or adapted for the use therein and/or which is described or
reflected in this Deed of Trust is, and at all times and for all purposes and in
all proceedings, both legal or equitable, shall be regarded as part of the real
estate irrespective of whether (i) any such item is physically attached to the
improvements, (ii) serial numbers are used for the better identification of
certain equipment items capable of being thus identified in a recital contained
therein or in any list filed with the Lender, (iii) any such item is referred to
or reflected in any Financing Statement filed at any time.
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Similarly, the mention in any Financing Statement of (1) the rights in or the
proceeds of any fire and/or hazard insurance policy, or (2) any award in eminent
domain proceedings for a taking or for loss of value, or (3) the Grantor's
interest as lessor in any present or future lease or rights to income growing
out of the use and/or occupancy of the Property, whether pursuant to lease or
otherwise shall never be construed as in anywise altering any of the rights of
Lender as determined by this instrument or impugning the priority of Lender's
lien granted hereby or by any other recorded document, but such mention in said
Financing Statement is declared to be for the protection of Lender in the event
any Court shall at any time hold with respect to (1), (2) and (3) that notice of
Lender's priority of interest to be effective against a particular class of
person, including, but not limited to, the Federal Government, must be filed in
the Commercial Code Records. For purposes of treating this Deed of Trust as a
security agreement and financing statement, Lender shall be deemed to be the
Secured Party and Grantor shall be deemed to be the Debtor.
THIS IS A CONSTRUCTION MORTGAGE UNDER THE UNIFORM COMMERCIAL CODE,
GIVEN TO SECURE AN OBLIGATION INCURRED FOR THE CONSTRUCTION OF AN IMPROVEMENT OF
LAND, INCLUDING THE ACQUISITION COST OF THE LAND.
GOVERNING LAW
33. This Deed of Trust has been executed and delivered in the State
of Montana and is to be construed and enforced according to and governed by the
Laws of the State of Montana.
DISBURSEMENT OF LOAN PROCEEDS FOR CONSTRUCTION OF IMPROVEMENTS
34. The proceeds of the loan secured hereby are to be disbursed by
Lender to Borrower in accordance with the provisions contained in the
Construction Loan Agreement. The Construction Loan Agreement is fully
incorporated in this Deed of Trust by reference. The occurrence of any Event of
Default under said Construction Loan Agreement shall constitute a default under
this Deed of Trust entitling Lender to all of the rights and remedies conferred
upon the Lender by the terms of this Deed of Trust as in the case of any other
Event of Default. If, following an Event of Default, Lender completes the
construction of improvements, then all moneys so expended shall be so much
additional indebtedness secured by this Deed of Trust, and any moneys expended
in excess of the face amount of the Note shall be payable on demand, with
interest thereon at the Default Rate, as more particularly described in the Note
secured hereby.
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BINDING ON SUCCESSORS AND ASSIGNS
35. This Deed of Trust and all provisions hereof, shall extend to and
be binding upon Grantor and/or the Borrower and all persons claiming under or
through Grantor or Borrower, and the words "Grantor" or "Borrower" when used
herein shall include all such persons and all persons liable for the payment of
the indebtedness or any part thereof, whether or not such persons shall have
executed the Note or this Deed of Trust. The word "Lender" when used herein
shall include the successors and assigns of the Lender named herein, and the
holder or holders, from time to time, of the Note secured hereby.
CAPTIONS
36. The captions and headings of various paragraphs of this mortgage
are for convenience only and are not to be construed as defining or limiting, in
any way, the scope or intent of the provisions hereof.
REMEDIES CUMULATIVE.
37. No remedy herein conferred upon or reserved to the Trustee or
Beneficiary is intended to be exclusive of any other remedy provided hereby or
by law or provided or allowed by the Promissory Note or any other loan
agreements, but each shall be cumulative and shall be in addition to every other
remedy given hereunder or existing at law or in equity. Every power or remedy
given by this Deed of Trust to Trustee or Beneficiary, or to which either of
them may be otherwise entitled, may be exercised from time to time and as often
as may be deemed expedient by Trustee or Beneficiary.
RELEASES, EXTENSION, RECONVEYANCES; TRUSTEE FEES.
38. Without affecting the liability of any person, including Grantor,
for the payment of any indebtedness secured hereby or the lien of this Deed of
Trust on the remainder of the Mortgaged Property for the full amount of any
indebtedness unpaid, Beneficiary and Trustee are respectively empowered as
follows:
Beneficiary may from time to time and without notice:
(a) Release any person liable for payment of any of the
indebtedness;
(b) Extend the time or otherwise alter the terms of payment of
any of the indebtedness; or
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(c) alter, substitute or release any property securing the
indebtedness.
Trustee may at any time and from time to time, upon the written
request of Beneficiary:
(a) consent to the making of any map or plat of the Property;
(b) Join in granting any easement or creating any restriction
thereon;
(c) Join in any subordination or other agreement affecting this
Deed of Trust or lien or charge thereof; or
(d) Reconvey, without warranty, all or any part of the Mortgaged
Property.
Trustee shall be entitled to reasonable compensation for all services
rendered or expenses incurred in the administration or execution of the trust
hereby created, and Grantor hereby agrees to pay same.
SEVERABILITY.
39. If any of the provisions hereof shall be determined to contravene
or be invalid under the laws of the State of Montana, such contravention or
invalidity shall not invalidate any other provisions of this Deed of Trust, but
it shall be construed as if not containing the particular provision or
provisions held to be invalid, and all rights and obligations of the parties
shall be construed and enforced accordingly.
SPECIAL PROVISIONS CONCERNING PERSONAL PROPERTY.
40. Notwithstanding any terms of this Deed of Trust to the contrary,
Grantor reserves the right to lease, finance, substitute and replace personal
property and to sell inventory in the ordinary course of business without
consent from Lender. In addition, Grantor may permit its personal property to
be subject to equipment financing and security interests in connection
therewith. None of Grantor's reserved rights described in this Section 41 shall
constitute an Event of Default.
IN WITNESS WHEREOF, the Grantor has caused these presents to be executed
the day and year first above written.
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EMERITUS PROPERTIES II, INC.
By: /s/ Raymond R. Brandstrom
-------------------------
Title: President
-------------------------
STATE OF Washington)
)ss.
COUNTY OF King )
The foregoing instrument was acknowledged before me this 30th day of May,
1996, by Raymond R. Brandstrom as President of Emeritus Properties II, Inc.,
Debtor.
Witness my hand and official seal.
[SEAL]
My commission expires: 11-20-98.
/s/ Sarah Deines
--------------------------
Notary Public
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GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT is made effective as of the 30th day of May, 1996,
by the undersigned (hereinafter referred to collectively as "Guarantor", whether
one or more) in favor of RMI CAPITAL MANAGEMENT CO., whose address is 3773
Cherry Creek North Drive, Suite 640, Denver, Colorado 80209 ("Lender").
WITNESSETH :
1. GUARANTEED INDEBTEDNESS. FOR VALUE RECEIVED, Guarantor
unconditionally and absolutely guarantees, jointly and severally with any and
all other Guarantors executing this Guaranty or a counterpart hereof either now
or in the future, to Lender the prompt and full payment, performance and
observance, when due, of all debts, obligations and liabilities of Emeritus
Properties II, Inc. ("Borrower"), to Lender, payable under or with respect to
(i) that certain Promissory Note dated of even date herewith (the "Note"), in
the original principal sum of $4,695,00.00, executed by Borrower and payable
to the order of Lender, together with all renewals, extensions and
modifications thereof; (ii) all other documents now or hereafter securing
performance of the obligations of Borrower under the Note; and (iii) attorneys
fees and costs as described below. All indebtedness, obligations and
liabilities hereinabove described and covered by this Guaranty, or intended
so to be, are hereinafter sometimes collectively referred to as the
"Guaranteed Indebtedness." If Guarantor is or becomes liable for any
indebtedness owing by Borrower to Lender by endorsement or otherwise than
under this Guaranty, such liability shall not be in any manner impaired or
affected hereby, and the rights of Lender hereunder shall be cumulative of any
and all other rights that Lender may ever have against Guarantor. The exercise
by Lender of any right or remedy hereunder or under any other instrument, or
at law or in equity, shall not preclude the concurrent or subsequent exercise
of any other right or remedy. Without in any way diminishing the generality
of the foregoing, it is specifically understood and agreed that this Guaranty
is given by Guarantor as an additional guaranty to any and all other guarantees
heretofore or hereafter executed and delivered to Lender by Guarantor (or any
of them) in favor of Lender relating to indebtedness of Borrower to Lender, and
nothing herein shall ever be deemed to replace or be in lieu of any other of
such previous or subsequent guarantees.
2. CONSIDERATION. Guarantor acknowledges and warrants that it
derived or expects to derive financial and other advantage and benefit, directly
or indirectly, from the Guaranteed Indebtedness and each and every advance
thereof and from each and
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every renewal or extension. Any debt or right to distributions owed to
Guarantor from Borrower is hereby subordinated to the Guaranteed Indebtedness.
The Loan evidenced by the Note may be granted at the request of the Borrower and
without authorization from or notice to the undersigned. Lender need not
inquire into the power of the Borrower or the authority of its agents acting or
purportedly acting on its behalf. The Loan shall be deemed to have been granted
at the instance and request of the undersigned and in consideration of and in
reliance upon this Guarantee.
3. GUARANTOR WAIVERS. The obligations, covenants, agreements and
duties of Guarantor under this Guaranty shall not be released or impaired in any
manner whatsoever, without the written consent of Lender, on account of any or
all of the following: (a) any assignment, endorsement or transfer, in whole or
in part, of the Guaranteed Indebtedness, although made without notice to or the
consent of Guarantor; (b) any waiver by Lender of the performance or observance
by Borrower or Guarantor of any of the agreements, covenants, terms or
conditions contained in any document evidencing, governing or securing the
Guaranteed Indebtedness; (c) any extensions of the time for payment or
performance of all or any portion of the Guaranteed Indebtedness; (d) the
renewal, rearrangement, modification or amendment (whether material or
otherwise) of any duty, agreement or obligation of Borrower set forth in any
document evidencing, governing or securing the Guaranteed Indebtedness; (e) the
voluntary or involuntary liquidation, sale or other disposition of all or
substantially all of the assets of Borrower or Guarantor; (f) any receivership,
insolvency, bankruptcy, reorganization or other similar proceedings affecting
Borrower or Guarantor or any of their assets; (g) any release, withdrawal,
surrender, exchange, substitution, subordination or loss of any security or
other guaranty at any time existing in connection with all or any portion of the
Guaranteed Indebtedness, or the acceptance of additional or substitute property
as security therefor; (h) the release or discharge of Borrower or any other
guarantor from the observance or performance of any agreement, covenant, term or
condition contained in any document evidencing, governing or securing the
Guaranteed Indebtedness; (i) any action which Lender may take or omit to take by
virtue of any document evidencing, governing or securing the Guaranteed
Indebtedness or through any course of dealing with Borrower; (j) the addition of
a new guarantor or guarantors; (k) the operation of law or any other cause,
whether similar or dissimilar to the foregoing; (l) any adjustment, indulgence,
forbearance or compromise that may be granted or given by Lender to any party;
(m) the failure by Lender to file or enforce a claim against the estate (either
in administration, bankruptcy or other proceeding) of Borrower or any other
person or entity; (n) recovery from Borrower or any other person or entity
becomes barred by any statute of limitations or is otherwise prevented; (o) any
defenses, set-offs or counterclaims which may be available to Borrower or any
other person or entity; (p) any impairment, modification, change,
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release or limitation of liability of, or stay of actions of lien enforcement
proceedings against Borrower, its property, or its estate in bankruptcy
resulting from the operation of any present or future provisions of the
Bankruptcy Code or any other similar federal or state statute, or from the
decisions of any court; (q) any neglect, delay, omission, failure or refusal of
Lender to take or prosecute any action for the perfection of collateral or the
collection of any of the Guaranteed Indebtedness or to foreclose or take or
prosecute any action in connection with any lien, right of security, existing or
to exist in connection with, or as security for, any of the Guaranteed
Indebtedness, it being the intention hereof that Guarantor shall remain liable
as principal on the Guaranteed Indebtedness, notwithstanding any act, omission
or thing which might, but for the provisions hereof, otherwise operate as a
legal or equitable discharge of Guarantor; (r) any defense that may arise by
reason of the incapacity, lack of authority, death or disability of, or
revocation hereof, by any guarantor or others; (s) demand, protest and notice of
any other kind, including, without limiting the generality of the foregoing,
notice of any action or non-action on the part of Borrower, Lender, any
endorser, guarantor under this or any other instrument, or creditor of Borrower,
or any other person whomsoever, in connection with the Guaranteed Indebtedness;
(t) any defense based upon an election of remedies by Lender, including, without
limitation, an election to proceed by non-judicial rather than judicial
foreclosure, which destroys or otherwise impairs the subrogation rights of the
undersigned or the right of the undersigned to proceed against Borrower for
reimbursement, or both; and (u) any duty on the part of Lender to disclose to
the undersigned any facts it may now or hereafter know about Borrower,
regardless of whether Lender has reason to believe that any such facts
materially increase the risk beyond which the undersigned is obligated or
whether Lender has a reasonable opportunity to communicate such facts to the
undersigned, it being understood and agreed that the undersigned is fully
responsible for being and keeping informed of the financial condition of
Borrower and of all circumstances bearing on the risk of non-payment of the
Guaranteed Indebtedness. Notice to Guarantor of the acceptance of this Guaranty
and of the making, renewing or assignment of the Guaranteed Indebtedness and
each item thereof, are hereby expressly waived by Guarantor.
4. GUARANTOR'S OBLIGATION TO PAY THE GUARANTEED INDEBTEDNESS. In
the event of default by Borrower in payment or performance of the Guaranteed
Indebtedness, or any part thereof, when such indebtedness becomes due, either by
its terms or as the result of the exercise of any power to accelerate, without
any notice having been given to Guarantor of the acceptance by Lender of this
Guaranty and without any notice having been given to Guarantor of the creating
or incurring of such indebtedness, Guarantor agrees to pay the amount due
thereon to Lender following written demand made by Lender to Guarantor at least
seven (7) days prior to the date of required payment by Guarantor. It shall not
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be necessary for Lender, in order to enforce such payment by Guarantor, first,
to institute suit or exhaust its remedies against Borrower or others liable on
such indebtedness, or to enforce its rights against any security which shall
ever have been given to secure such indebtedness. Guarantor hereby waives any
and all legal requirements that Lender institute any action or proceeding at law
or in equity or exhaust its rights, remedies and recourse against Borrower or
anyone else with respect to the Guaranteed Indebtedness as a condition precedent
to bringing an action against Guarantor upon this Guaranty. Each payment on the
Guaranteed Indebtedness shall be deemed to have been made by Borrower unless
express written notice is given to Lender at the time of such payment that such
payment is made by Guarantor as specified in such notice.
5. WAIVER OF SUBROGATION. Until all indebtedness of Borrower to
Lender shall have been paid in full, even though such indebtedness is in excess
of Guarantor's liability hereunder, Guarantor shall have no right of
subrogation, and hereby expressly waives any right to enforce any remedy which
Lender now has or may hereafter have against Borrower, and waives any benefit
of, and any right to participate in, any security now or hereafter held by
Lender. Guarantor waives all rights of indemnification against Borrower and
agrees to rely solely on its rights of subrogation following payment in full to
Lender in order to collect from Borrower sums paid hereunder.
6. GUARANTOR'S FINANCIAL INFORMATION. Guarantor hereby warrants and
represents to Lender that (a) any and all balance sheets, net worth statements
and other financial data that have heretofore been given to Lender with respect
to Guarantor fairly and accurately present the financial condition of Guarantor
as of the date thereof and, since the date thereof, there has been no material
adverse change in the financial condition of Guarantor, (b) except as otherwise
disclosed to Lender, there are no material legal proceedings, claims or demands
pending against or, to the knowledge of such Guarantor, threatened against,
Guarantor or any of Guarantor's assets, or, if there is any such material
proceeding, claim or demand, it has been disclosed in writing to Lender and does
not and shall not have any material adverse effect upon the ability of Guarantor
to perform any of Guarantor's obligations hereunder, (c) Guarantor is not in
breach or default of any legal requirement, contract or commitment, which would
have a material adverse effect on Guarantor or the Guaranteed Indebtedness, (d)
no event (including specifically Guarantor's execution and delivery of this
Guaranty) has occurred which, with the lapse of time or the giving of notice or
both, could result in Guarantor's breach or default under any legal requirement,
contract or commitment which would have a material adverse effect on Guarantor
or the Guaranteed Indebtedness and (e) Guarantor is solvent. Guarantor hereby
agrees to furnish Lender annually and from time to time, promptly upon request
therefor, current
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financial reports and statements setting forth in reasonable detail the
financial condition of Guarantor at the time of such request, certified by
Guarantor to Lender, and prepared in accordance with generally accepted
accounting principles consistently applied or in other form reasonably
acceptable to Lender. Should such statements be unsatisfactory in Lender's fair
and reasonable judgment, then the Lender shall have the right to request a
review and/or preparation of new unaudited statements by an independent
certified public accountant approved by Lender. Guarantor authorizes Lender to
update Guarantor's credit reports from time to time until all indebtedness of
Borrower to Lender shall have been paid in full.
7. LENDER'S RIGHTS IN COLLATERAL. If all or any part of the
Guaranteed Indebtedness at any time be secured, Guarantor agrees that Lender may
at any time and from time to time, at its discretion and with or without
valuable consideration, allow substitution or withdrawal of collateral or other
security and release collateral or other security without impairing or
diminishing the obligations of Guarantor hereunder. Guarantor further agrees
that if Borrower executes in favor of Lender any collateral agreement, deed of
trust or other security instrument, the exercise by Lender of any right or
remedy thereby conferred on Lender shall be wholly discretionary with Lender,
and that the exercise or failure to exercise any such right or remedy shall in
no way impair or diminish the obligation of Guarantor hereunder. Guarantor
further agrees that Lender shall not be liable for its failure to use diligence
in the collection of the Guaranteed Indebtedness or in preserving the liability
of any person liable on the Guaranteed Indebtedness, and Guarantor hereby waives
presentment for payment, notice of nonpayment, protest and notice thereof,
notice of acceleration, and diligence in bringing suits against any person
liable on the Guaranteed Indebtedness, or any part thereof.
8. JOINT GUARANTORS. If now or hereafter there is more than one
Guarantor, Guarantor agrees that Lender, in its discretion, may (i) bring suit
against all Guarantors jointly and severally or against any one or more of them,
(ii) compound or settle with any one or more of Guarantors for such
consideration as Lender may deem proper, and (iii) release one or more of
Guarantors from liability hereunder, and that no such action shall impair the
rights of Lender to collect the Guaranteed Indebtedness (or the unpaid balance
thereof) from other Guarantors, or any of them, not so sued, settled with or
released. Guarantors agree among themselves, however, that nothing contained in
this paragraph, and no action by Lender permitted under this paragraph, shall in
any way affect or impair the rights or obligations of Guarantors among
themselves.
9. EFFECT OF BORROWER DEFENSE TO PAYMENT. If the Guaranteed
Indebtedness at any time exceeds the amount permitted by law, or Borrower is not
liable because the act of creating the
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Guaranteed Indebtedness is ultra vires, or the persons creating the Guaranteed
Indebtedness acted in excess of their authority, and for these reasons the
Guaranteed Indebtedness which Guarantor agrees to pay cannot be enforced against
Borrower, such fact shall in no manner affect Guarantor's liability hereunder,
but Guarantor shall be liable under this Guaranty notwithstanding that Borrower
is not liable for the Guaranteed Indebtedness, and to the same extent Guarantor
would have been liable if the Guaranteed Indebtedness had been enforceable
against Borrower.
10. ASSIGNMENT OF GUARANTY. This Guaranty is for the benefit of
Lender, its successors and assigns, and in the event of an assignment by Lender,
its successors or assigns, of the Guaranteed Indebtedness, or any part thereof,
the rights and benefits hereunder, to the extent applicable to the indebtedness
so assigned, may be transferred with such indebtedness.
11. BANKRUPTCY LIMITATIONS. Except for the continuing obligations
under this Section 11, this Guaranty shall be otherwise released and terminated
upon the earlier of (1) Completion of Improvements as defined in the
Construction Loan Agreement by and between Lender and Borrower, 90% occupancy of
the property, and annual net operating income of at least $575,000; or (2)
payment in full of the Note. If during any preference period, Borrower files a
petition or is the subject of an involuntary petition seeking relief under
federal bankruptcy laws, and if as a result thereof Lender is required to
disgorge any payment received from Borrower as a preference, then Guarantor
agrees to repay to Lender all such amounts, together with interest from the date
which is seven (7) days after written demand for repayment at the rate of 12%
per annum, together with costs of collection, if any, including attorneys fees.
In the event the undersigned files a petition in or is the subject of
an involuntary petition seeking relief under federal bankruptcy laws, the
aggregate amount payable by the undersigned is limited to the largest amount
which would not render this obligation subject to avoidance.
12. ADDITIONAL LENDER RIGHTS. No modification, consent, amendment or
waiver of any provision of this Guaranty, nor consent to any release by any
Guarantor therefrom, shall be effective unless the same shall be in writing and
signed by an officer of Lender, and then shall be effective only in the specific
instance and for the purpose for which given. No notice to or demand on any
Guarantor in any case shall, of itself, entitle any Guarantor to any other or
further notice or demand in similar or other circumstances. No delay or
omission by Lender in exercising any power or right hereunder shall impair any
such right or power or be construed as a waiver thereof or any acquiescence
therein, nor shall any single or partial exercise of any such power preclude
other or further exercise thereof, or the exercise of any other
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right or power hereunder. All rights and remedies of Lender hereunder are
cumulative of each other and of every other right or remedy which Lender may
otherwise have at law or in equity or under any other contract or document, and
the exercise of one or more rights or remedies shall not prejudice or impair the
concurrent or subsequent exercise of other rights or remedies. In this
Guaranty, whenever the text so requires, the singular number includes the plural
and conversely.
13. CONTROLLING LAW. This Guaranty shall be governed by and
construed in accordance with the laws of Montana. This Guaranty shall
constitute the entire agreement of the undersigned with Lender with respect to
the subject matter hereof and no representation, understanding, promise or
condition concerning the subject matter hereof shall be binding upon Lender
unless expressed herein. This Guaranty is effective upon delivery to Lender
without condition.
14. ATTORNEY'S FEES. If Guarantor should breach or fail to perform
any provision of this Guaranty, Guarantor agrees to pay Lender all costs and
expenses incurred by Lender in the enforcement hereof. These costs and expenses
shall include attorney and paralegal fees, expert witness fees and costs of
depositions.
15. USURY SAVINGS CLAUSE. No provision herein or in the Note, or in
any other instrument or any other loan document executed by Borrower or
Guarantor evidencing, governing or securing the Guaranteed Indebtedness shall
require the payment or permit the collection of interest in excess of the
maximum permitted by law. If any excess of interest in such respect is provided
for herein or in the Note, or in any other such instrument or any other loan
document, the provisions of this paragraph shall govern, and neither Borrower
nor Guarantor shall be obligated to pay the amount of such interest to the
extent that it is in excess of the amount permitted by law, the intention of the
parties being to conform strictly to the applicable usury laws from time to time
in effect. All promissory notes, instruments and other loan documents executed
by Borrower or Guarantor evidencing the Guaranteed Indebtedness shall be held
subject to reduction of the interest charged to the amount allowed under said
usury laws as now or hereafter construed by the courts having jurisdiction.
16. NOTICE. Any notice, request, demand, consent, approval, or other
communication required or permitted hereunder shall be in writing and shall be
deemed to have been given when personally delivered, or one day after delivery
to a national overnight delivery courier service, cost prepaid, or three days
following deposit in the United States mail, certified mail, return receipt
requested, postage prepaid, addressed to the party for whom it is intended at
the following addresses:
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IF TO GUARANTOR:
Emeritus Corporation
Market Place One
2003 Western Avenue, Suite 660
Seattle, Washington 98121
Facsimile Number: (206) 443-5432
Attention: Jean Fukuda
WITH A COPY TO:
The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, Washington 98101
Facsimile Number: (206) 623-1738
Attention: Randi Nathanson
IF TO LENDER:
RMI Capital Management Co.
3773 Cherry Creek North Drive, Suite 640
Denver, Colorado 80209
Facsimile Number: (303) 329-0997
Attention: Jeff Crawford
WITH A COPY TO:
Banks & Imatani, P.C.
1200 17th Street, Suite 1310
Denver, Colorado 80202
Facsimile Number: (303) 446-2716
Attention: Barbara S. Banks
provided, however, that a party may change its address for purposes of receipt
of any such communication by giving ten (10) days prior written notice of such
change to the other parties in the manner above prescribed.
EMERITUS CORPORATION
By: /s/ Raymond R. Brandstrom
----------------------------
PRESIDENT
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3131 ELLIOTT AVENUE
OFFICE LEASE
THIS LEASE, made the 29th day of April, 1996 by and between MARTIN
SELIG, whose address is 1000 Second Avenue, Suite 1800, Seattle, Washington,
98104-1048, hereinafter referred to as "Lessor" and Emeritus Corporation,
hereinafter referred to as "Lessee".
1. DESCRIPTION. Lessor in consideration of the agreements contained in
this lease, does hereby lease to Lessee, upon the terms and conditions
hereinafter set forth, that certain space consisting of the agreed upon
square footage of 22,248 (hereinafter referred to as "Premises") situated on
the fifth floor level of the 3131 Elliott Building, 3131 Elliott Avenue, City
of Seattle, State of Washington, 98121. The legal description of which is:
Lots 3 through 11, Block 166 Seattle Tideland: together with that
portion of lots 1 through 5, Block 2, William N. Bell's seventh
addition to the City of Seattle, which lies easterly of Block 166
of Seattle Tidelands.
Suite 500
2. TERM. The term of this lease shall be for a period of one-hundred
twenty (120) months, commencing the date substantial completion or the 1st
day of July, 1996, whichever is later, and ending one-hundred (120) months
thereafter.
In the event the Premises are not ready for occupancy on the date set
forth above, whether occasioned by Lessor or Lessee, the lease term shall be
extended in such a manner as to reflect the delay occasioned by the failure
of the Premises to be ready to occupancy. In no event shall Lessor or Lessee
be liable for any further damages.
3. RENT. Lessee covenants and agrees to pay Lessor rent each month
advance on the first day of each calendar month. Rent shall be computed at
the annual base rental rate of $17.00 per rentable square foot for months
1-60 and $19.00 per rentable square foot for months 61-120. Rent for any
fractional calendar month, at the beginning or end of the term, shall be the
pro rated portion of the rent computed on an annual basis. Lessee will not be
deemed to be in default with respect to the payment of rent unless the same
is not paid when due or within ten (10) days thereafter.
4. CONSIDERATION. As consideration for the execution of this lease,
Lessee has this date paid to Lessor the sum of $0.00, receipt of which is
hereby acknowledged. In the event Lessee fully complies with all the terms
and conditions of this lease, but not otherwise, an amount equal to such sum
shall be credited on the last month's rental on the term of this lease.
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5. USES. Lessee agrees that Lessee will use and occupy said Premises
for general offices and related purposes and for no other purposes.
6. RULES AND REGULATIONS. Lessee and its agents, employees, servants or
those claiming under Lessee will at all times observe, perform and abide by
all of the Rules and Regulations printed on this instrument, or which may be
hereafter promulgated by Lessor, all of which it is covenanted and agreed by
the parties hereto shall be and are hereby made a part of this lease.
7. CARE AND SURRENDER OF PREMISES. Lessee shall take good care of the
Premises and shall promptly make all necessary repairs except those required
herein to be made by Lessor. At the expiration or sooner termination of this
lease,
Lessee, without notice, will immediately and peacefully quit and surrender
the Premises in good order, condition and repair (damage by reasonable wear,
the elements, or fire excepted). Lessee shall be responsible for removal of
all personal property from the Premises, (excepting fixtures being that which
is attached to the Premises, and property of the Lessor) including, but not
limited to, the removal of Lessee's communication cabling, telephone
equipment and signage. Lessee shall be responsible for repairing any damage
to the Premises caused by such removal. If Lessee fails to remove and restore
the Premises at lease expiration, then Lessor shall have the right to remove
said property and restore the Premises and Lessee shall be responsible for
all costs associated therewith. Lessee shall also be responsible for those
costs incurred by Lessor for removing debris Lessee may discard in the
process of preparing to vacate the Premises and for a final cleaning of the
Premises, including, but not limited to removal and disposal of Lessee's
personal property remaining in the Premises.
8. ALTERATIONS. Lessee shall not make any alterations or improvements
in, or additions to said Premises without first obtaining the written consent
of Lessor. All such alterations, additions and improvements shall be at the
sole cost and expense of Lessee and shall become the property of Lessor and
shall remain in and be surrendered with the Premises as a part thereof at the
termination of this lease, without disturbance, molestation or injury.
9. RESTRICTIONS. Lessee will not use or permit to be used in said
Premises anything that will increase the rate of insurance on said building
or any part thereof, nor anything that may be dangerous to life or limb; nor
in any manner deface or injure said building or any part thereof; nor
overload any floor or part thereof; nor permit any objectionable noise or
odor to escape or to be emitted from said Premises, or do anything or permit
anything to be done upon said Premises in any way tending to create a
nuisance or to disturb any other tenant or occupant of any part of said
building. Lessee, at Lessee's expense, will comply with all health, fire and
police regulations respecting said Premises. The Premises shall not be used
for lodging or sleeping, and no animals or birds will be allowed in the
building.
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10. WEIGHT RESTRICTIONS. Safes, furniture or bulky articles may be moved
in or out of said Premises only at such hours and in such manner as will
least inconvenience other tenants, which hours and manner shall be at the
discretion of Lessor. No safe or other article of over 2,000 pounds shall be
moved into said Premises without the consent of Lessor, and Lessor shall have
the right to locate the position of any article of weight in said Premises if
Lessor so desires.
11. SIGN RESTRICTION. No sign, picture, advertisement or notice shall be
displayed, inscribed, painted or affixed to any of the glass or woodwork of
the building without the prior approval of Lessor. Notwithstanding the above,
Lessee shall have the right to install monument type signage outside the
building off Elliott Avenue at Lessee's sole cost and expense but with
Lessor's prior written approval of such signage.
12. LOCKS. Lessee shall have access to the premises twenty-four (24)
hours per day, three-hundred sixty-five (365) days per year. Lessor shall
provide, at no charge, Lessee's keys and card keys at the time of lease
commencement, but thereafter at Lessee's expense. No additional locks shall
be placed upon any doors of the Premises. Keys will be furnished to each door
lock. At the termination of the lease, Lessee shall surrender all keys, to
the Premises including card keys whether paid for or not.
13. KEY. Lessor, his janitor, engineer or other agents may retain a pass
key to said Premises to enable him to examine the Premises from time to time
with reference to any emergency or to the general maintenance of said
Premises.
14. TELEPHONE SERVICE. If Lessee desires telephonic or any other
electric connection, Lessor will direct the electricians as to where and how
the wires are
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to be introduced, and without such directions no boring or cutting for wires
in installation thereof will be permitted.
15. SERVICES. Lessor shall maintain Premises and the public and common
areas of building, such as lobbies, stairs, corridors and restrooms, in
reasonably good order and condition and in a manner consistent with
comparable first class office buildings in Seattle, except for damage
occasioned by the act of Lessee.
Lessor shall furnish the Premises with electricity for lighting and
operation of low power usage office machines, heat, normal office
air-conditioning, and elevator services, during the ordinary business hours
of the building. Heating and air conditioning shall be available to Lessee at
times at no additional cost. Air-conditioning units and electricity therefore
for special air-conditioning requirements, such as for computer centers,
shall be at Lessee's expense. Lessor shall also provide lighting replacement
for Lessor furnished lighting, toilet room supplies, window washing with
reasonable frequency, and customary janitor service.
Lessor shall not be liable to Lessee for any loss or damage caused by or
resulting from any variation, interruption or any failure of said services
due to any cause whatsoever, except in the event the same is due to the
negligence or willful misconduct of Lessor or the breach by Lessor of it
obligations hereunder. No temporary interruption or failure of such services
incident to the making of repairs, alterations, or improvements, or due to
accident or strike or conditions or events not under Lessor's control shall
be deemed as an eviction of Lessee or relieve Lessee from any of Lessee's
obligations hereunder. For purposes hereof, an interruption in or failure of
service shall be deemed to be temporary if it lasts for less than forty eight
(48) consecutive hours. In which case Lessee shall be limited to a rent
abatement for any period exceeding forty eight (48) consecutive hours for any
portion of the premises rendered unusable.
Lessor acknowledges and agrees that it shall promptly respond to and to
take appropriate corrective action with respect to any defects or
deficiencies identified by Lessee in the condition of the building or the
Premises or the services provided by Lessor under the terms of this Lease. In
the event of any lack of attention on the part of Lessor and any
dissatisfaction with the service of the building, or any unreasonable
annoyance of any kind, Lessee is requested to make complaints at Lessor's
building office and not to Lessor's employees or agents seen within the
building. Lessee is further requested to remember that Lessor is as anxious
as Lessee to transact business with the greatest possible ease and comfort.
The rules and regulations are not made to unnecessarily restrict Lessee, but
to enable Lessor to operate the building to the best advantage of both
parties hereto. To this end Lessor shall have the right to waive from time to
time such part or parts of such rules and regulations as may from time to
time be implemented by Lessor as in his judgment may not be necessary for the
proper maintenance or operation of the building or consistent with good
service, and may from time to time make such further reasonable rules and
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regulations as in his judgment may be needed for the safety, care and
cleanliness of the Premises and the building and for the preservation of
order therein.
16. SOLICITORS. Lessor will make an effort to keep solicitors out of the
building, and Lessee will not oppose Lessor in his attempt to accomplish this
end.
17. FLOOR PLAN. The floor plan and specifications for Lessee's occupancy
shall be attached hereto and marked Exhibit "A" which shall be approved by
both Lessor and Lessee, both of whose approval shall not be unreasonably
withheld.
18. ASSIGNMENT. Lessee will not assign this lease, or any interest
hereunder, and this lease, or any interest hereunder, shall not be assigned
by operation of law. Lessee will not sublet said Premises or any part thereof
and will not permit the use of said Premises by others other than Lessee and
the agents of Lessee without first obtaining the written consent of Lessor,
which shall not be unreasonably withheld or
delayed, provided however, Lessee shall have the right to sublease all or any
portion of the Premises to an affiliated entity, i.e., an entity which is
controlled by or under common control with Lessee, without the prior written
consent of Lessor but with written notice to Lessor. In the event such written
consent shall be given, no other or subsequent assignment or subletting shall
be made without the previous written consent of Lessor, which shall not be
unreasonably withheld or delayed. In the event Lessee desires to assign or
sublet said Premises or any part thereof, Lessor shall have the first right,
but not the obligation to re-lease the Premises.
19. OPERATING SERVICES AND REAL ESTATE TAXES. The annual base rental
rate per rentable square foot in Paragraph 3 includes Lessee's proportionate
share of Operating Services and Real Estate Taxes for the first twelve months
of the lease term, "Base Year Costs". Only actual increases from these Base
Year Costs, if any, will be passed on to Lessee on a proportionate basis.
DEFINITIONS
BASE YEAR
For computing the Base Year Costs, the base year shall be the calendar year
stated herein or if a specific calendar year is not stated herein then the base
year shall be the calendar year in which the lease term commences. The base
year shall be the calendar year 1996.
COMPARISON YEAR
The Comparison Year(s) shall be the calendar year(s) subsequent to the base
year.
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OPERATING SERVICES
"Operating Services" include, but are not limited to, the charges incurred by
Lessor for: building operation salaries, benefits, management fee of five
percent (5%) of gross income for the building, insurance, electricity,
janitorial, supplies, telephone, HVAC, repair and maintenance, window
washing, water and sewer, security, landscaping, disposal, elevator, etc.
Operating Services shall also include the amortization cost of capital
investment items and of the installation thereof, which are primarily for the
purpose of safety, saving energy or reducing operating costs, or which may be
required by governmental authority, (all such costs shall be amortized over
the reasonable life of the capital investment item, with the reasonable life
and amortization schedule being determined in accordance with generally
accepted accounting principles). Notwithstanding anything to the contrary
contained herein, Operating Services shall not include any of the following:
(i) legal fees, auditing fees, brokerage commissions, advertising costs,
or other related expenses incurred by Lessor in an effort to generate rental
income;
(ii) repairs, alterations, additions, improvements, or replacements made
to rectify or correct any defect in the original design, materials or
workmanship of the building or common areas (but not including repairs,
alterations, additions, improvements or replacements made as a result of
ordinary wear and tear);
(iii) damage and repairs attributable to fire or other casualty;
(iv) damage and repairs necessitated by the negligence or willful
misconduct of Lessor, Lessor's employees, contractors or agents;
(v) executive salaries to the extent that such services are not in
connection with the management, operation, repair or maintenance of the
building;
(vi) Lessor's general overhead expenses not related to the building;
(vii) legal fees, accountant's fees and other expenses incurred in
connection with disputes with tenants or other occupants of the building or
associated with the enforcement of the terms of any leases with tenants or the
defense of Lessor's title to or interest in the building or any part thereof
unless the outcome is to the financial benefit of all tenants;
(viii) costs (including permit, license and inspection fees) incurred in
renovating or otherwise improving, decorating, painting or altering (1) vacant
space (excluding common areas) in the building or (2) space for tenants or
other occupants in the building and costs incurred in supplying any item or
service to less than all of the tenants in the building;
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(ix) costs incurred due to a violation by Lessor or any other tenant of
the building of the terms and conditions of a lease;
(x) cost of any specific service provided to Lessee or other occupants of
the building for which Lessor is reimbursed (but not including Operating
Services and Real Estate Tax Increases above Base Year Costs to the extent
reimbursed Lessor) or any other expense for which Lessor is or will be
reimbursed by another source (i.e., expenses covered by insurance or
warranties);
(xi) costs and expenses which would be capitalized under generally
accepted accounting principles, with the exception of the capital investment
items specified hereinabove;
(xii) building management fees in excess of the management fees specified
hereinabove;
(xiii) cost incurred with owning and/or operating the parking lot(s)
serving the building by independent parking operator(s).
(xiv) fees paid to Lessor or any affiliate of Lessor for goods or
services in excess of the fees that would typically be charged by unrelated,
independent persons or entities for similar goods and services;
(xv) rent called for under any ground lease or master lease;
(xvi) principal and/or interest payments called for under any debt
secured by a mortgage or deed of trust on the building; and
Operating Services shall be adjusted for the Base Year and all Comparison
Year(s) to reflect the greater of actual occupancy or 95% occupancy.
REAL ESTATE TAXES
Real Estate Taxes shall be the taxes paid by Lessor in the base year and each
respective Comparison Year.
PROPORTIONATE BASIS
Lessee's share of Base Year and Comparison Year(s) Costs shall be a fraction,
the numerator of which shall be the number of rentable square feet contained in
the leased Premises (see Paragraph 1) and the denominator of which shall be the
number of rentable square feet in the building in which the leased Premises are
located.
COMPUTATION OF ADJUSTMENTS TO BASE YEAR COSTS
Any adjustment to Base Year Costs will commence to occur in Month 13 of the
lease term with subsequent adjustments commencing every twelve months of the
lease term or in Months 25, 37, 49, etc. as appropriate under the lease term.
Lessee shall be
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responsible for any increase between Lessee's proportionate
share of Base Year Costs and Lessee's proportionate share of each respective
Comparison Year(s) Costs. The increase shall be the increase to each expense
individually. These costs shall be initially calculated based on estimated
(projected) costs with reconciliation to actual costs when annual audited
numbers are completed. For the purpose of calculating projected increases to
Base Year Costs, Lessor shall review historical data to predict if any
estimated increases would be anticipated in a Comparison Year(s). If they are,
then commencing in Month 13 and/or every twelve month period thereafter, Lessor
will assess a monthly charge to be paid together with monthly base rent. Once
actual cost data for Comparison Year(s) Real Estate Taxes and Operating
Services for the entire building is formulated in accordance with generally
accepted accounting principles and adjusted to the greater of actual occupancy
or 95% occupancy, then Lessee's estimated pass-through costs shall be corrected
with Lessee or Lessor, as appropriate, reimbursing the other for the difference
between the estimated and actual costs, at that time in a lump sum payment.
Upon termination of this lease, the amount of any corrected amount between
estimated and actual costs with respect to the final comparison year shall
survive the termination of the lease and shall be paid to Lessee or Lessor as
appropriate within thirty (30) days after final reconciliation.
Computation of or adjustment to Operating Services and/or Real Estate Taxes
pursuant to this paragraph or to rent pursuant to Paragraph 3 shall be computed
based on a three hundred sixty-five (365) day year.
For an example, see Exhibit B attached hereto.
Notwithstanding the other provisions of this lease, the pass-through of all
Operating Services, as described in Paragraph 19, shall not exceed eight
percent (8%) per year on a cumulative basis. For example, if in years 2 and 3,
Lessee's total escalation charges increased by seven percent (7%) and eight
percent (8%) respectively, then if in year 4 costs increase by ten percent
(10%), then Lessor can charge Lessee a maximum increase of nine percent (9%) or
a total escalation cost increase of twenty-four percent (24%) over the three
subsequent years after year 1. Real Estate Taxes shall be passed through based
on the actual taxes paid.
20. ADDITIONAL TAXES OR ASSESSMENTS. Should there presently be in effect
or should there be enacted during the term of the lease, any law, statute or
ordinance levying any assessment or any tax upon rents or the income from real
estate or rental property (other than federal or state income taxes), Lessee
shall reimburse Lessor for Lessee's proportionate share of said expenses at the
same time as rental payments.
21. LATE PAYMENTS. Any payment, required to be made pursuant to this
Lease, not made on the date the same is due or within any cure period provided
for herein or shall bear Interest at a rate equal to three percent (3%) above
the prime rate of interest charged from time to time by Seafirst National Bank,
or its successor.
8
<PAGE>
In addition to any Interest charged herein, a late charge of five percent
(5%) of the payment amount shall be incurred for payments received more than
five (5) days late.
22. RISK. All personal property of any kind or description whatsoever in
the demised Premises shall be at Lessee's sole risk. Lessor shall not be
liable for any damage done to or loss of such personal property or damage or
loss suffered by the business or occupation of the Lessee arising from any acts
or neglect of co-tenants or other occupants of the building, or of Lessor or
the employees of Lessor, or of any other persons, or from bursting, overflowing
or leaking of water, sewer or steam pipes, or from the heating or plumbing or
sprinkling fixtures, or from electric wires, or from gas, or odors, or caused
in any other manner whatsoever except in the case of the negligence
or willful misconduct of Lessor or a breach by Lessor of its obligations
hereunder, in which case Lessor shall be responsible therefor Lessor's
proportionate share and shall indemnify Lessee from any and all loss, costs,
damages and expenses which it may incur as a result of Lessor's proportionate
share thereof. Lessee shall keep in force throughout the term of this lease
such casualty, general liability and business interruption insurance as a
prudent tenant occupying and using the Premises would keep in force.
23. INDEMNIFICATION. Lessee will defend, indemnify and hold harmless
Lessor from any claim, liability or suit including reasonable attorney's fees
on behalf of any person, persons, corporations and/or firm for any injuries
or damages occurring in or about the said Premises or on or about the
sidewalk, stairs, or thoroughfares adjacent thereto where said damages or
injury was caused or partially caused by the ordinary or gross negligence or
intentional act of Lessee and/or by Lessee's agents, employees, servants,
customers or clients.
24. WAIVER OF SUBROGATION. Lessee and Lessor do hereby release and
relieve the other, and waive their entire claim of recovery for loss, damage,
injury, and all liability of every kind and nature which may arise out of, or
be incident to, fire and extended coverage perils, in, on, or about the
Premises herein described, whether due to negligence of either of said
parties, their agents, or employees, or otherwise.
25. SUBORDINATION. This lease and all interest and estate of Lessee
hereunder is subject to and is hereby subordinated to all present and future
mortgages and deeds of trust affecting the Premises or the property of
which said Premises are a part. Lessee agrees to execute at no expense to the
Lessor, any instrument which may be deemed necessary or desirable by the
Lessor to further effect the subordination of this lease to any such mortgage
or deed of trust. In the event of a sale or assignment of Lessor's interest
in the Premises, or in the event of any proceedings brought for the
foreclosure of, or in the event of exercise of the power of sale under any
mortgage or deed of trust made by Lessor covering the Premises, Lessee shall
attorn to the purchaser and recognize such purchaser as Lessor. Lessee agrees
to execute, at no expense to Lessor, all customary estoppel certificates
deemed necessary or desirable by Lessor to further effect the provisions of
this paragraph.
9
<PAGE>
26. CASUALTY. In the event the leased Premises or the said building is
destroyed or injured by fire, earthquake or other casualty to the extent that
they are untenantable in whole or in part, then Lessor may, at Lessor's
option, proceed with reasonable diligence to rebuild and restore the said
Premises or such part thereof as may be injured as aforesaid, provided that
within sixty (60) days after such destruction or injury Lessor will notify
Lessee of Lessor's intention to do so, and during the period of such
rebuilding and restoration the rent shall be abated on the portion of the
Premises that is unfit for occupancy. If necessary, Lessor will provide
access to any needed alternative space for Lessee at the fair market rate not
to exceed Lessee's rental rate hereunder.
27. INSOLVENCY. If Lessee becomes insolvent, or makes an assignment for
the benefit of creditors, or a receiver is appointed for the business or
property of Lessee, or a petition is filed in a court of competent
jurisdiction to have Lessee adjudged bankrupt, then Lessor may at Lessor's
option terminate this lease. Said termination shall reserve unto Lessor, all
of the rights and remedies available under Paragraph 28 ("Default") hereof,
and Lessor may accept rents from such assignee or receiver without waiving or
forfeiting said right of termination. As an alternative to exercising his
right to terminate this lease, Lessor may require Lessee to provide adequate
assurances, including the posting of a cash bond, of Lessee's ability to
perform its obligations under this lease.
28. DEFAULT. If this lease is terminated in accordance with any of the
terms herein (with the exception of Paragraph 27), or if Lessee vacates or
abandons the Premises or if Lessee shall fail at any time to keep or perform
any of the covenants or conditions of this lease, i.e. specifically the
covenant for the payment of monthly rent, then, and in any of such events
Lessor may with or without notice or demand, at Lessor's
option, and without being deemed guilty of trespass and/or without
prejudicing any remedy or remedies which might otherwise be used by Lessor
for arrearages or preceding breach of covenant or condition of this lease,
enter into and repossess said Premises and expel the Lessee and all those
claiming under Lessee. In such event Lessor may eject and remove from said
Premises all goods and effects (forcibly if necessary). This lease if not
otherwise terminated may immediately be declared by Lessor as terminated. The
termination of this lease pursuant to this Article shall not relieve Lessee
of its obligations to make the payments required herein. In the event this
lease is terminated pursuant to this Article, or if Lessor enters the
Premises without terminating this lease and Lessor relets all or a portion of
the Premises, Lessee shall be liable to Lessor for all the costs of
reletting, including necessary renovation and alteration of the leased
Premises. Lessee shall remain liable for all unpaid rental which has been
earned plus late payment charges pursuant to Paragraph 21 and for the
remainder of the term of this lease for any deficiency between the net
amounts received following reletting and the gross amounts due from Lessee,
or if Lessor elects, Lessee shall be immediately liable for all rent and
additional rent (Paragraph 19) that would be owing to the end of the term,
less any rental loss Lessee proves could be reasonably avoided, which amount
10
<PAGE>
shall be discounted by the discount rate of the Federal Reserve Bank,
situated nearest to the Premises, plus one percent (1%). Lessor shall not be
entitled to exercise any of the rights or remedies provided for herein before
Lessee has been given an opportunity to cure the default upon which said
remedies are based, which cure period shall be ten (10) days in the case of a
monetary default and thirty (30) days in the case of a non-monetary default;
provided, however, that in the event said non-monetary default cannot be
cured within said thirty (30) day period but Lessee commences the cure when
said thirty (30) day period and diligently prosecutes the same to completion,
Lessee shall have such additional period of time as may be reasonably
necessary to effect such cure.
29. BINDING EFFECT. The parties hereto further agree with each other
that each of the provisions of this lease shall extend to and shall, as the
case may require, bind and inure to the benefit, not only of Lessor and
Lessee, but also of their respective heirs, legal representatives, successors
and assigns, subject, however, to the provisions of Paragraph 18 of this
lease.
It is also understood and agreed that the terms "Lessor" and "Lessee"
and verbs and pronouns in the singular number are uniformly used throughout
this lease regardless of gender, number or fact of incorporation of the
parties hereto. The typewritten riders or supplemental provisions, if any,
attached or added hereto are made a part of this lease by reference. It is
further mutually agreed that no waiver by Lessor of a breach by Lessee of any
covenant or condition of this lease shall be construed to be a waiver of any
subsequent breach of the same or any other covenant or condition.
30. HOLDING OVER. If Lessee holds possession of the Premises after term
of this lease, Lessee shall be deemed to be a month-to-month tenant upon the
same terms and conditions as contained herein, except rent which shall be
revised to reflect 125% of the last month's rent payment. During
month-to-month tenancy, Lessee acknowledges Lessor will be attempting to
relet the Premises. Lessee agrees to cooperate with Lessor and Lessee further
acknowledges Lessor's statutory right to terminate the lease with proper
notice.
31. ATTORNEY'S FEES. If any legal action is commenced to enforce any
provision of this lease, the prevailing party shall be entitled to an award
of reasonable attorney's fees and disbursements.
32. NO REPRESENTATIONS. The Lessor has made no representations or
promises except as contained herein or in some future writings signed by
Lessor.
33. QUIET ENJOYMENT. So long as Lessee pays the rent and performs the
covenants contained in this lease, Lessee shall hold and enjoy the Premises
peaceably and quietly, subject to the provisions of this lease.
11
<PAGE>
34. RECORDATION. Lessee shall not record this lease without the prior
written consent of Lessor. However, at the request of Lessor or Lessee, both
parties shall execute a memorandum or "short form" of this lease for the
purpose of recordation in a form customarily used for such purpose. Said
memorandum or short form of this lease shall describe the parties, the
Premises and the lease term, and shall incorporate this lease by reference.
A copy of the Memorandum of Lease is attached hereto.
35. MUTUAL PREPARATION OF LEASE. It is acknowledged and agreed that this
lease was prepared mutually by both parties. In the event of ambiguity, it is
agreed by both parties that it shall not be construed against either party as
the drafter of this lease.
36. GOVERNING LAW. This lease shall be governed by, construed and
enforced in accordance with the laws of the State of Washington.
37. DESIGN SERVICES. Lessor shall, at Lessor's expense, provide for
design, documentation and contract administration in connection with all work
to be done in the Premises in order to prepare the Premises for Lessee's
effective occupancy. Lessor will furthermore contract with, and pay for the
design and engineering services pertaining to structural, mechanical,
electrical, and fire protection. Lessor shall, at Lessor's expense, furnish
to Lessee, for Lessee's approval, all drawings necessary for the preparation
of the Premises for Lessee's use and occupancy.
38. TENANT IMPROVEMENT ALLOWANCE. The space will be completed in
accordance with mutually agreed upon working drawings by a Lessor approved
contractor. Lessee will be responsible for construction costs and will be
provided an allowance of up to $7.50 per rentable square foot. The actual
amount expended will be given to Lessee as a rent credit to be offset against
rents commencing upon lease inception. Lessee shall provide Lessor copies of
the actual invoices. This tenant improvement allowance is for Lessor provided
HVAC and fire alarms, and tenant improvements, may include furniture,
furnishings, or equipment. Lessor shall provide Lessee with a bid to do HVAC
work in the Premises. Lessor shall also provide construction management for
the tenant improvement work. Any tenant improvements in excess of this
allowance shall be paid for by Lessee.
39. CONTRACTOR'S AGREEMENT. Prior to commencement of any payment for
tenant improvement work, Lessor will require unconditional lien releases from
Lessee's contractor and all subcontractors (Exhibit C). In addition, Lessor
will require Lessee or Lessee's contractor to provide certificates of
insurance, executed copies of indemnification forms (Exhibit D) and Lessor's
construction policies (Exhibit E) (attached).
40. PARKING. Lessee shall be provided parking for thirty (30) cars
inside the building garage. Twenty-six (26) of those stalls shall be at
market rate and paid for by the Lessee. The remaining four (4) stalls shall
be reserved for Lessee's exclusive use at no charge to Lessee. Lessee shall
be provided eight (8) additional stalls within two (2) blocks of the building
12
<PAGE>
at the prevailing market rate. All parking inside the building shall be
available to Lessee twenty-four (24) hours per day. If additional space is
leased to Lessee in the 3131 Elliott Avenue Building, Lessee shall be
provided additional parking at the rate of two (2) stalls per 1,000 rentable
square feet, with one (1) stall per 750 rentable square feet inside the
building garage, all at market rate and paid for by Lessee.
41. OPTION TO TERMINATE. Lessee shall have the option to terminate this
lease upon the expiration of the 60th month of the lease term by giving
Lessor six (6) months prior written notice of its intention to terminate.
42. STORAGE. At Lessee's option, Lessor shall provide Lessee with
approximately 1,000 square feet of storage space within two (2) blocks of the
3131 Elliott Avenue Building. Such storage shall be charged at the annual
rate of $8.00 per square foot.
43. ADJACENT SPACE. Upon request by Lessee, Lessor shall use its best
efforts to provide Lessee, the balance of the 5th floor space occupied by
Airborne Freight Corporation, comprised of an additional 4,258 rentable
square feet. This expansion space shall be leased to Lessee under the same
terms and conditions, including the rental rate contained herein with the
exception of the tenant improvement allowance which shall be pro-rated over
the balance of the initial five (5) year lease term.
44. FIRST RIGHT OF REFUSAL. Lessee shall have a right of refusal to
lease any available space within the 3131 Elliott Avenue Building subject to
a first right of refusal granted to Airborne Freight Corporation. If Lessor
has an interested party for that space, Lessor will notify Lessee accordingly
and Lessee shall have ten (10) working days from receipt of said notice to
respond either way. Rent for this space shall be at the same rental rate that
Lessee is paying at the time for the other space under this lease through the
5th year of the lease term; provided, however, that the tenant improvement
allowance shall be pro-rated for the remaining balance of the five (5) year
term. Any such expansion space leased after the expiration of the initial
five (5) year term shall be at the fair market rate for comparable space
within the 3131 Elliott Avenue Building.
45. BUILDING AMENITIES. Lessor agrees to proceed in good faith with all
due diligence to secure permission from Airborne Freight Corporation to allow
Lessee's use of Airborne's exercise facility and daycare center.
46. REAL ESTATE COMMISSION. A real estate commission equivalent to $3.50
per rentable square foot for years 1-5 of the lease term and $1.75 per
rentable square foot for years 6-10, is due Teutsch Partners for their
services in negotiating this lease. In addition, Teutsch Partners is due a
commission equivalent to 2 1/2% of the gross rental amount for any expansion
space leased by Lessee during the initial three (3) years of the term of this
lease. The commissions shall be paid directly by Lessee to Teutsch Partners,
13
<PAGE>
one half upon execution of the Lease and one half upon occupancy of the
Premises, and the amount so paid shall be given to Lessee as a rent credit to
be offset against rents beginning with the commencement of this lease.
47. OPTION TO RENEW. Provided that Lessee is not in default under any
terms and conditions of this lease, Lessor grants to Lessee the option to
renew this lease for two successive five (5) year periods each of which
option period shall commence upon the expiration of the immediately preceding
lease term and shall be available to Lessee upon written notice to Lessor
delivered no later than one-hundred eighty (180) days prior to the expiration
of the then current lease term.
The lease shall be renewed for each option period on the same terms and
conditions as this lease except for the base rental rate which shall be
adjusted for each option period to the then current market rate for
comparable office space in the 3131 Elliott Avenue Building, taking into
consideration common rental concessions and tenant improvement allowances at
the time.
48. LESSOR CONSENT. Whenever this Lease requires Lessee to secure the
consent of Lessor, unless specifically provided otherwise herein, the same
shall not be unreasonably withheld.
49. AMENDMENTS. This Agreement may not be amended or modified except by
written instrument signed by the parties hereto.
50. ENTIRETY. This Agreement, along with the exhibits hereto, represents
the entire and final agreement of the parties hereto with respect to the
subject matter hereof and shall supersede all prior negotiations, discussions
or agreements, including, but not limited to, that Letter of Intent dated
March 13, 1996.
51. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereof have executed this lease the day
and year first above written.
/s/ MARTIN SELIG
- ---------------------------------- ------------------------------------
Martin Selig By: /s/ FRANK RUFFO
---------------------------------
Its: Vice President
---------------------------------
"Lessor" "Lessee"
14
<PAGE>
Attachment
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
On this 29th day of April, 1996 before me, a Notary Public in and for the
State of Washington, personally appeared MARTIN SELIG, the individual who
executed the within and foregoing instrument and acknowledged said instrument
to be his free and voluntary act and deed for the uses and purposes
therein mentioned.
[SEAL] /s/ NOELLE MRAMOR
-------------------------------
Notary Public in and for the
State of Washington, residing at Seattle
My commission expires: 2/15/2000
(Individual)
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
On this 29th day of April, 1996 before me, a Notary Public in and for the
State of Washington, personally appeared Frank A. Ruffo, the individuals who
executed the within and foregoing instrument, and acknowledged said
instrument to be his/her/their free and voluntary act and deed for the uses
and purposes therein mentioned.
Catherine L. Pasquan
[SEAL] ----------------------------------------
Notary Public in and for the
State of Washington, residing at Seattle
My commission expires: 3-30-99
(Partnership)
STATE OF WASHINGTON )
)ss.
COUNTY OF )
On this day of 19 , before me, a Notary Public in and
for the State of , personally appeared ,
to me known to be partner(s) of , the partnership that
executed the foregoing instrument, and acknowledged said instrument to be the
free and voluntary act and deed of said partnership, for the uses and
15
<PAGE>
purposes therein mentioned, and on oath stated that he/she/they is/are
authorized to execute said instrument on behalf of the partnership.
----------------------------------------
Notary Public in and for the
State of Washington, residing at
-------
----------------------------------------
My commission expires:-----------
(Corporation)
STATE OF WASHINGTON )
)ss.
COUNTY OF )
On this day of , 19 , before me, a Notary Public in and for
the State of , personally appeared ,
to me known to be the , respectively, of ,
the corporation that executed the within and foregoing instrument, and
acknowledged said instrument to be the free and voluntary act and deed of
said corporation, for the uses and purposes therein mentioned, and on oath
stated that he/she/they is/are authorized to execute said instrument and that
the seal affixed is the corporate seal of said corporation.
----------------------------------------
Notary Public in and for the
State of Washington, residing at
-------
----------------------------------------
My commission expires:
-----------
16
??
<PAGE>
EMERITUS CORPORATION
Exhibit 11.1
Statement Re: Computation of Pro Forma Per Share Loss (1)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1995 1996 1995 1996
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
FOR PRIMARY LOSS PER SHARE (2)
Shares outstanding at beginning of period 100 100 100 100
Adjustment for 9200-for-1 stock split in April 1995 919,900 919,900 919,900 919,900
Adjustment for 3.85-for-1 stock split is September 1995 2,622,000 2,622,000 2,622,000 2,622,000
Shares issued upon conversion of Preferred Stock (3) 4,158,000 4,158,000 4,158,000 4,158,000
Shares issued in the initial public offering 3,300,000 3,300,000 3,300,000 3,300,000
------------ ------------ ------------- -------------
Weighted average number of common and common
equivalent shares outstanding 11,000,000 11,000,000 11,000,000 11,000,000
============ ============ ============= =============
Pro forma net loss (1,678,000) (353,000) (2,747,000) (1,289,000)
============ ============ ============= =============
Pro forma primary loss per common share (0.15) (0.03) (0.25) (0.12)
============ ============ ============= =============
</TABLE>
1. Pursuant to the rules of the Securities and Exchange Commission, only
pro forma net loss per common share has been included above as
historical net loss per common share is not considered relevant due
to significant changes in the Company's operations. Pro forma net
loss per common share combines the results of operations of the
Company with facilities acquired or leased as if they had been
consummated as of January 1, 1995. Additionally, common and common
equivalent shares issued, represented by the convertible preferred
stock, during the 12 months immediately preceding the Company's
initial public offering have been included in the calculation of
common and common equivalent shares as if they were outstanding for
all periods presented, including loss years where the impact of the
incremental shares is antidilutive, using the treasury stock method
and the initial public offering price of $15 per share.
2. No calculation of fully diluted loss per share has been provided as
fully diluted loss per share is equal to primary loss per share.
3. Preferred shares have been adjusted for the effect of a 3.85-for-1 stock
split effective September 28, 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 1 AND 2 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 17,244
<SECURITIES> 3,062
<RECEIVABLES> 1,290
<ALLOWANCES> (11)
<INVENTORY> 192
<CURRENT-ASSETS> 23,310
<PP&E> 87,282
<DEPRECIATION> (2,476)
<TOTAL-ASSETS> 135,616
<CURRENT-LIABILITIES> 9,719
<BONDS> 78,669
0
0
<COMMON> 1
<OTHER-SE> 32,745
<TOTAL-LIABILITY-AND-EQUITY> 135,616
<SALES> 0
<TOTAL-REVENUES> 28,573
<CGS> 0
<TOTAL-COSTS> 29,018
<OTHER-EXPENSES> 121
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,537
<INCOME-PRETAX> (2,103)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,103)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,103)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
