<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 March 31, 1997.
( ) 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 MARCH 31, 1997
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.
(X) Yes ( ) No
As of May 14, 1997, 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, 1996 and March 31, 1997............ 1
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1996 and
1997............................................ 2
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1996 and
1997............................................ 3
Notes to Condensed Consolidated Financial
Statements...................................... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations... 7
Part II. Other Information
Item 6. Exhibits........................................ 14
Signatures...................................... 16
Note: Items 1-5 of Part II are omitted because they
are not applicable
<PAGE>
EMERITUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1996 and March 31, 1997
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
March 31,
December 31, 1997
1996 (unaudited)
------------ -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................... $ 23,039 $ 7,274
Current portion of restricted deposits........ 934 299
Trade accounts receivable..................... 1,713 1,611
Prepaid expenses and other current assets..... 4,561 6,529
Investment securities available for sale...... 2,152 2,519
Property held for sale........................ - 25,249
------------ -----------
Total current assets.................. 32,399 43,481
------------ -----------
Property and equipment, net..................... 97,150 85,282
Property held for development................... 8,796 9,101
Notes receivable from and investments in
affiliates.................................... 2,464 4,092
Lease acquisition costs, net.................... 8,127 7,969
Other assets, net............................... 9,102 9,966
------------ -----------
Total assets.......................... $158,038 $159,891
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings......................... $ - $ 1,957
Current portion of long-term debt............. 5,816 16,068
Trade accounts payable........................ 4,707 5,759
Construction advances - leased communities.... 6,387 -
Other current liabilities..................... 5,732 5,918
------------ -----------
Total current liabilities............. 22,642 29,702
------------ -----------
Security deposits............................... 1,014 986
Other long-term liabilities..................... 3,740 5,602
Deferred gain on sale of communities............ 9,433 9,171
Deferred income................................. 843 694
Convertible debentures.......................... 32,000 32,000
Long-term debt, less current portion............ 60,260 57,260
------------ -----------
Total liabilities..................... 129,932 135,415
------------ -----------
Minority interest............................... 1,918 1,776
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.................... 44,787 44,787
Unrealized gain on investment securities...... 18 102
Accumulated deficit........................... (18,618) (22,190)
------------ -----------
Total shareholders' equity............ 26,188 22,700
------------ -----------
Total liabilities and shareholders'
equity.............................. $158,038 $159,891
============ ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial
Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations.
1
EMERITUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1997
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Revenues:
Rent...................................... $11,215 $20,731
Service fees.............................. 1,302 3,771
--------- ---------
Total operating revenues.......... 12,517 24,502
--------- ---------
Expenses:
Community operations...................... 8,809 16,947
General and administrative................ 982 2,207
Depreciation and amortization............. 910 1,169
Rent...................................... 1,984 6,843
--------- ---------
Total operating expenses.......... 12,685 27,166
--------- ---------
Loss from operations.............. (168) (2,664)
--------- ---------
Other income (expense):
Interest expense, net..................... (1,105) (728)
Other, net................................ (13) (180)
--------- ---------
Net other expense................. (1,118) (908)
--------- ---------
Net loss..........................
$ (1,286) $ (3,572)
========= =========
Net loss per share.......................... $ (0.12) $ (0.32)
========= =========
Weighted average number of common shares
outstanding............................... 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
EMERITUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1996 and 1997
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Net cash provided by (used in) operating
activities (including changes in all operating
assets and liabilities).......................... $ 188 $ (1,427)
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment............ (18,141) (7,692)
Acquisition of property held for development..... (4,652) (2,321)
Proceeds from sale of property and equipment..... 47,293 -
(Purchase)/sale of investment securities, net.... (807) (269)
Construction advances - leased communities....... - 5,092
Construction expenditures - leased communities... - (12,043)
Advances to affiliates........................... - (1,228)
Acquisition of interest in affiliates............ - (678)
--------- ---------
Net cash provided by (used in) investing
activities............................. 23,693 (19,139)
--------- ---------
Cash flows from financing activities:
Restricted deposits.............................. (3,964) (298)
Proceeds from short-term borrowings, net......... - 1,957
Debt issue and other financing costs............. (5,044) -
Proceeds from long-term borrowings............... 8,883 7,386
Proceeds from issuance of convertible
debentures..................................... 30,720 -
Repayment of long-term borrowings................ (41,041) (4,244)
Other............................................ (47) -
--------- ---------
Net cash provided by (used in) financing
activities............................. (10,493) 4,801
--------- ---------
Net increase (decrease) in cash.......... 13,388 (15,765)
Cash at the beginning of the period................ 9,507 23,039
--------- ---------
Cash at the end of the period...................... $22,895 $ 7,274
========= =========
Supplemental disclosure of cash flow information -
cash paid during the period for interest......... $ 1,212 $ 1,372
========= =========
Noncash investing and financing activities -
acquisition of a community:
Assets acquired.................................. - $ 4,200
Liabilities assumed.............................. - 3,850
Transfer of property held for development to
property and equipment........................... - 6,998
Transfer of property and equipment to property held
for sale......................................... - 25,249
Vehicle acquisition through debt financing......... - 323
</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 March 31, 1997 and for the
three months ended March 31, 1997 and 1996. The Company presumes
that users of the interim financial information herein have read
or have access to the Company's 1996 audited consolidated
financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the
1996 Form 10-K filed March 31, 1997 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.
Certain reclassifications of the 1996 amounts have been made
to conform to the 1997 presentation.
2. ACQUISITIONS
During the year ended December 31, 1996 and the three months
ended March 31, 1997, 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 or identifiable
intangibles were 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. Summary
information concerning the acquisitions is as follows:
<TABLE>
<CAPTION>
Total
Communities acquired Acquisition date purchase price Units
--------------------- ---------------- -------------- -----
(in thousands)
<S> <C> <C> <C>
Heritage Hills Retirement.... February 1, 1996 $ 4,338 100
Lakewood Inn (1)............. March 1, 1996 2,800 47
Laurel Place (formerly Golden
Park)...................... April 25, 1996 2,100 72
Madison Glen (formerly
Sunshine Manor)............ May 15, 1996 3,842 140
The Hearthstone.............. November 1996 5,200 84
Concorde..................... November 1996 8,400 116
Other 1996 Acquisitions...... Various 8,202 272
Villa Del Rey................ March 19, 1997 4,252 84
-------------- ---------
$39,134 915
-------------- ---------
</TABLE>
(1) Refinanced through a sale/leaseback with a REIT.
Lease includes an initial term of 13 years and four
five-year renewal options. Upon completion of a $7.1
million expansion project annual lease payments will
be approximately $714,000. The Company has no
continuing involvement outside of operating the
community.
The foregoing purchases have generally been financed through
borrowings.
4
<PAGE>
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDTED FINANCIAL STATEMENTS - (Continued)
During the year ended December 31, 1996, the Company
completed several acquisitions of communities through lease
financing transactions with certain Real Estate Investment
Trusts' (REITs'), pursuant to which the REITs' leased such
communities to the Company under operating leases. The results of
operations of the communities acquired have been included in the
Company's consolidated financial statements from the dates the
leases commenced for those communities not previously owned.
<TABLE>
<CAPTION>
Lease Initial Renewal Annual
Communities leased Acquisition date Lease Term Options Rent Units
------------------- ---------------- ---------- -------- ---- -----
<S> <C> <C> <C> <C> <C>
Carolina Communities(1)...... February 1996 15 years Three five-year $ 4,145,607 648
Evergreen Lodge.............. April 1996 13 years Four five-year 572,569 98
Rosewood Court (2)........... April 1996 14 yrs/9 mos Three five-year 393,200 71
Barrington Place............. May 1996 11 yrs/11 mos Four five-year 413,601 80
Springtree................... May 1996 11 yrs/11 mos Four five-year 1,410,353 185
The Terrace(3)............... August 1996 11 yrs/8 mos Four five-year 416,887 88
Lodge at Mainlands........... August 1996 11 yrs/7 mos Four five-year 924,530 154
Colonial Park Club........... August 1996 11 yrs/7 mos Four five-year 770,862 90
Ridge Wind................... August 1996 11 yrs/8 mos Four five-year 458,061 80
Other 1996 Leases............ October 1996 11 years Four five-year 1,753,006 226
Wegman Communities(4)........ November 1996 15 years Two five-year 4,975,000 738
----------- -----
$16,233,676 2,458
=========== =====
</TABLE>
(1) Consists of 10 long-term-care communities located
in North and South Carolina.
(2) Originally acquired in 1995, refinanced through a
sale/leaseback with a REIT. The Company has no
continuing involvement outside of operating the
community.
(3) Originally acquired in 1996, refinanced through a
sale/leaseback with a REIT. The Company has no
continuing involvement outside of operating the
community.
(4) Consists of 9 long-term-care facilities located
in New York.
The following summary, prepared on a pro forma basis,
combines the results of operations of the acquired businesses
with those of the Company as if the acquisitions, acquisitions
through lease financings and sale/leaseback financings had been
consummated as of January 1, 1996, after including the impact of
certain adjustments such as depreciation on assets acquired and
interest expense on acquisition financing.
<TABLE>
<CAPTION>
Three months ended March 31,
-------------------------------------
1996 1997
----------------- -----------------
(In thousands, except per share data)
<S> <C> <C>
Revenue...................... $23,174 $24,676
Net loss..................... (1,945) (3,648)
Net loss per share........... $ (0.18) $ (0.33)
</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.
5
<PAGE>
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDTED FINANCIAL STATEMENTS - (Continued)
3. PROPERTY HELD FOR SALE
At March 31, 1997, the Company has commitments with a REIT
to refinance four existing communities and two developments (the
"Properties Held For Sale" or "Properties") through
sale/leaseback transactions, pursuant to which the REIT will
acquire the Properties and lease such Properties back to the
Company under operating lease agreements. Of the $25.2 million
in Properties Held For Sale, $15.2 million represents existing
communities securing $8.8 million of related long-term debt and
$8.2 million represents developments securing $5.2 million in
related construction financing. The remaining $1.8 million
represents land located in Maryland.
6
<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 three months ended March 31, 1996 and 1997,
the Company generated total operating revenues of $12.5 million
and $24.5 million, respectively. As of March 31, 1997, the
Company's accumulated deficit was $22.2 million and its total
shareholders' equity was $22.7 million. For the three months
ended March 31, 1996 and 1997, the Company generated net losses
of $1.3 million and $3.6 million, respectively.
The Company's operating strategy is to increase operating
margins at each acquired or newly developed community, whether
leased or owned, 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.
As of May 9, 1997, the Company holds ownership, leasehold
or management interests in 85 residential communities (the
"Operating Communities") consisting of approximately 7,500 units,
located in 19 states. Of the 85 Operating Communities two newly
developed communities were opened during each of the first and
second quarters of 1997. In addition to the 85 Operating
Communities, three communities have received their certificate of
occupancy and are expected to receive their operating license
during the second quarter of 1997. The Company also completed
construction on an expansion to an existing community. In
addition, the Company has agreements to purchase 7 additional
existing communities located in two states and Canada and a
letter of intent to purchase one additional existing community in
Oklahoma ("Pending Acquisitions"). The Pending Acquisitions
contain an aggregate of approximately 500 units and are expected
to close during 1997. The Company owns, has a leasehold interest
in or has acquired an option to purchase development sites for 31
new assisted-living communities (the "Development Communities").
Twelve of the Development Communities are currently under
construction, ten of which are scheduled to open during 1997.
The Company leases 63 of its Operating Communities, typically
from a financial institution such as a Real Estate Investment
Trust ("REIT"), owns 19 communities, manages two communities and
has a joint venture and management interest in one community.
Assuming completion of the Pending Acquisitions and Development
Communities scheduled to open throughout 1997, the Company will
own, lease or manage 106 properties in 26 states and Canada,
containing an aggregate of approximately 9,000 units with a
capacity of over 10,400 residents. Additionally, the Company
holds a minority interest in Alert Care Corporation ("Alert"), an
Ontario, Canada based owner and operator of 17 assisted-living
communities consisting of approximately 900 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 factors beyond the Company's control. From
time to time, the Company also manages assisted-living
communities owned or leased by others, but historically this
activity has not been material to the Company's business or
revenue.
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, 1996. 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.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
RECENT EVENTS
Subsequent to the end of the first quarter of 1997, the
Company acquired three communities through a lease financing
transaction, acquired three communities financed through
borrowings and completed construction on four newly developed
communities, one of which has received its license to operate and
the remaining three are expected to receive their license during
the second quarter of 1997. Additionally, the Company completed
construction on a 62 unit expansion to an existing community and
entered into an agreement with an affiliate to provide
administrative services for an independent-living community
located in South Carolina. See "Liquidity and Capital
Resources".
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>
Percentage of Revenues Period to Period
March 31, Percentage
---------------------- Increase (Decrease)
1996 1997 1996-1997
---------- ---------- -------------------
<S> <C> <C> <C>
Revenues.......................... 100 % 100 % 96 %
Expenses:
Community operations............ 70 69 92
General and administrative...... 8 9 125
Depreciation and amortization... 7 5 28
Rent............................ 16 28 245
---------- ---------- -------------------
Total operating expenses...... 101 111 114
---------- ---------- -------------------
Loss from operations.......... (1) (11) 1486
---------- ---------- -------------------
Other expense:
Interest expense, net........... 9 3 (34)
Other, net...................... - 1 1285
---------- ---------- -------------------
Net loss........................ (10)% (15)% 178 %
========== ========== ===================
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS
ENDED MARCH 31, 1996
REVENUES. Total operating revenues for the three months
ended March 31, 1997 were $24.5 million, representing a $12.0
million, or 96%, increase over operating revenues of $12.5
million for the comparable period in 1996. Substantially all of
this increase resulted from the opening of new developments and
the acquisition of 37 communities between March 31, 1996 and
1997. The Company ended with 41 and 77 communities as of March
31, 1996 and March 31, 1997, respectively.
COMMUNITY OPERATIONS. Expenses for community operations for
the three months ended March 31, 1997 were $16.9 million,
representing an $8.1 million, or 92% increase over $8.8 million
for the comparable period in 1996, primarily due to the Company's
opening or the acquisition of 36 communities between March 31,
1996 and 1997. As a percentage of total operating revenues,
expenses for community operations decreased to 69% for the three
months ended March 31, 1997, from 70% for the comparable period
in 1996.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
GENERAL AND ADMINISTRATIVE. General and administrative
expenses for the three months ended March 31, 1997 were $2.2
million, representing an increase of $1.2 million, or 125% from
$982,000 for the comparable period in 1996. As a percentage of
total operating revenues, general and administrative expenses
increased to 9% for the three months ended March 31, 1997, from
8% for the comparable period in 1996. The increase in general
and administrative expenses was attributable to salaries and
associated costs relating to additional employment in conjunction
with new business, increased accounting costs and higher travel
and other costs relating to the Company's acquisition and
development program. General and administrative costs are
expected to continue to increase at least through 1997 as the
Company acquires additional existing communities and develops new
communities.
DEPRECIATION AND AMORTIZATION. Depreciation and
amortization for the three months ended March 31, 1997 was $1.2
million, or 5% of total operating revenues, compared to $910,000
or 7% of total operating revenues, for the comparable period in
1996. The dollar increase was primarily due to the Company's
opening new developments and the acquisition of six communities
owned by the Company between march 31, 1996 and 1997. The
decrease as a percentage of revenue was due to the increase in
the number of communities financed through lease or
sale/leaseback transactions. The Company owned 16 of its 77
communities at March 31, 1 997 compared to 13 of its 41
communities at march 31, 1996.
RENT. Rent expense for the three months ended March 31,
1997 was $6.8 million, representing an increase of $4.8 million,
or 245% from rent expense of $2.0 million for the comparable
period in 1996. As a percentage of total operating revenues,
rent expense increased to 28% for the three months ended March
31, 1997, from 16% for the comparable period in 1996. The dollar
and percentage increases were due to the Company entering into
lease financing or sale/leaseback transactions with respect to 58
out of 77 of its residential communities as of March 31, 1997
compared to 27 out of 41 communities as of March 31, 1996. Rent
expense is expected to continue to increase as the Company
refinances owned communities through sale/leaseback transactions
and acquires additional communities through lease financing
transactions.
INTEREST EXPENSE, NET. Interest expense, net, for the three
months ended March 31, 1997 was $728,000 compared to $1.1 million
for the comparable period in 1996, decreasing as a percentage of
total operating revenues to 3% for the three months ended March
31, 1997 from 9% for the comparable period in 1996. The dollar
decrease was due to the repayment of existing mortgage debt with
lower rate convertible debenture proceeds and refinancing of
mortgage indebtedness through sale/leaseback transactions.
COMMUNITY COMPARISON
The Company operated 19 communities ("Same Community")
on a comparable basis during both the three months ended March
31, 1996 and 1997. Average occupancy for the three months ended
March 31, 1997 was at 90% compared to 92% for the three months
ended March 31, 1996 while net operating margins increased by
$167,000 to 34% on revenue of $7.8 million as compared to 32% on
revenue of $7.9 million for the three months ended March 31,
1996. Same Community pre-tax income increased by 350% to $527,000
before corporate overhead compared to the comparable period last
year.
For the three months ended March 31, 1997, the Company had
41 communities that had achieved average occupancy in excess of
90% and had been operated by the Company for at least one month
during the first quarter of 1997 ("Group One Communities") and 36
communities that had average occupancy of less than 90%, which
includes 22 newly opened developments and/or communities with
significant ongoing repositioning and/or refurbishment ("Group
Two Communities"). The following tables set forth a comparison
of Group One and Group Two communities results of operations for
the three months ended March 31, 1997.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997
(In thousands)
Group One Group Two
Communities Communities Three
(Greater than (Less than Months Ended
90% Occupied) 90% Occupied) Overhead March 31, 1997
------------- ------------- -------- --------------
<S> <C> <C> <C> <C>
Revenue........................... $17,423 $ 7,074 $ 5 $24,502
Community operating expense....... 10,811 6,136 - 16,947
------------- ------------- -------- --------------
Community operating income...... 6,612 938 5 7,555
------------- ------------- -------- --------------
General and administrative........ - - 2,207 2,207
Depreciation and amortization 384 661 124 1,169
Rent.............................. 4,404 2,333 106 6,843
------------- ------------- -------- --------------
Operating income (loss)......... 1,824 (2,056) (2,432) (2,664)
------------- ------------- -------- --------------
Interest income (expense), net.... (422) (635) 329 (728)
Other income (expense)............ 44 20 (244) (180)
------------- ------------- -------- --------------
Net income (loss)............... $ 1,446 $(2,671) $(2,347) $(3,572)
============= ============= ======== ==============
</TABLE>
Net income for the three months ended March 31, 1997 for the
Group One Communities was $1.4 million, representing a $646,000
or 81% increase from net income of $800,000 for the three months
ended December 31, 1996, primarily due to the acquisition of 10
communities on November 1, 1996. Average occupancy for the Group
One Communities remained at 95% for the three months ended March
31, 1997 while net operating margins increased by $1.2 million to
38% as compared to 34% for the three months ended December 31,
1996. The total number of Group One Communities increased by one
during the first quarter of 1997 compared to the fourth quarter
of 1996 due to a reclassification from Group Two Communities.
Net losses for the three months ended March 31, 1997 for the
Group Two Communities were $2.7 million, representing a $162,000
or 6% increase over net losses of $2.5 million for the three
months ended December 31, 1996. The increase is primarily due to
openings of new developments late in the fourth quarter of 1996
and during the first quarter of 1997 and the acquisition of one
community in the first quarter of 1997. Average occupancy for the
Group Two Communities was 48% for the three months ended March
31, 1997 as compared to 51% for the three months ended December
31, 1996. The decrease in average occupancy is primarily a
result of the opening of five newly developed communities during
the first quarter of 1997. The total number of Group Two
Communities had a net five increase during the first quarter of
1997. This increase was due to the opening of five newly
developed communities by the Company, one acquired community and
one community which was reclassified to Group One Communities.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1996 and 1997, net cash
flow provided by (used in) operating activities was $188,000 and
$(1.4) million, respectively. During the three months ended March
31, 1997, the Company obtained $7.4 million and repaid $4.2
million in long-term debt, respectively, including refinancing
$1.8 million and repaying $2.1 million in long-term debt on two
assisted-living communities located in Arizona and obtained $2.0
million in short-term borrowings. The Company purchased
additional property and equipment and property held for
development of $10.0 million. At March 31, 1997, the Company has
commitments with a REIT to refinance four existing communities
and two developments (the "Properties Held For Sale" or
"Properties") through sale/leaseback transactions, pursuant to
which the REIT would acquire the Properties and lease such
Properties back to the Company under operating lease agreements.
Of the $25.2 million in Properties Held For Sale, $15.2 million
represents existing communities securing $8.8 million of related
long-term debt and $8.2 million represents developments securing
$5.2 million in related construction financing. The remaining
$1.8 million represents land located in Maryland. During the
three months ended March 31, 1996, the Company obtained $47.3
million in proceeds from the sale of communities in
sale/leaseback financing transactions and repaid related mortgage
debt of $31.6 million as well as $9.4 million of unrelated
mortgage debt. The Company also incurred additional long-term
debt of $39.6 million, including $30.7 million, net proceeds
from the private placement of convertible subordinated debentures
and purchased additional property and equipment and property held
for development of $22.8 million. As a result of these
acquisition and financing transactions during the first quarter
of 1997, the Company decreased its cash position by approximately
$15.8 million. As of March 31, 1997, the Company had working
capital of $13.8 million compared to a working capital of $9.8
million as of December 31, 1996.
In December 1996, the Company completed construction on
three developments, Dowlen Oaks, Elmbrook Estates and Saddleridge
Lodge. In February 1997, Elmbrook Estates received full
licensure to operate and commenced operations. In March 1997,
Dowlen Oaks and Saddleridge Lodge received full licensure to
operate and commenced operations. All three communities are
located in Texas and contain an aggregate of 237 units. The
communities are operated by the Company pursuant to operating
lease agreements with a REIT. The leases consist of an initial
term of 13 years, with four five-year renewal options and annual
base rent aggregating approximately $1.7 million.
In February 1997, the Company completed construction on two
newly developed communities, Harbour Pointe Shores located in
Washington and Seville Estates located in Texas. In March 1997,
the communities received full licensure to operate and commenced
operations. The communities are operated by the Company pursuant
to operating lease agreements with a REIT. The leases consist of
an initial term of 13 years and 8 months and 13 years and 9
months for Harbour Pointe Shores and Seville Estates,
respectively, with four five-year renewal options. Annual base
rent for the two communities aggregate approximately $725,000.
In March 1997, the Company completed construction on one
newly developed community, Woods at Eddy Pond located in
Massachusetts. The community received its certificate of
occupancy and upon completion of licensure, will be operated by
the Company on a joint venture basis pursuant to an operating
lease agreement with a third party. The lease consists of an
initial term of 20 years with two ten-year renewal options and
annual base rent of approximately $769,500.
On March 19, 1997, the Company acquired an 84 unit assisted-
living community located in Escondido, California for a purchase
price of $4.3 million financed by borrowings.
On April 1, 1997, the Company completed $21.0 million in
lease financing on three assisted-living communities located in
Texas. The communities contain an aggregate of 411 units and
were acquired by the Company pursuant to an operating lease with
a REIT. The leases include an initial term of 15 years with
three five-year renewal options and annual base rent aggregating
$2.2 million.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
On April 1, 1997, the Company entered into an agreement with
Columbia House LLC, an affiliate of the Company, to provide
administrative and accounting services for a 50 unit independent-
living community located in South Carolina. Under the agreement
the Company shall receive an administrative services fee of
$2,500 payable monthly over the term of the agreement of four
years and nine months.
In April 1997, the Company opened two developments
aggregating 195 units, Elm Grove Estates in Kansas and
Springmeadows Residence in Montana. The community located in
Kansas is operated by the Company pursuant to an operating lease
agreement with a REIT. The lease consists of an initial term of
13 years, with four five-year renewal options and annual base
rent of approximately $972,000 . The community located in
Montana is owned and operated by the Company.
Additionally, in April 1997, the Company completed
construction on two developments aggregating 160 units, Cold
Spring Commons in Connecticut and Stonecreek Lodge in Kentucky.
The communities received their certificate of occupancy and upon
completion of licensure, will be operated by the Company on a
joint venture basis pursuant to operating lease agreements with a
third party. The leases consist of an initial term of 20 years
with two ten-year renewal options and annual base rent
aggregating approximately $1.5 million. Also, the Company
completed construction on a 62 unit expansion to an existing
community located in Idaho. The two communities and expansion
are expected to commence operations during the second quarter of
1997.
On April 25, 1997, the Company and Carematrix Corporation
("Carematrix"), formerly known as The Standish Care Company
("Standish"), entered into an agreement (the "Agreement") with
respect to the community located in New Hampshire (the "Sunny
Knoll Facility"). Under this Agreement the Company agreed to the
transfer and relinquishment of its 49% interest in the Sunny
Knoll Facility and Carematrix agreed to pay $410,000 plus accrued
interest to the Company for all outstanding obligations between
the two parties. Pursuant to the Agreement, the Company was
indemnified for all future liabilities and operations and any
other agreements and obligations related to the Sunny Knoll
Facility. Also, under this Agreement, the Company was
indemnified with respect to all pre-existing agreements and
obligations with respect to Standish.
On May 1, 1997, the Company acquired three communities
located in New Port Richey, Florida, Englewood, Florida and
Altamonte Springs, Florida for a purchase price of $33.0 million
financed through borrowings. The communities contain an
aggregate of 473 units consisting of independent, assisted-living
and Alzheimer's care.
On May 1, 1997, the Company refinanced $4.6 million through
a sale/leaseback transaction on a 74 unit assisted-living
community located in Kirkland, Washington with a REIT, pursuant
to which the REIT acquired the community and leased it back to
the Company under an operating lease consisting of an initial
term of 12 years with four five-year renewal options and annual
base rent of approximately $708,000.
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. 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 or other sources.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
FINANCIAL ACCOUNTING STANDARD NO. 128
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard (SFAS) No. 128,
Earnings Per Share. This statement establishes standards for
computing and presenting earnings per share (EPS), replacing the
presentation of currently required primary EPS with a
presentation of Basic EPS. For entities with complex capital
structures, the statement requires that dual presentation of both
Basic EPS and Diluted EPS on the face of the statement of
operations. Under this new statement, Basic EPS is computed
based on weighted average shares outstanding and excludes any
potential dilution. Diluted EPS reflects potential dilution from
the exercise or conversion of securities into common stock or
from other contracts to issue common stock and is similar to the
currently required fully diluted EPS. SFAS 128 is effective for
financial statements issued for earlier periods ending after
December 15, 1997, including interim periods, and earlier
application is not permitted. When adopted, the Company will be
required to restate its EPS data for all prior periods presented.
The Company does not expect the impact of the adoption of this
statement to be material to previously reported EPS amounts.
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.
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PART II OTHER INFORMATION
Items 1-5 are not applicable.
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
10.1 VILLA DEL REY IN ESCONDIDO, CALIFORNIA
10.1.1 Purchase and Sale Agreement dated December 19, 1996
between the registrant ("Purchaser") and Northwest
Retirement ("Seller").
10.1.2 Restated Promissory Note dated February 26, 1997 in
the amount of $3,030,773.40 between the registrant
("Borrower") and Redlands Federal Bank ("Lender").
10.1.3 Agreement for Modification of Loan Documents dated
February 26, 1997 between the registrant and Redlands
Federal Savings Bank.
10.1.4 Loan Assumption Agreement dated February 26, 1997
between the registrant and Redlands Federal Savings
Bank.
10.1.5 Amended and Restated Deed of Trust dated February 26,
1997 between the registrant ("Borrower") and Redlands
Financial Services, Inc. ("Trustee") and Redlands
Federal Bank ("Lender").
10.1.6 All-Inclusive Promissory Note dated March 25, 1997 in
the amount of $749,512.17 between the registrant and
Northwest Retirement ("Payee").
10.1.7 All-Inclusive Deed of Trust dated March 26, 1997
between the registrant ("Trustor"), Chicago Title
Insurance Company ("Trustee") and Northwest Retirement
("Beneficiary").
10.2 CRESTON VILLAGE IN PASO ROBLES, CALIFORNIA
10.2.1 Agreement of TDC/Emeritus Paso Robles Associates dated
June 1, 1995 between the registrant and TDC
Convalescent, Inc.
10.2.2 Loan Agreement in the amount of $6,000,000 dated
February 15, 1997 between Finova Capital Corporation
("Lender") and TDC/Emeritus Paso Robles Associates
("Borrower").
10.2.3 Promissory Note dated February 28, 1997 in the amount
of $6,000,000 between Finova Capital Corporation
("Lender") and TDC/Emeritus Paso Robles Associates
("Borrower").
10.2.4 Deed of Trust, Security Agreement, Assignment of
Leases and Rents and Fixture Filing dated February 18,
1997 between TDC/Emeritus Paso Robles Associates
("Trustor"), Chicago Title Company ("Trustee") and
Finova Capital Corporation ("Beneficiary").
10.2.5 Guaranty between TDC Convalescent, Inc. ("Guarantor")
and Finova Capital Corporation.
10.2.6 Guaranty between the registrant ("Guarantor") and
Finova Capital Corporation.
10.3 YORK CARE IN YORK, SOUTH CAROLINA
10.3.1 Management Services Agreement dated March 31, 1997
between the registrant ("Administrator") and Columbia
House LLC ("Lessee").
10.3.2 Commercial Lease Agreement dated January 13, 1997
between Albert M. Lynch ("Landlord") and Columbia
House, LLC ("Tenant").
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10.4 THE PALISADES IN EL PASO, TEXAS, AMBER OAKS IN SAN ANTONIO,
TEXAS AND REDWOOD SPRINGS IN SAN MARCOS, TEXAS. THE
FOLLOWING AGREEMENTS ARE REPRESENTATIVE OF THOSE EXECUTED
IN CONNECTION WITH THESE PROPERTIES.
10.4.1 Lease Agreement dated April 1, 1997 between ESC III,
L.P. D/B/A Texas-ESC III, L.P. ("Lessee") and Texas
HCP Holding , L.P. ("Lessor").
10.4.2 First Amendment to Lease Agreement dated April 1, 1997
between Lessee and Texas HCP Holding , L.P. Lessor.
10.4.3 Guaranty dated April 1, 1997 by the registrant
("Guarantor") in favor of Texas HCP Holding , L.P.
10.4.4 Assignment Agreement dated April 1, 1997 between the
registrant ("Assignor") and Texas HCP Holding , L.P.
("Assignee").
10.5 DEVELOPMENT PROPERTY IN PUYALLUP, WASHINGTON
10.5.1 Deed of Trust, Security Agreement, Financing Statement
and Assignment of Resident Agreements and Rents dated
January 30, 1997 between Emeritus Properties III, Inc.
("Grantor"), Chicago Title Insurance Company
("Trustee") and Ocwen Federal Bank FSB
("Beneficiary").
10.5.2 Agreement for Amendment of Documents dated January 30,
1997 between Emeritus Properties III, Inc.,
("Borrower") and OCWEN Federal Bank FSB, ("Lender").
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
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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: May 14, 1997
EMERITUS CORPORATION
(Registrant)
/s/ Kelly J. Price
-------------------------
Kelly J. Price, Vice President, Finance and
Chief Financial Officer
/s/ James S. Keller
-------------------------
James S. Keller, Controller and Director of
Accounting (Principal Accounting Officer)
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<PAGE>
PURCHASE AND SALE AGREEMENT
Escondido. CA
THIS AGREEMENT is dated for reference
purposes only as of the 19th day of December,
1996, and is by and between EMERITUS CORPORATION,
a Washington corporation, or its assignee
("Purchaser"), and NORTHWEST RETIREMENT, an Oregon
general partnership ("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 Escondido, 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 facility consisting of eighty-two
(82) units, and commonly known as "VDR-Escondido"
(the "Facility").
b. All equipment, furniture, fixtures,
inventory, vehicles, supplies (including linens,
dietary supplies and housekeeping supplies but
specifically excluding food and other consumable
inventories) 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 name "VDR-Escondido" and any derivative
thereof and any trade marks related thereto and
goodwill associated therewith, as well as all
easements, licenses, governmental approvals or
permits and any other rights or privileges
appurtenant to the Real Property or Facility, 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.
c. The food and other consumable
inventories located at, and usable in the
operation of, the Facility on the Closing Date
(collectively, the "Consumables").
The Real Property, Facility, Consumables and
Personal Property are sometimes hereinafter
collectively referred to as "Seller's Assets."
2. PURCHASE PRICE
The purchase price payable by Purchaser for
Seller's Assets shall be Four Million Two Hundred
Thousand and no/100 Dollars ($4,200,000) (the
"Purchase Price"), payable as follows:
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 Chicago Title Insurance Company (the
"Escrow Agent") and shall be deposited into an
interest bearing account, with any interest earned
thereon accruing to the benefit of the party
entitled to the deposit under this Agreement.
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b. A portion of the Purchase Price shall be
paid by delivery of Purchaser's Promissory Note in
form and amount mutually agreeable to the parties.
c. The balance of the Purchase Price shall
be due and payable either in cash, by certified
check or by wire transfer at Closing (the
"Remaining Balance"); provided, however, that in
the event Purchaser elects to assume the debt
evidenced and secured by any of the mortgages or
deeds of trust which currently encumber the
Seller's Assets (the "Facility Mortgages") and the
lender consents to said assumption, then the
Remaining Balance shall be reduced by the
outstanding principal balance of said Facility
Mortgage(s).
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 occur 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 Special Warranty
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 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. Such items of record as described in the
Title Report (as defined below) reviewed and
approved by Purchaser as provided in Paragraph
13.f. below, excluding, however, any monetary
liens and encumbrances referenced therein.
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 sales, 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.
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<PAGE>
c. Seller shall pay the cost of a standard
owner's title insurance policy. The cost of
extended coverage and any endorsements which
Purchaser may request shall be paid by Purchaser.
d. All revenues (including but not limited
to rent due from the tenants of the Facility) and
expenses (including but not limited to payroll and
employee benefits) 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.
e. Real and Personal Property taxes and
assessments shall be prorated as of the Closing
Date, with Seller responsible for taxes and
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.
f. Seller shall attempt to 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.
g. Purchaser and Seller shall each pay
their own attorney's fees.
h. Purchaser and Seller shall share all
recording fees related to the recording of the
conveyance deed and any escrow fees on a 50-50
basis.
i. Seller and Purchaser shall share equally
all costs, expenses and fees which may be assessed
by any governmental authority in connection with
obtaining any governmental approval or consent
which may be required in order to consummate the
purchase and sale of Seller's Assets and the
transfer of operations of the Facility.
j. Purchaser shall pay the cost of the
Environmental Report and of the Survey (as those
terms are defined below).
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
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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 of Seller's
partnership agreement, or 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 will deliver 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 title
to the Personal Property free and clear of all
leases, liens and encumbrances, except as
disclosed by Seller and accepted in writing by
Purchaser. 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. During due diligence,
Seller will provide Purchaser copies of each of
the leases with the tenants
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of the Facility which are currently in effect
(collectively the "Facility Leases"). Each of the
Facility Leases is in ful1 force and effect and
none of the Facility Leases 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 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 November 30,
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. EMPLOYEES; UNIONS. None of Seller's
employees are members of a labor union or subject
to any collective bargaining agreement with
respect to their employment with Seller. There are
no labor disputes or grievances pending with
respect to the operations at the Facility, except
as otherwise provided in Exhibit G. For purposes
hereof, a labor dispute or grievance shall be
deemed to be pending if the same has been served
on Seller or Seller has otherwise been advised
either orally or in writing of the pendency
thereof.
m. 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
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.
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n. OPERATING CONTRACTS. During sue
diligence, Seller will provide 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. 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.(iii).
o. THE FACILITY. The Facility consists of
eighty-two (82) units and operates as a congregate
care retirement home. The Facility operates as a
congregate care retirement home. 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.
p. INVENTORY. All inventories of non-
perishable food, central supplies, linen,
housekeeping and other supplies located at the
Facility are, and shall be at the time of Closing,
in sufficient condition and quantity to operate
the Facility at normal capacity.
q. 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 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. PURCHASER'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.
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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
Neither party has employed a broker or finder
in connection with this transaction. In the event
any claim, damage or cause of action for brokerage
and/or finder's fees is asserted against either
party, the other shall indemnify, defend (with an
attorney of indemnitee's choice) and hold harmless
the indemnitee from and against any and all such
claims, demands and causes of action.
10. SELLER'S COVENANT,
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;
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(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 the Seller's Assets, except
in the ordinary course of business;
(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;
(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, 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 thirty (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 covering a period of not less than three
(3) 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, all
escrow accounts, leases, accounts payable records,
rent rolls, operating statements, inventory of
personal property, title reports and all
documentation outlined therein, MAI appraisals,
soils and engineering tests, structural
inspections, all zoning and related agreements and
certification from all governmental agencies
relating to the Seller's Assets, and all other
contracts and agreements which relate to the
Seller's Assets;
(xii) Seller will timely pay all obligations
which are due and payable with respect to the
Property;
(xiii) Seller will cause the Facility to be
operated in 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 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; and
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(xv) Seller will proceed with all due
diligence to secure any consents which may be
necessary for the assignment of the Facility
Leases.
(xvi) Cooperate with Purchaser's undertaking
to obtain UCC-I search reports at both the county
and state level covering the name of Seller and
the name of the Facility, (b) cooperate with
Purchaser to cause the Title Insurer to issue and
delivery to Purchaser and to Purchaser's attorney
a title report or commitment covering the Real
property, together with copies of all exception
documents referenced therein (the "Title Report"),
(c) cooperate with Purchaser to 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) cooperate with Purchaser to 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");
(xvii) Seller will provide Purchaser within
fifteen (15) days following the mutual execution
of this Agreement with copies of the following
documents relating to the Real Property and the
Facility to the extent the same are in Seller's
possession or reasonable control (together with
those materials referenced in paragraph l0.a.(xi),
the "Property Documents"): evidence of appropriate
zoning, all environmental reports, structural
reports and geological reports, plans and
specifications, 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.
In addition, Seller will cooperate with Purchaser
in providing such additional information regarding
the Real Property and/or Facility as may be
reasonably required by Purchaser;
(xviii) Neither Seller nor anyone authorized
to act on its behalf shall directly initiate or
solicit or otherwise engage in discussions
relating to any alternative acquisition proposal
or similar transaction.
b. CLOSING. On the Closing Date, Seller
agrees that it will:
(i) Execute and deliver to Purchaser a good
and sufficient Special Warranty 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) 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.;
(iii) Deliver the Seller's Assets to
Purchaser in good condition and repair, ordinary
wear and tear excepted;
(iv) Deliver to Purchaser a duly executed
assignment of the Facility Leases in form and
substance acceptable to Purchaser (the "Facility
Lease Assignment Agreement");
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(v) Pay its share of the Closing costs,
including, but not limited to, the premium for the
issuance of a standard coverage Title Policy;
(vi) 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.(iii)
(the "Operating Contract Assumption Agreement");
(vii) 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); and
(viii) Deliver to Purchaser the Benefits
Schedule (as defined in Paragraph 18) and pay the
Accrued Employee Benefits to Purchaser.
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 and cooperate with Purchaser in
any efforts which it may undertake to audit
Seller's financial statements with respect to the
Facility for the periods prior to the Closing if
and to the extent such an audit is required for
Purchaser's compliance with applicable securities
laws. The obligations of Seller hereunder shall
survive the Closing of the transaction provided
for herein.
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;
(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) Not less than 30 days prior to the
Closing Date, 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;
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(iii) Execute and deliver to Seller or to
Escrow Agent a counter-part copy of the Operating
Contract Assumption Agreement, if applicable; and
(iv) Execute and deliver to Seller or to
Escrow Agent a counter-part of the Facility Lease
Assignment Agreement.
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 properly 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 (1) or all or
which may be waived in writing by Purchaser:
a. SELLER'S REPRESENTATIONS AND WARRANTIES
TRUE AT LOSING. Seller'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. 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.
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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 as a Congregate
Care retirement home, including the approval of
Purchaser's Board of Directors of the transaction
contemplated hereunder.
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, (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 forty-five (45) 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. 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 Purchaser'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 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. Upon the Closing, Title
Insurer shall irrevocably agree to issue to
Purchaser, effective 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 total amount of the Purchase Price insuring
Purchaser's interest in the Real Property and the
Facility, and subject to no
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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), and those exceptions accepted by
Purchaser pursuant to Paragraph 13.f.
h. UCC SEARCH. On or before the Closing
Date, Purchaser shall be satisfied with the
results of the UCC search conducted by Purchaser
pursuant to Paragraph l0.a.(xvi).
i. FINANCING. On or before the Closing
Date, Purchaser shall have obtained approvals to
assume the existing first (1st), second (2nd) and
third (3rd) mortgages, or obtained from an
institutional lender, or other lender source
acceptable to Purchaser, financing for the
Purchase Price on commercially reasonable terms
and conditions.
j. FACILITY MORTGAGES. Purchaser shall have
reviewed and approved all documentation relating
to the Facility Mortgages. If and to the extent
Purchaser elects to assume any of the Facility
Mortgages, Purchaser shall have secured the
written approval of the lender with respect
thereto and any documents required by the lender
to evidence said assumption shall have been
executed by said lender and 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.
14. SELLER'S CONDITION
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 (1) 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:
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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 any obligations
under the Facility Leases or the Operating
Contracts which Purchaser elects to assume at
Closing, and 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 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' 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 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.
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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 I 3 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;
(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 September 30,1997.
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) in the event the
Closing has 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 retain Purchaser's
Earnest Money, together with interest accrued
thereon as full and complete liquidated damages,
the parties acknowledging and agreeing 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
is a reasonable and fair estimate thereof, after
which the parties shall have no further rights or
obligations hereunder.
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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, Purchaser's
sole remedy shall be to terminate this Agreement
and demand the return of its Earnest Money after
which neither party shall have any further rights
or 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") due to
and/or coming 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 any accrued and
earned benefits owed to employees to Purchaser,
and Purchaser shall pay the same to the employees
after the Closing, as and when due.
19. RESIDENT SECURITY DEPOSIT,
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.
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.
16
<PAGE>
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: Northwest Retirement
Attn: Norman L. Brenden
Post Office Box 14111
Salem, Oregon 97309
Telephone No. : (503) 370-7070
Facsimile No.: (503) 375-
7644
To Purchaser: Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 9812 1
Telephone No.: (206) 298-2909
Facsimile No.: (206) 301-
4500
With a copy to: The Nathanson Group
Attn: Dennis L. Hightower,
Esq.
1411 Fourth Avenue, Suite 905
Seattle, Washington 98101
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).
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 successor
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 entity sponsored
by or affiliated with Purchaser; provided,
Purchaser shall provide Buyer with notice of any
such assignment and such assignee shall assume all
of Purchaser's obligations hereunder in writing.
In addition, Purchaser shall have the right to
assign its rights hereunder to a real estate
investment trust (the "REIT") in connection with
its financing of the transaction provided for
herein, it being understood and agreed that in the
event of such an assignment, the only right which
the REIT wil1 assume is Purchaser's right to take
title to the Seller's
17
<PAGE>
Assets and the only obligation which the REIT will
assume is Purchaser's obligation to pay the
purchase price in accordance with the terms hereof
and that, in any event, Purchaser shall not be
relieved of any of its obligations hereunder in
the event of such an assignment to a REIT.
25. CAPTION
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. GOVERNIN LAW
This Agreement shall be governed by and
construed in accordance with the laws of the State
of California.
27. SEVERABILITY
Should any one (1) 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.
28. 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 (1) and the same instrument.
29. 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.
30. ACCOUNTS RECEIVABLE
Within ten (10) 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.
31. 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.
18
<PAGE>
32. APPLICATION OF PAYMENT,
Any payments received by Purchaser for the
first thirty (30) days 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 pre-Closing Date
balances due to Seller. After that time, Purchaser
is entitled to all amounts received.
Notwithstanding the foregoing, in the event any
payment received by Purchaser during the first
thirty (30) days after the Closing Date
specifically designates that it relates to
services rendered after the Closing Date, that
payment, or that portion of the payment which
directly relates to the services rendered after
the Closing Date, shall be retained by Purchaser.
33. 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.
[Signature page follows.]
19
<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: 12/19/96 PURCHASER:
EMERITUS CORPORATION,
a Washington corporation
By: /s/ Raymond R. Brandstrom
------------------------
---------------
Its: President
Dated: December 6, 1996 SELLER:
NORTHWEST RETIREMENT,
an Oregon general partnership.
By: /s/ Norman L. Brenden,
------------------------
-------------
Its : General Partner
20
<PAGE>
Loan No. 01-422824
RESTATED PROMISSORY NOTE
(Adjustable Rate; No Negative Amortization
Permitted)
NOTICE TO BORROWER: THIS DOCUNENT CONTAINS
PROVISIONS
FOR A VARIABLE INTEREST RATE
$3,030,773.40
Redlands, California
Date: February 26,1997
Redlands Federal Bank, as Lender and the
Borrower (as defined below) have entered into an
Agreement to Modify Loan Documents dated February
26, 1997. Pursuant to those agreements, this
Restated Promissory Note modifies and replaces in
its entirety that certain Promissory Note between
Lender and Borrower's predecessor dated January
20, 1988. The language and provisions of this Note
shall supersede any and all provisions of that
certain Promissory Note referenced above.
For value received, the undersigned, Emeritus
Corporation, a Washington corporation,
("Borrower") promises to pay to the order of
REDLANDS FEDERAL BANK, a federal savings bank,
("Lender"), at 300 East State Street, Redlands,
California 92373, or at such other place as the
Lender may from time to time designate in writing,
in lawful money of the United States, the
principal sum of Three Million Thirty Thousand
Seven Hundred Seventy-Three Dollars and Forty
Cents ($3,030,773.40), or so much thereof as may
be advanced, with interest at the rate, and due
and payable, as follows:
l. DEFINITIONS. When used in this Restated
Promissory Note (the "Note") with initial capital
letters, the following terms shall have the
following meanings:
1.1 "CHANGE DATE": The interest rate may
change on the first day of March, 1997, and on
that day of the month every six (6) months
thereafter.
1.2 "INDEX": The weekly average yield on
United States Treasury Securities adjusted to a
constant maturity often (10) years, as made
available by the Federal Reserve Board. The most
recent index figure available ss of the date forty-
five (45) days before the change date is called
the current Index. The current Index as of the
date of this Note is 6.33"%.
1.3 "PAYMENT DATE" : Payments due under this
Note will be paid on the first day of each month
beginning on April 1,1997.
1.4 "PAYMENT CHANGE DATE": The first day of
the calendar month after the Change Date.
1.5 "REMAINING AMORTIZATION PERIOD": Three
Hundred Sixty (360) months minus the number of
months that will have elapsed, as of the next
Payment Change Date, since the date that the first
monthly payment was due hereunder.
1
<PAGE>
1.6 "SPREAD": Two and Fifty Hundredths
(2.50%) percentage points per annum, subject to
Paragraph 5 below.
2. RATE AND CALCULATION OF INTEREST. The
principal balance outstanding from time to time
shall bear interest from and after the date of
each advance, determined as follows:
2.1 NOTE RATE. Amounts due hereunder shall
bear interest at the rate determined as follows
(the "Note Rate"), except as provided in Paragraph
6.6 below:
2.1.1 INITIAL NOTE RATE. Effective upon
satisfaction of all conditions set forth in
Section 2 of the Agreement to Modify Loan
Documents, and until adjusted as provided in
Paragraph 2.1.2 below, the Note Rate shall be
Eight and Eighty-Three Hundredths (8.83%)
percentage points per annum (the "Initial Note
Rate").
2.1.2 RATE ADJUSTMENTS. On (or as of each
Change Date, the Note Rate shall be redetermined
by adding the Spread to the Index, and the Note
Rate as so redetermined shall become effective on
the Change Date. Note Rate adjustments thereafter
will be limited to no more than 1.0% above or
below the interest rate charged prior to each
Change Date.
2.1.3 NOTE RATE PARAMETERS. Notwithstanding
the foregoing, the Note Rate shall in no event
ever be less than 7.50% or more than 14.50%.
3. INSTALLMENT PAYMENTS.
3.1 INITIAL MONTHLY PAYMENT. Until and
including the month prior to the first Payment
Change Date, each monthly payment shall be in an
amount equal to the amount which would be required
to amortize fully the outstanding principal amount
of this Note in three hundred sixty (360) blended
level monthly payments at the Initial Note Rate.
The initial monthly payment due under this Note is
Twenty-Four Thousand Sixteen Dollars and Forty-
Eight Cents ($24,016.48).
3.2 MONTHLY PAYMENTS. On (or as of each
Change Date, Lender will project the principal
balance anticipated to be owing as of the
immediately following payment due date. Lender
will then determine an adjusted monthly payment
amount equal to the amount which would be required
to amortize fully such anticipated principal
balance over the Remaining Amortization Period in
blended level monthly installments, at the Note
Rate as then redetermined pursuant to Paragraph
2.1.2 above. Such adjusted monthly payment amount
shall become effective on such Payment Change
Date, and shall remain in effect until the next
Payment Change Date (or, if earlier, the Maturity
Date).
4. MATURITY DATE. On March 1, 2007 (the
"Maturity Date"), the entire unpaid principal
balance and all accrued interest shall be due and
payable.
2
<PAGE>
5. SUBSTITUTION OF INDEX.
5.1 As used herein, "obsolete" means, with
respect to an interest rate that
otherwise would be the Index under this Note, that
such rate is (a) no longer established, (b)
otherwise unverifiable, or (c) in Lender's
reasonable discretion, no longer calculated in
substantially the same manner or upon the same
economic basis as upon the later of the date of
this Note or the date that such rate was
substituted as a new Index.
5.2 In the event that the interest rate that
otherwise would be the Index becomes obsolete:
5.2.1 if the basis of such obsolescence is
only as described in Paragraph 5.1 (c) above, and
if, in Lender's reasonable discretion, such
obsolescence can be corrected by an adjustment to
the Spread (a "Spread Adjustment"), then Lender
shall have the right to make a Spread Adjustment
in its reasonable discretion;
5.2.2 if such obsolescence cannot be
corrected by a Spread Adjustment, to correct such
obsolescence Lender shall have the right, in its
reasonable discretion, to substitute a new Index
and, if necessary, also make a Spread Adjustment.
The substituted Index shall be a floating rate of
interest selected by Lender in its reasonable
discretion, which rate is verifiable, established
in a manner not under Lender's direct control,
and, to the extent possible, calculated in
substantially the same manner and upon the same
economic basis as the most recent Index at the
time of its adoption, taking into account any
Spread Adjustment made.
6. ADDITIONAL TERMS AND CONDITIONS.
6.1 DEED OF TRUST; SECURITY. This Note is
secured by an Amended and Restated Deed of Trust,
Assignment of Rents, Security Agreement and
Fixture Filing Financing Statement of even date
herewith (the "Deed of Trust"), encumbering
Borrower's interest in real property described in
the Deed of Trust and improvements located or to
be located thereon, and certain personal property.
(Such real property, improvements and personal
property, and the rents, issues, profits and
proceeds thereof, and any other real or personal
property security given for this Note, are
referred to collectively herein as the "Property.
")
6.2 APPLICATION OF PAYMENTS. All payments
received shall be applied first to interest then
due, then to principal then due, then to charges
other than interest and principal, if any, except
that, after the occurrence and during the
continuation of any default under this Note, all
amounts received shall be applied in such order as
Lender, in its sole discretion, may elect.
6.3 NO WAIVER. The acceptance by Lender of
any payment under this Note after the date that
such payment is due shall not constitute a waiver
of the right to require prompt payment when due of
future or succeeding payments or to declare a
default as herein provided for any failure to so
pay. The acceptance by Lender of the payment of a
portion of any installment at any time that such
installment is due and payable in its entirety
shall neither cure nor excuse the default caused
by the failure to pay the whole of such
installment and shall not constitute a waiver of
Lender's right to require full payment when due of
all future or succeeding installments.
3
<PAGE>
6.4 LATE PAYMENT CHARGE. Borrower
acknowledges that late payment to Lender of any
sums due hereunder will cause Lender to incur
costs not contemplated hereunder, the exact amount
of which will be impracticable or extremely
difficult to ascertain. Such costs include, but
are not limited to, processing and accounting
charges. Accordingly, if any installment, payment
or any other sum due from Borrower shall not be
received by Lender or Lender's designee within ten
(10) calendar days after it is due, Borrower shall
then pay to Lender a late payment charge equal to
ten percent (l0%) of such overdue amount. The
parties hereby agree that such late charge
represents a fair and reasonable estimate of the
costs Lender will incur by reason of late payment.
This provision shall not, however, be construed as
extending the time for payment of any amount
hereunder, and acceptance of such late charge by
Lender shall in no event constitute a waiver of
Borrower's default with respect to such overdue
amount nor prevent Lender from exercising any of
the other rights and remedies with respect to such
default.
6.5 DEFAULT. The following shall constitute
defaults under this Note:
6.5.1 default in the payment when due of any
amount hereunder;
6.5.2 any breach or default under the Deed of
Trust or any other deed of trust, mortgage,
security agreement, assignment, loan agreement or
other agreement securing this Note or evidencing
the loan reflected hereby;
6.5.3 any breach or default in any other
obligation of Borrower to Lender, or in any
obligation of Borrower to any party secured by the
Property.
6.6 ACCELERATION RIGHTS; INTEREST AFTER
ACCELERATION OR MATURITY. Upon the occurrence of a
default hereunder, Lender may, at its election,
declare the entire balance of principal and
interest thereon immediately due and payable,
together with all costs of collection, including
reasonable attorneys' fees and all expenses
incurred in connection with protection of, or
realization on, the Property. At such time as this
Note becomes due in full, whether by acceleration
(upon default or otherwise), by the occurrence of
the Maturity Date or otherwise, if Borrower fails
to pay all amounts due the unpaid principal
balance and costs incurred shall thereafter bear
interest until paid at a rate four (4) percentage
points in excess of the rate otherwise applicable
under this Note.
6.7 BORROWER'S OBLIGATIONS NOT TRANSFERABLE
WITHOUT CONSENT OF LENDER; ACCELERATION. Borrower
may not assign or transfer the property which is
security for this Note without the consent of the
Lender. Failure to obtain written consent of the
Lender prior to any transfer of the security for
the Note as described in the Deed of Trust is an
Event of Default under the terms of this Note.
Section 1.12 of the Deed of Trust provides as
follows:
Section I.12 TRANSFER OF TRUST ESTATE BV
BORROWER.
ONE OF THE INDUCEMENTS TO THE LENDER FOR ENTERING
INTO THIS TRANSACTION IS THE IDENTITY OF THE
BORROWER. THE EXISTENCE OF ANY INTEREST IN THE
PROPERTY SECURED BY THIS DEED OF TRUST OTHER THAN
THE INTERESTS OF THE LENDER AND OTHER ENCUMBRANCE
PERMITTED BY THE TERMS OF THIS DEED OF TRUST OR BY
A FULLY EXECUTED, WRITTEN
4
<PAGE>
AGREEMENT BETWEEN THE BORROWER AND LENDER, EVEN
THOUGH SUBORDINATE TO THE SECURITY INTEREST OF THE
LENDER, AND THE EXISTENCE OF ANY INTEREST IN THE
PROPERTY OTHER THAN THOSE OF THE BORROWER MAY
IMPAIR THE PROPERTY AND THE SECURITY INTEREST OF
LENDER, AND, THEREFORE, BORROWER SHALL NOT SELL,
CORRVEY, ASSIGN, TRANSFER, ALIENATE OR OTHERWISE
DISPOSE OF BORROWER'S INTEREST IN THE PROPERTY, OR
ANY PART THEREOF, EITHER VOLUNTARILY OR BY
OPERATION OF LAW OR AGREE TO DO SO, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE LENDER. CONSENT TO
ONE SUCH TRANSACTION BY THE LENDER SHALL NOT BE
DEEMED A WAIVER OF THE RIGHT TO REQUIRE SUCH
CONSENT TO FURTHER OR SUCCESSIVE TRANSACTIONS. ANY
DIRECT OR INDIRECT SALE OR TRANSFER OF THE
PROPERTY WHICH AT ONE TIME OR IN THE AGGREGATE
RESULTS IN MORE THAN FORTY-NINE PERCENT (49%) OF
THE OWNERSHIP OF THE PROPERTY HAVING BEEN SOLD OR
TRANSFERRED SINCE THE RECORDATION OF THIS DEED OF
TRUST SHALL CONSTITUTE A TRANSFER OF THE
PROPERTYFOR THE PURPOSES OF THIS SECTION. FURTHER,
ANY DIRECT OR INDIRECT TRANSFERS OF OWNERSHIP
INTERESTS IN BORROWER, OTHER THAN MARKET TRADES IN
BORROWER'S SHARES, WHICH EXCEEDS IN THE AGGREGATE
FORTY-NINE PERCENT (49%) OF THE TOTAL CURRENT
OWNERSHIP INTEREST IN BORROWER SHALL CONSTITUTE A
TRANSFER OF THE PROPERTYFOR THE PURPOSE OF THIS
SECTION. BORROWER SHALL NOTIFY LENDER IN WRITING
OF ANY TRANSFER OF ANY PORTION OF THE OWNERSHIP
INTEREST IN BORROWER, EXCEPT FOR MARKET TRADES IN
BORROWER'S SHARES, OR THE PROPERTY NOT LESS THAN
THIRTY (30) DAYS BEFORE SUCH TRANSFER IS TO OCCUR,
AND IN SUCH NOTICE, SHALL ADVISE LENDER AS TO THE
NATURE OF THE TRANSFER WITH SUFFICIENT
PARTICULARITY AS TO ENABLE LENDER TO COMPUTE THE
PERCENTAGE SO TRANSFERRED ANY TRANSACTION IN
VIOLATION OF THIS SECTION SHALL CONSTITUTE AN
EVENT OF DEFAULT UNDER THE NOTE AND THIS DEED OF
TRUST, AND LENDER SHALL BE ENTITLED TO EXERCISE
ALL REMEDIES PROVIDED IN THIS DEED OF TRUST. THE
LENDER SHALL NOT UNREASONABLY WITHHOLD ITS CONSENT
TO A SALE OR OTHER TRANSFER OF THE PROPERTY
PROVIDED THAT THE PROPOSED TRANSACTION DOES NOT
VIOLATE ANY OF THE THEN EXISTING LOAN UNDERWRITING
CRITERIA OF THE BANK, ANDFURTHER PROVIDED THAT THE
ASSUMPTION FEE REQUIRED BY THE LENDER IS PAID TO
THE LENDER AS A PART OF SUCH TRANSFER. IN
ADDITION, THE BORROWERS EQUITY IN THE PROPERTY
WHICH IS ENCUMBERED BY THIS DEED OF TRUST IS A
MATERIALFACTOR TO LENDER, AND -LENDER MAKES THE
LOAN WHICH IS SECURED BY THIS DEED OF TRUST IN
MATERIAL RELIANCE UPON THAT EQUITY. THEREFORE, IN
ORDER TO ASSURE LENDER THAT THE EQUITY OF BORROWER
IN THE PROPERTY WILL NOT BE SUBSEQUENTLY DILUTED,
AND IN CONSIDERATIONFOR LENDER MAKING THE LOAN
WHICH IS SECURED BY THIS DEED OF TRUST, BORROWER
HEREBY COVENANTS AND AGREES THAT SO LONG AS THIS
DEED OF TRUST IS A LIEN AGAINST THE REAL PROPERTY
DESCRIBED HEREIN, BORROWER WILL NOT CREATE OR
PERMIT TO CONTINUE IN EXISTENCE ANY MORTGAGE, DEED
OF TRUST, PLEDGE, ENCUMBRANCE, LIEN OR CHARGE
OFANY KIND AGAINST THE PROPERTY
5
<PAGE>
EXCEPTFOR ENCUMBRANCES EXPRESSLY PERMITTED BY THIS
DEED OF TRUST OR AS OTHERWISE CONSENTED TO IN
WRITING BY LENDER, OR LIENS FOR TAXES NOT YET
PAYABLE. IN THE EVENT THAT THE INTEREST
OF BORROWER IN THE PROPERTY ENCUMBERED BY THIS
DEED OF TRUST, OR ANY PART THEREOF, OR ANY
INTEREST THEREIN IS SOLD, AGREED TO BE SOLD,
OPTIONED, CONVEYED, ALIENATED, ENCUMBERED OR
OTHERWISE TRANSFERRED BY BORROWER, WHETHER BY
OPERATION OF LAW OR OTHERWISE, THE OBLIGATIONS
HEREUNDER, IRRESPECTIVE OF THE MATURITY DATES
EXPRESSED HEREIN, AT THE OPTION OF THE LENDER AND
WITHOUT DEMAND OR NOTICE, SHALL IMMEDIATELY BECOME
DUE ANDPAYABLE. IN THE EVENT THAT THE LENDER DOES
NOT ELECT TO DECLARE THE NOTE IMMEDIATELY DUE AND
PAYABLE IN THE EVENT OF A TRANSFER DESCRIBED
HEREIN, THEN, UNLESS INDICATED OTHERWISE IN
WRITING BY THE LENDER, BORROWER SHALL REMAIN
PRIMARILY LIABLE FOR THE OBLIGATIONS UNDER THE
NOTE AND THIS DEED OF TRUST AND UNDER ANY OTHER
INSTRUMENT SECURING THE NOTE OR EXECUTED IN
CONNECTION HEREWITH. EXCEPTFOR TRANSFERSFOR WHICH
LENDER HAS GIVEN EXPRESS WRITTEN CONSENT, THIS
PROVISION SHALL APPLY TO EACH AND EVERY SALE,
TRANSFER, ENCUMBRANCE OR CONVEYANCE, REGARDLESS
OFWHETHER OR NOT THE LENDER HAS CONSENTED TO, OR
WAIVED THE LENDER'S RIGHTS HEREUNDER, WHETHER BY
ACTION OR NON-ACTION, IN CONNECTION WITH ANY
PREVIOUS SALE, TRANSFER, ENCUMBRANCE OR CONVEYANCE
AND WHETHER OR NOT THE HOLDER HAS
RECEIVEDANYPAYMENTS AFTER SUCH EVENT.
6.8 ATTORNEYS' FEES AND COSTS. In the event
it becomes necessary for Lender to utilize legal
counsel for the enforcement of this Note or any of
its terms, if successful in such enforcement by
legal proceedings or otherwise Lender shall be
reimbursed immediately by Borrower for reasonably-
incurred attorneys' fees and other costs and
expenses. Borrower shall also immediately
reimburse Lender for all attorneys' fees and costs
reasonably incurred in connection with the
representation of Lender in any bankruptcy,
insolvency; reorganization or other debtor-relief
or similar proceeding of or relating to Borrower,
any guarantor, or the Property.
6.9 WAIVERS. The makers, endorsers,
guarantors and sureties of this Note hereby waive
diligence, demand, presentment, notice of non-
payment or dishonor, protest and notice of
protest, and expressly agree that the time for
performance of any obligation under this Note may
be extended from time to time, consent to the
release of any party liable hereon or therefor,
consent to the acceptance of further security for
this Note, including other types of security, all
without in any way affecting their liability, and
waive the right to plead any and all statutes of
limitations as a defense to any demand on this
Note, or any guaranty thereof, or to any agreement
to pay the same, to the full extent permissible by
law. The provisions in this paragraph are intended
to apply to all paragraphs of this Note.
6.10 GOVERNING LAW. This Note shall be
governed by and construed under the internal laws
of the State of California, except to the extent
that federal law applies.
6
<PAGE>
6.11 SEVERABILITY. Every provision hereof is
intended to be several. If any provision of this
Note is determined by a court of competent
jurisdiction to be illegal, invalid or
unenforceable, such illegality, invalidity or
unenforceability shall not affect the other
provisions hereof, which shall remain binding and
enforceable.
6.12 LIMITATION UPON INTEREST. All agreements
between the Borrower and Lender, now existing or
hereafter arising, are hereby expressly limited so
that in no event whatsoever shall the amount paid,
or agreed to be paid, to Lender hereof for the
use, forbearance or detention of money to be
loaned hereunder or otherwise, or for the
performance or payment of any covenant or
obligation contained herein, exceed the maximum
amount permissible under applicable law. If from
any circumstance whatsoever fulfillment of any
provision hereof exceeds the limit of validity
prescribed by law, then, ipso facto, the
obligation to be fulfilled shall be reduced to the
limit of such validity, and if from any such
circumstance Lender hereof shall ever receive as
interest under this Note or otherwise an amount
that would exceed the highest lawful rate, such
amount that would be excessive interest shall be
applied to the reduction of the principal amount
owing hereunder (without charge for prepayment)
and not to the payment of interest, or if such
excessive interest exceeds the unpaid balance of
principal, such excess shall be refunded to
Borrower.
6.13 JOINT AND SEVERAL LIABILITY. The
liability of any multiple makers of this Note is
joint and several. If a maker is a partnership,
such maker and all general partners therein shall
be jointly and severally liable hereunder.
6.14 HEADINGS. Headings herein are used for
convenience of reference only and do not define or
limit the scope of provisions of this Note.
6.15 DISPUTE RESOLUTION. All disputes (as
that term is defined in the Deed of Trust) arising
out of or related to this Note, the conduct of the
parties, or the past, present or future
relationship of the parties, are subject to
mandatory arbitration and mandatory judicial
reference in the manner and to the extent provided
in the Deed of Trust.
6.16. PREPAYMENTS.
6.16.1 Borrower shall have the right to
prepay all or any part of the principal balance of
this Note at any time without charge, upon prior
written notice to Lender of not less than thirty
(30) and not more than sixty (60) calendar days.
6.16.2 Notwithstanding Paragraph 6.16.1 above, all
prepayments shall be applied first to charges
other than interest and principal, if any, next to
interest then- due, next to interest accrued on
the amount of principal to be prepaid, and the
balance to principal.
SIGNATURES FOLLOW ON THE NEXT PAGE
7
<PAGE>
DATED: 3/25/97
-------------------------------
BORROWER:
EMERITUS CORPORATION
By: /s/ Raymond R. Brandstrom
-------------------------------------------
Name: Raymond R. Brandstrom
Title: President
8
<PAGE>
Borrower: Emeritus Corporation
Loan No. Ol-422824
AGREEMENT FOR MODIFICATION OF LOAN DOCUMENTS
February 26,1997
This Agreement for Modification of Loan Documents
(the "Agreement") is made by and between Emeritus
Corporation, a Washington corporation ("Borrower")
and REDLANDS FEDERAL BANK, A FEDERAL SAVINGS BANK
("Lender," sometimes referred to as the "Note
Holder"), with reference to the following facts:
A. Borrower and Lender have entered into a
Loan Assumption Agreement of even date (the
"Assumption") whereby Borrower has agreed to
assume the obligations under a Note ("the Note")
which is secured by a Deed of Trust, all dated
January 20, 1988 and a Memo Modification Agreement
dated February 26,1988 (the "Loan Documents").
B. Lender has agreed to the Assumption and
has also agreed to modify the Loan Documents as
herein provided.
NOW, THEREFORE, in consideration of the
premises and the parties' mutual agreement herein,
the parties agree:
1. MODIFICATIONS. The Borrower will execute a
Restated Note in a form set forth in Exhibit "A."
Borrower will execute an Amended and Restated Deed
of Trust encumbering the property in a form set
forth in Exhibit "B." Exhibits A and B are
attached hereto and incorporated herein by this
reference, effective upon timely satisfaction of
the conditions set forth in Section 2 below.
2. CONDITIONS. The modifications of Section 1
above are conditioned on and shall take effect
only upon Borrowers' satisfaction, at their
expense if appropriate, of all of the following
conditions:
(a) delivery to Lender of a Form 110.5
endorsement to the original title policy or a new
1970 Unamended ALTA Policy issued by a title
company acceptable to Lender in an amount equal to
the principal amount of the Loan, insuring that
the priority of such lien is unaffected by the
modifications set forth herein and that the title
policy remains in full force and effect;
(b) delivery to Lender of a 103.1 endorsement
to the title policy concerning unlocated
easements;
(c) Borrowers will provide copies of
certified escrow instructions which Lender shall
review and approve. Said escrow instructions shall
provide for payment of second installment 1996-
1997 real estate;
(d) Borrowers will have paid an assumption
fee of 1% of the outstanding principal balance of
the Loan plus $250.00 and all of Lender's actual
out-of pocket expenses in processing this
Modification and the Assumption;
(e) Borrowers shall have executed a UCC-1 in
a form provided by Lender;
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(g) Receipt of evidence of satisfactory
hazard insurance on the Property;
(h) Subordination and consent by the existing
2nd and 3rd trust deed holders on the Property to
the modifications contemplated by this Agreement
as set forth in Exhibit "C",
(i) Receipt by Lender of a Statement of
Foreign Corporation for Borrower from the
Secretary of State of California.
3. OTHER PROVISIONS UNMODIFIED. Except as
expressly modified hereby, the rights and
obligations of the parties under the Note and the
other Loan Documents shall remain unmodified and
in full force and effect.
LENDER: REDLANDS FEDERAL BANK, a federal
savings bank
By:
/s/ Lydia Orrantia
- ----------------------------------
Lydia Orrantia
Vice President
DATE: 2-27-97
- --------------------------------
BORROWER: EMERITUS CORPORATION, a Washington
corporation
By: /s/ Raymond R. Brandstrom
----------------------------
---------------
Raymond R. Brandstrom
Its: President
DATE: 3/25/97
----------------------
-----------------
2
<PAGE>
EXHIBIT "A"
TO AGREEMENT FOR MODIFICATION OF LOAN DOCUMENTS
February 26,1997
(Promissory Note)
The Borrower shall execute a Restated Promissory
Note in a form provided by Lender. The Restated
Promissory Note shall replace the existing Note in
its entirety.
3
<PAGE>
EXHIBIT "B "
TO AGREEMENT FOR MODIFICATION OF LOAN DOCUMENTS
February 26,1997
(Deed of Trust)
The Borrower shall execute an Amended and Restated
Deed of Trust ("Modification") in a form provided
by Lender. The Modification will modify the Deed
of Trust currently encumbering the Property.
4
<PAGE>
EXHIBIT "C"
TO AGREEMENT FOR MODIFICATION OF LOAN DOCUMENTS
(Consents to Modifications)
CONSENT OF JUNIOR LIEN HOLDERS
The undersigned is(are) the holder(s) of an
obligation secured by a lien against the same
property which secures, in a senior priority
position, borrower's obligations to Lender under
the Loan Documents. The undersigned consent(s) to
and accept(s) the modifications set forth in the
foregoing Agreement, and agree(s) that,
notwithstanding such modifications, the
undersigned's lien shall be and remain junior and
subordinate to the lien of Lender to secure
Borrower's obligations as modified herein. The
undersigned agree(s) to execute a separate
Subordination Agreement if requested by Lender.
JUNIOR LIEN HCOLDER(S):
/s/ Victor Lund
- --------------------------
VICTOR LUND
/s/ James W. Dutro
- --------------------------
JAMES W. DUTRO
/s/ Joyce Dutro
- --------------------------
JOYCE DUTRO
5
New Borrower: Emeritus Corporation
Loan No. 01-422824
LOAN ASSUMPTION AGREEMENT
This Loan Assumption Agreement (the
"Agreement") is made as of February 26, 1997 by
and between REDLANDS FEDERAL BANK, a federal
savings bank, formerly known as Redlands Federal
Savings and Loan Association ("Lender"), and
Emeritus Corporation, a Washington corporation
("New Borrower"), with reference to the following
facts:
A. Lender made a loan to Northwest
Retirement, an Oregon partnership (the
"Existing Borrower") in the amount of Three
Million Three Hundred Sixty Thousand Dollars
($3,360,000.00) (the "Loan"). The monthly payments
under the Loan were modified pursuant to a Memo
Modification Agreement. The Loan was made,
pursuant to the following loan documents, copies
of which are attached hereto as Exhibits "A"
through "C" and incorporated herein by this
reference (collectively the "Loan Documents"):
Exhibit Document Title Date
A Adjustable Loan Installment January
Note Multi Family 20, 1988
B Deed of Trust January
20, 1988
C Memo Modification Agreement February
26, 1998
B. New Borrower has entered into an
agreement with the Existing Borrowers to acquire
title to the Property.
C. The New Borrower desires to assume all of
Existing Borrower's obligations to Lender under
and in connection with the Loan (the
"Assumption").
D. Lender has agreed to the Assumption on
terms and conditions including the execution by
New Borrower of this Agreement.
NOW, THEREFORE, in consideration of the
premises and of the parties' mutual covenants
herein, the parties agree as follows:
1. ASSUMPTION; CONDITIONS.
(a) New Borrower hereby assumes and agrees to
perform and pay all obligations of Existing
Borrower to Lender in connection with the Loan as
specified in the Loan Documents, all as if New
Borrower had executed each of the Loan Documents.
(b) The Assumption shall take effect only
upon New Borrower's satisfaction, at its expense,
of all of the conditions set forth in the
Agreement for Modification of Loan Documents,
attached as Exhibit "D" of even date herewith.
2. ACKNOWLEDGMENTS. New Borrower
acknowledges to Lender and agrees:
(a) New Borrower has reviewed and approved,
is familiar with all of the terms
of, and has received any desired advice of counsel
concerning, each of the Loan Documents.
(b) The Loan Documents are in full force and
effect in accordance with their
express terms, without defense, offset or
counterclaim, and are unmodified in any respect
except
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as set forth in the Agreement for Modification of
Loan Documents executed by Lender and New
Borrower.
(c) No waiver, if any, by Lender of any
provision of the Loan Documents with respect to
Existing Borrower shall apply to New Borrower
unless any such waiver is set out in a writing
signed by Lender and addressed to New Borrower.
(d) This Agreement, the Loan Documents and
the Agreement for Modification of Loan Documents
together with the exhibits thereto set out the
entire agreement between Lender and New Borrower
concerning the Loan, and Lender has made no
representations, promises or agreements other than
as set forth herein or therein.
(e) Lender's consent to the Transfer and to
the Assumption is not a consent to any further or
other assumption or to any further or other
transfer of the property securing the Loan, and
Lender has no obligation to consent to any such
assumption or transfer. Neither the consent to
sale and assumption in the Deed of Trust securing
the Loan, if any, nor any other consent to
assumption has any further application.
3. CONSENT. Subject to prior satisfaction of
any conditions thereto as provided in Section 1(b)
above, Lender hereby consents to the Assumption,
and accepts New Borrower as a borrower under the
Loan Documents. The Existing Borrowers are
released from liability upon the consummation of
this Assumption and upon the satisfaction of all
the conditions set forth in this Assumption and
the Agreement for the Modification of Loan
Documents.
LENDER: REDLANDS FEDERAL BANK ,
a federal savings bank .
By: /s/ Lydia Orrantia
----------------------------
-----
Name: Lydia Orrantia
Title: Vice President
Date: 3-13-97
-------
- -----------------------
NEW BORROWER: EMERITUS CORPORATION ,
a Washington corporation
By: /s/ Raymond R. Brandstrom
-
- -------------------------------------
Name: Raymond R. Brandstrom
Its: President
Date: 3/25/97
--------------------------
------------
2
<PAGE>
Recording requested by and
when recorded mail it to:
REDLANDS FEDERAL BANK
P. O. Box 6905
Redlands, CA 92375 Loan No. 01-422824
AMENDED AND RESTATED DEED OF TRUST
THIS AMENDED AND RESTATED DEED OF TRUST,
WHICH INCLUDES AN ASSIGNMENT OF RENTS, SECURITY
AGREEMENT AND FIXTURE FILING FINANCING STATEMENT
(this "Deed of Trust") is dated as of February 26,
1997 for reference purposes only, and is entered
into by and between Emeritus Corporation, a
Washington corporation ("Borrower"), owning title
to the Premises (as hereinafter defined), to
Redlands Financial Services, Inc., a California
corporation ("Trustee") for the benefit of
Redlands Federal Bank, a federal savings bank (the
"Lender").
THIS AMENDED AND RESTATED DEED OF TRUST is
given to secure the obligations of Borrower to
Lender under that certain Note dated February 26,
1997, (the
"Note") by and between Lender and Borrower in the
principal amount of $3,030,773.40. Pursuant to
that certain Loan Agreement dated January 20,
1988, (the "Loan Agreement") by and between Lender
and Borrower's predecessor, Lender agreed to loan
the original principal balance of the Note in the
amount of $3,360,000.00 to provide permanent
financing for an assisted living facility
(collectively referred to herein as the "Project")
located on the real property described in Exhibit
"A" attached hereto and incorporated herein by
this reference (the "Land"). Lender and Borrower
have entered into an Agreement to Modify Loan
Documents dated February 26, 1997 and a Loan
Assumption Agreement dated February 26, 1997.
Pursuant to those agreements, Borrower has assumed
all of the duties and obligations of Borrower's
predecessor. This AMENDED AND RESTATED DEED OF
TRUST modifies in its entirety that certain Deed
of Trust by and between Lender and Borrower's
predecessor, recorded on February 26, 1988 as
Instrument No.88-089128 in the office of the
County Recorder of San Diego County, California.
The language and provisions of this modification
shall supersede any and all provisions of the
certain Deed of Trust between Borrower's
predecessor and Lender.
FOR GOOD AND VALUABLE CONSIDERATION,
including the indebtedness herein recited and the
trust herein created, the receipt and adequacy of-
which are hereby acknowledged, the Borrower hereby
irrevocably grants, transfers, sets over, conveys
and assigns to Trustee, IN TRUST, WITH POWER OF
SALE, for the benefit and security of Lender,
under and subject to the terms and conditions
hereinafter set forth, all rights, titles,
interests, estates, power and privileges that
Borrower now has or may hereafter acquire in or to
the following property and interests therein
(collectively, the "Trust Estate"):
THAT CERTAIN REAL PROPERTY located in the County
of San Diego, State of California more
particularly described on Exhibit "A" attached
hereto and referred to herein as the Land [the
Land and the Improvements (as hereinafter defined)
are sometimes collectively referred herein as the
"Premises"];
1
<PAGE>
TOGETHER WITH all rents, issues, profits,
royalties, income and other benefits derived from
the Trust Estate (collectively, the "Rents"),
subject to the right, power and authority
hereinafter given to Borrower (and, upon an Event
of Default (as hereinafter defined), to
Beneficiary) to collect and apply such Rents;
TOGETHER WITH all interests, estates or other
claims, both at law and in equity, which Borrower
now has or may hereafter acquire in the Premises;
TOGETHER WITH all easements, rights-of way
and rights now owned or hereafter acquired by
Borrower used in connection with the Premises or
the Project or as a means of access to either or
both, including, without limiting the generality
of the foregoing, all rights to the nonexclusive
use of common drive entries, and all tenements,
hereditaments and appurtenances thereof and
thereto, and all water and water rights and shares
of stock evidencing the same;
TOGETHER WITH any and all buildings,
landscaping and other improvements now or
thereafter erected in or on the Premises
including, but not limited, to the fixtures,
attachments, appliances, equipment, machinery, and
other articles attached to said buildings and
improvements (collectively, the "Improvements"),
all of which shall be deemed and construed to be a
part of the realty;
TOGETHER WITH all leasehold estates, right,
title and interest of Borrower in and to all
Leases or subleases covering the Premises or the
Project or any portion thereof or interest therein
now or hereafter existing or entered into, and all
right, title and interest to Borrower thereunder
including, without limitation, all cash or
security deposits, advance rentals, and deposits
or payments of a similar nature (collectively, the
"Deposits");
TOGETHER WITH all oil and gas and other
mineral rights in or pertaining to the Land, and
all royalty, leasehold and other rights of
Borrower pertaining thereto;
TOGETHER WITH all rights, title and interest
now owned or hereafter acquired by Borrower in and
to a11 options to purchase or lease the Premise or
any portion thereof or interest therein, and any
greater estate in the Premises now owned or
hereafter acquired;
TOGETHER WITH all right, title and interest
of Borrower, now owned or hereafter acquired, in
and to any land lying within the right-of way of
any street, open or proposed, adjoining the Land,
and any and all sidewalks, alleys and strips and
gores of land adjacent to or used in connection
with the Land, Premises or Project;
TOGETHER WITH all the estates, interest,
right, title, other claim or demand, both at law
and in equity, including claims or demands with
respect to the proceeds of insurance in effect
with respect thereto, which Borrower now has or
may hereafter acquire in the Premises, and any and
all awards made for the taking by eminent domain,
or by any proceeding or purchase in lieu thereof,
of the whole or any part of the Trust Estate,
including without limitation any award resulting
from a change of grade of streets and any award
for severance damages (collectively, the "
Proceeds").
2
<PAGE>
FOR THE PURPOSE OF SECURING:
(a) Payment and performance of each and every
obligation, covenant and agreement of Borrower
contained in the Note and any amendment or
supplement thereto, extension or renewal thereof
or replacement therefor;
(b) Payment of all other sums agreed to be
paid by Borrower pursuant to the Note, the Loan
Agreement or any other agreement between Borrower
and Lender with respect to this loan and
performance of all other obligations of Borrower
thereunder;
(c) Payment of all sums advanced by or on
behalf of Trustee or Lender as herein authorized
to protect the Trust Estate, with interest thereon
at the rate of interest called for by the Note;
(d) Performance of every obligation, covenant
and agreement of Borrower contained herein;
(e) Payment of all other sums, with interest
thereon, which may hereafter be loaned to
Borrower, or its successors or assigns, by Lender
or its successors or assigns, when evidenced by a
promissory note or notes reciting that they are
secured by this Deed of Trust;
(f) Performance of every obligation, covenant
and agreement of Borrower contained in any
agreement now or hereafter executed by Borrower
which recites that the obligations thereunder are
secured by this Deed of Trust;
(g) Compliance with and performance of each
and every provision of any declaration of
covenants, conditions or restrictions pertaining
to the Trust Estate or any portion thereof; and,
(h) Payment of all sums, with interest
thereon at the rate of interest called for by the
Note, that may become due and payable to or for
the benefit of Lender or Trustee pursuant to the
terms hereof.
This Deed of Trust, the Note, and any other
deed of trust, mortgage, security agreement,
guaranty or other instrument given to evidence or
further secure the payment or performance of any
obligation secured hereby may hereafter be
collectively referred to as the "Financing
Documents. "
TO PROTECT THE PREMISES AND THE SECURITY
GRANTED BY THIS DEED OF TRUST, BORROWER HEREBY
COVENANTS AND AGREES AS FOLLOWS:
3
<PAGE>
ARTICLE I
COVENANTS AND AGREEMENTS OF BORROWER
Section 1.01. PAYMENT OF SECURED OBLIGATIONS
Borrower shall pay when due all amounts
required to be paid or delivered to Lender as
provided in the Note; the principal of and
interest on any sum advanced in the future and
secured by this Deed of Trust; and the principal
of and interest on any other sum secured by this
Deed of Trust and all charges, fees and other sums
as provided in the Note.
Section 1.02. MAINTENANCE, REPAIR,
ALTERATIONS.
Borrower shall maintain and preserve the
Trust Estate in good condition and repair and in a
prudent and businesslike manner; Borrower, except
upon the prior written consent of Lender, shall
not remove, demolish or substantially alter any of
the Improvements, other than to make repairs in
the ordinary course of business of a non-
structural nature which serve to preserve or
increase the value of the Premises; Borrower shall
complete promptly and in a good and workmanlike
manner any improvement which may be now or
hereafter constructed on the Premises and promptly
restore in like manner any Improvement which may
be damaged or destroyed thereon from any cause
whatsoever, and pay when due all claims for labor
performed and materials furnished therefor;
Borrower shall comply with a11 laws, ordinances,
rules. regulations, covenants, conditions,
restrictions and orders of any governmental
authority now or hereafter affecting the conduct
or operation of Borrower's business or the Trust
Estate or any part thereof or requiring any
alteration or improvement to be made thereon;
Borrower shall not commit or permit any waste or
deterioration of the Trust Estate, and shall keep
and maintain abutting grounds, sidewalks, roads,
parking and landscape areas in good and neat order
and repair; Borrower will not take (or fail to
take) any action, which if taken (or not so taken)
would increase in any way the risk of fire or
other hazard occurring to or affecting the
Premises or otherwise would impair the security of
Lender in the Trust Estate; Borrower shall comply
with the provisions of all leases, if any,
constituting a portion of the Trust Estate;
Borrower shall not abandon the Trust Estate or any
portion thereof or leave the Premises vacant or
deserted; Borrower shall not initiate, join in or
consent to any change in any zoning ordinance,
general plan, specific plan, private restrictive
covenant or other public or private restriction
limiting the uses which may be made of the
Premises by Borrower or by the owner thereof;
Borrower shall secure and maintain in full force
and effect a11 permits necessary for the use,
occupancy and operation of the Trust Estate;
except as otherwise prohibited or restricted by
the Financing Documents, or any of them, Borrower
shall do any and all other acts which may be
reasonably necessary to protect or preserve the
value of the Trust Estate and the rights of
Trustee and Lender with respect thereto.
Borrower hereby agrees that Lender may
conduct from time to time through representatives
of its own choice, upon reasonable notice at
reasonable times, on-site inspections and
observations (1) the maintenance and repair of the
Trust Estate, including a review of all
maintenance and repair programs and practices and
all reports and records, including the records of
expenditures relating thereto, and (2) such other
4
<PAGE>
facilities, practices and records of Borrower
relating to the Premises as Lender deems to be
reasonably necessary or appropriate in order to
monitor Borrower's compliance with the provisions
of this Section 1.02.
Section 1.03. REQUIRED INSURANCE.
(a) Borrower shall at all times provide,
maintain, keep in full force and effect or cause
to be provided, maintained, and kept in full force
and effect, at no expense to Trustee or Lender,
policies of insurance in form and amounts required
by Lender and issued by companies, associations or
organizations reasonably satisfactory to Lender.
Without limiting the generality of the foregoing,
Borrower shall provide, maintain and keep in force
or cause to be provided, maintained, and kept in
force, at no expense to Trustee or Lender such
additional insurance as is customarily required
for projects of a similar nature or as may be
required by Lender from time to time in the event
that the Premises are exposed to hazards and risks
with respect to which Lender reasonably deems the
existing insurance inadequate properly to protect
its interests.
(b) All policies of insurance required by the
terms of the Deed of Trust shall either have
attached thereto a lender's loss payable
endorsement for the benefit of Lender in form
satisfactory to Lender or shall name Lender as
additional insured and shall contain an
endorsement or agreement by the Insurer that any
loss shall be payable in accordance with the terms
of such policy notwithstanding any act or
negligence of Borrower or any party holding under
Borrower which might otherwise result in
forfeiture of said insurance and the further
agreement of the insurer waving all rights of
setoff, counterclaim and deduction ago against
Borrower.
Section 1.04. DELIVERY OF POLICIES, PAYMENT
OF PREMIUMS.
At Lender's option, Borrower shall furnish
Lender with an original of all policies of
insurance required under Section 1.03 above or a
certificate of insurance for each required policy
setting forth the coverage, the limits of
liability, the deductibles, if any, the name of
the carrier, the policy number, and the period of
coverage, which certificates shall be executed by
authorized officials of the companies issuing such
insurance, or by agents or attorneys-in-fact
authorized to issue said certificates (in which
event each such certificate shall be accompanied
by a notarized affidavit, agency agreement or
power of attorney evidencing the authority of the
signatory to issue such certificate on behalf of
the insurer named therein). If Lender consents,
Borrower may provide any of the required insurance
through blanket policies carried by Borrower and
covering more than one location, or by policies
procured by a tenant or other party holding under
Borrower; provided, however, all such policies
shall be in form and substance and issued by
companies satisfactory to Lender. At least thirty
(30) days prior to the expiration of each required
policy, Borrower shall deliver to Lender evidence
satisfactory to Lender of the payment of premium
and the renewal or replacement of such policy
continuing insurance in form as required by this
Deed of Trust. All such policies shall contain a
provision that, notwithstanding any contrary
agreement between Borrower and the insurance
company, such policies will not be canceled,
allowed to lapse without renewal, surrendered or
materially amended (which term shall include any
reduction in the scope or limits of coverage)
without at least thirty (30) day ' s prior written
notice to
5
<PAGE>
Lender. All consents and approvals of Lender
required by this Section shall be given or
withheld in the reasonable discretion of Lender.
If Borrower fails to provide, maintain, keep in
force or deliver to Lender the policies of
insurance required by this Deed of Trust or by any
of the Financing Documents, Lender may (but shall
have no obligation to) procure such insurance, or
single interest insurance for such risks covering
Lender's interests, and Borrower will pay all
premiums therefor promptly upon demand by Lender;
and until such payment is made by Borrower, the
amount of all such premiums, together with
interest thereon at the Bank Rate, shall be
secured by this Deed of Trust.
Section 1.05. PROPERTY LOSSES.
Borrower shall give prompt written notice
thereof to Lender after the happening of any
property loss to or in connection with the Trust
Estate or any part thereof, whether or not covered
by insurance. In the event of such property loss,
the gross proceeds less all expenses (including
attorneys fees) incurred in the collection of such
proceeds shall, subject to the provisions of the
Note and the Loan Agreement, be payable to Lender
in an amount not to exceed the then current
balance, and Borrower hereby authorizes and
directs any affected insurance company to make
payment of such proceeds in such a case directly
to Lender. If Borrower receives any proceeds of
insurance resulting from such property loss,
Borrower shall promptly pay over such proceeds to
Lender. Lender is hereby authorized and empowered
by Borrower at Lender's option and in Lender's
sole discretion, as attorney-in-fact for Borrower,
to make proof of loss, to appear in and prosecute
any action arising from any policy or policies of
insurance, and upon the occurrence of an Event of
Default hereunder or under the Note, to settle,
adjust or compromise any claim for loss, damage or
destruction of the Trust Estate or any part
thereof under any policy or policies of insurance
without the prior written consent of Borrower to
such settlement, adjustment or compromise. In the
event of any damage to or destruction of the
Premises, all insurance proceeds shall be applied
in accordance with the terms of the Note and the
Loan Agreement, except as otherwise herein
provided in Section 1.05.
Section 1.06. ASSIGNMENT OF POLICIES UPON
FORECLOSURE.
In the event of foreclosure of this Deed of
Trust or other transfer of title or assignment of
the Trust Estate in extinguishment, in whole or in
part, of the debt secured hereby, all right, title
and interest of Borrower in and to all policies of
insurance required by Section 1.03 hereof and any
unearned premiums paid thereon shall, without
further act, be assigned to and shall inure to the
benefit of and pass to the successor in interest
to Borrower or the purchaser or grantee of the
Trust Estate, and Borrower hereby appoints Lender
its lawful attorney-in-fact to execute an
assignment thereof and any other document
necessary to effectuate such transfer.
Section 1.07. SUBROGATION. WAIVER OF OFFSET.
(a) Borrower waives any and all right to
claim or recover against Lender, its officers,
employees, agents and representatives, for loss of
or damage to Borrower, the Trust Estate,
Borrower's property or the property of others
under Borrower's control from any cause insured
against or required to be insured against by the
provisions of this Deed of Trust; provided,
however, that this waiver of subrogation shall not
be effective with respect to any policy of
insurance permitted or required by this Deed of
Trust if (i) such
6
<PAGE>
policy prohibits, or if coverage thereunder would
be reduced as a result of, such waiver of
subrogation and (ii) Borrower is unable to obtain
from a carrier issuing such insurance a policy
that, by special endorsement or otherwise, permits
such a waiver of subrogation.
(b) Except as otherwise specifically provided
herein and including Sections 1.04 and 1.05, all
sums payable by Borrower pursuant to this Deed
Trust shall be paid without notice, demand,
counterclaim, setoff, deduction or defense and
without abatement, suspension, deferment,
diminution or reduction, and the obligations and
liabilities of Borrower hereunder shall in no way
be released, discharged or otherwise affected
(except as expressly provided herein) by reason
of: (i) any damage to or destruction of or any
condemnation or similar taking of the Trust Estate
or any part thereof; ( ii) any restriction or
prevention of or interference by any third party
with any use of the Trust Estate or any part
thereof; (iii) any title defect or encumbrance or
any eviction from the Premises or any part thereof
by title paramount or otherwise; (iv) any
bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation
or other like proceeding relating to Lender, or
any action taken with respect to this Deed of
Trust by any trustee or receiver of Lender, or by
any court, in any such proceeding; (v) any claim
which Borrower has or might have against Lender;
(vi) any default or failure on the part of the
Lender to perform or comply with any of the terms
hereof or of any other agreement with Borrower; or
(vii) any other occurrence whatsoever, whether
similar or dissimilar to the foregoing; whether or
not Borrower shall have notice or knowledge of any
of the foregoing. Except as expressly provided
herein, Borrower waives all rights now or
hereafter conferred by statute or otherwise to any
abatement, suspension, deferment, diminution or
reduction of any sum secured hereby and payable by
Borrower.
Section 1.08. TAXES AND IMPOSITIONS.
(a) Borrower shall pay, or cause to be paid
at least ten (10) days prior to delinquency, all
real property taxes and assessments, general and
special, and all other taxes and assessments of
any kind or nature whatsoever, including without
limitation, non-governmental levies or assessments
such as maintenance charges, levies or charges
resulting from covenants, conditions and
restrictions affecting the Trust Estate, which are
assessed or imposed upon the Trust Estate, or upon
Borrower as owner or operator of the Trust Estate,
or become due and payable, and which create, may
create or appear to create a lien upon the Trust
Estate, or any part thereof, or upon any personal
property, equipment or other facility used in the
operation or maintenance thereof (all the above
collectively hereinafter referred to as
"Impositions"); provided, however, that if, by
law, any such Imposition is payable, or may at the
option of the taxpayer be paid, in installments,
Borrower may pay the same or cause it to be paid,
together with any accrued interest on the unpaid
balance of such Imposition, in installments as the
same become due and before any fine, penalty,
interest or cost may be added thereto for the
nonpayment of any such installment and interest.
Borrower may not enter into any multi-year payment
plan for the payment of real property taxes unless
(1) Borrower has obtained the prior written
consent of Lender to such a plan and, (2) such
written consent includes the agreement of Borrower
to deposit the amounts needed to pay the
installments due under such plan into an impound
account with Lender.
(b) If at any time after the date hereof
there shall be assessed or imposed (i) a tax or
assessment on the Trust Estate in lieu of or in
addition to the Impositions payable by Borrower
pursuant to subparagraph (a) hereof, or (ii) a
license fee, tax or assessment
7
<PAGE>
imposed on Lender and measured by or based in
whole or in part upon the amount of the
outstanding obligations secured hereby, then all
such taxes, assessments or fees shall be deemed to
be included within the term "Impositions" as
defined in subparagraph (a) hereof, and Borrower
shall pay and discharge the same as herein
provided with respect to the payment of
Impositions. If Borrower fails to pay such
Impositions prior to delinquency or if Borrower is
prohibited by law from paying such Impositions,
Lender may at its option declare all obligations
secured hereby together with all accrued interest
thereon, immediately due and payable. Anything to
the contrary herein notwithstanding, Borrower
shall have no obligation to pay any franchise,
estate, inheritance, income, excess profits or
similar tax levied on Lender or on the obligations
secured hereby.
(c) Subject to the provisions of paragraph
(d) of this Section 1.08 and upon request by
Lender, Borrower shall deliver to Lender within
thirty (30) days after the date upon which any
such Imposition is due and payable by Borrower
official receipts of the appropriate taxing
authority, or other proof satisfactory to Lender,
evidencing the payment thereof.
(d) Borrower shall have the right before any
delinquency occurs to contest or object to the
amount or validity of any such Imposition by
appropriate legal proceedings, but this shall not
be deemed or construed in any way as relieving,
modifying or extending Borrower' s covenant to pay
any such Imposition at the time and in the manner
provided in this Section 1.08, unless Borrower has
given prior written notice to Lender of Borrower's
intent to so contest or object to an Imposition,
and unless, at Lender's sole option, (i) Borrower
shall demonstrate to Lender's reasonable
satisfaction that the legal proceedings shall
conclusively operate to prevent the sale of the
Trust Estate, or any part thereof, to satisfy such
Imposition prior to final determination of such
proceedings; or (ii) Borrower shall furnish a good
and sufficient bond or surety as reasonably
requested by and satisfactory to Lender; or (iii)
Borrower shall demonstrate to Lender's reasonable
satisfaction that Borrower has provided a good and
sufficient undertaking as may be required or
permitted by law to accomplish a stay of any such
sale.
(e) Borrower shall not suffer, permit or
initiate the joint assessment of any real and
personal property which may constitute all or a
portion of the Trust Estate or suffer, permit or
initiate any other procedure whereby the lien of
the real property taxes and the lien of the
personal property taxes shall be assessed, levied
or charged to the Trust Estate as a single lien.
Borrower shall cause to be furnished to
Lender a tax reporting service, covering the Trust
Estate, of a type and duration, and with a
company, satisfactory to Lender.
Section 1.09. UTILITIES.
Borrower shall pay or shall cause to be paid
when due all utility charges which are incurred
for the benefit of the Trust Estate or which may
become a charge or lien against the Trust Estate
for gas, electricity, water or sewer services
furnished to the trust Estate and all other
assessments or charges of a similar nature,
whether public or private, affecting or related to
the Trust Estate or any portion thereof, whether
or not such taxes, assessments or charges are or
may become liens thereon.
8
<PAGE>
Section 1.10. DEFENSE OF ACTIONS AND COSTS.
Borrower, at no cost or expense to Lender or
Trustee, shall appear in and defend any action or
proceeding purporting to affect the security
hereof, the other Financing Documents, any
additional or other security for the obligations
secured hereby, the interest of the Lender, or the
rights, powers or duties of Lender or Borrower
hereunder. If Lender and Trustee, or either of
them, elects to become a party to such action or
proceed, or is made a part thereto or to any other
action or proceeding, of whatever kind or nature,
concerning the Note, this Deed of Trust, any of
the Financing Documents, the Trust Estate or any
part thereof or interest therein, or the occupancy
thereof, Borrower shall indemnify, defend and hold
Trustee and Lender harmless from all liability,
damage, cost and expense incurred by Trustee and
Lender, or either of them, by reason of said
action or proceeding (including, without
limitation, Trustee's fees and expenses, the fees
of attorneys for Trustee and for Lender, and other
expenses, of whatever kind or nature, incurred by
Trustee or Lender, or either of them, as a result
of such action or proceeding), whether or not such
action or proceeding is prosecuted to judgment or
decision. Immediately upon demand therefor by
Trustee or Lender, Borrower shall pay thereto an
amount equal to Borrower's liability to such
person under this Section.
Section 1. 11. ACTIONS BY LENDER TO PRESERVE
TRUST ESTATE.
If Borrower fails to make any payment or to
do any act and in the manner provided in any of
the Financing Documents, Lender, and Trustee, and
each of them, each in its own discretion, without
obligation so to do without releasing Borrower
from any obligation, and subject only to the
notice and cure provisions of the Note, may make
or do the same in such manner and to such extent
as either may deem necessary to protect the
security hereof. In connection therewith (without
limiting their general and other powers, whether
conferred herein, in another Loan Document or by
law); Lender and Trustee, and each of them, each
shall have and are hereby given the right, but not
the obligation: (i) to enter upon and take
possession of the Trust Estate; (ii) to make
additions, alterations, repairs and improvements
to the Trust Estate which they or either of them
may reasonably consider necessary or proper to
keep the Trust Estate in good condition and
repair; (iii) to appear and participate in any
action or proceeding affecting or which may affect
the security hereof or the rights or powers of
Lender or Trustee; (iv) to pay, purchase, contest
or compromise any encumbrance, claim, charge, lien
or debt which in the reasonable judgment of either
may materially and adversely affect or appears to
materially and adversely affect the security of
this Deed of Trust or to be prior or superior
hereto; and (v) in exercising such powers, to pay
necessary expenses, including employment of
counsel or other necessary or desirable
consultants. Borrower shall, immediately upon
demand therefor by Lender pay to Lender an amount
equal to all costs and expenses incurred by it in
connection with the exercise by Lender of the
foregoing rights, including, without limitation,
costs of evidence of title, court costs,
appraisals, surveys and receiver's, Trustee's and
reasonable attorneys fees, costs and expenses
(including without limitation, the fees and
expenses of attorneys for Trustee), whether or not
an action is actually commenced in connection
therewith.
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<PAGE>
Section 1.12. TRANSFER OF TRUST ESTATE BY
BORROWER.
One of the inducements to the Lender for
entering into this transaction is the identity of
the Borrower. The existence of any interest in the
property secured by this Deed of Trust other than
the interests of the Lender and other encumbrance
permitted by the terms of this Deed of Trust or by
a fully executed, written agreement between the
Borrower and Lender, even though subordinate to
the security interest of the Lender, and the
existence of any interest in the property other
than those of the Borrower may impair the property
and the security interest of Lender, and,
therefore, Borrower shall not sell, convey,
assign, transfer, alienate or otherwise dispose of
Borrower's interest in the property, or any part
thereof, either voluntarily or by operation of law
or agree to do so, without the prior written
consent of the Lender. Consent to one such
transaction by the lender shall not be deemed a
waiver of the right to require such consent to
further or successive transactions. Any direct or
indirect sale or transfer of the property which at
one time or in the aggregate results in more than
forty-nine percent (49%) of the ownership of the
property having been sold or transferred since the
recordation of this Deed of Trust shall constitute
a transfer of the property for the purposes of
this Section. Further, any direct or indirect
transfers of ownership interests in Borrower other
than market trades in Borrower's shares, which
exceeds in the aggregate forty-nine percent (49%)
of the total current ownership interest in
Borrower shall constitute a transfer of the
property for the purpose of this Section. Borrower
shall notify Lender in writing of any transfer of
any portion of the ownership interest in Borrower,
except for market trades in Borrower's shares, or
the property not less than thirty (30) days before
such transfer is to occur, and in such notice,
shall advise Lender as to the nature of the
transfer with sufficient particularity as to
enable lender to compute the percentage so
transferred. Any transaction in violation of this
Section shall constitute an Event of Default under
the Notice and this Deed of Trust, and Lender
shall be entitled to exercise all remedies
provided in this Deed of Trust. The Lender shall
not unreasonably withhold its consent to a sale or
other transfer of the property provided that the
proposed transaction does not violate any of the
then existing loan underwriting criteria of the
Bank, and further provided that the assumption fee
required by the Lender is paid to the Lender as a
part of such transfer in addition, the Borrowers
equity in the property which is encumbered by this
Deed of Trust is a material factor to Lender, and
Lender makes the Loan which is secured by this
Deed of Trust in material reliance upon that
equity. Therefore, in order to assure Lender that
the equity of Borrower in the property will not be
subsequently diluted, and in consideration for
Lender making the loan which is secured by this
Deed of Trust, Borrower hereby covenants and
agrees that so long as this Deed of Trust is a
lien against the real property described herein,
Borrower wil1 not create or permit to continue in
existence any mortgage, deed of trust, pledge,
encumbrance, lien or charge of any kind against
the property except for encumbrances expressly
permitted by this Deed of Trust or as otherwise
consented to in writing by Lender, or liens for
taxes not yet payable. In the event that the
interest of Borrower in the property encumbered by
this Deed of Trust, or any part thereof, or any
interest therein is sold, agreed to be sold,
optioned, conveyed, alienated, encumbered or
otherwise transferred by Borrower, whether by
operation of law or otherwise, the obligations
hereunder, irrespective of the maturity dates
expressed herein, at the option of the Lender and
without demand or notice, shall immediately become
due and payable. In the event that the Lender does
not elect to declare the Note immediately due and
payable in the event of a transfer described
herein, then, unless indicated otherwise in
writing by the lender, Borrower shall remain
primarily liable for the obligations under the
Note and this Deed of Trust and under any other
instrument
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<PAGE>
securing the Note or executed in connection
herewith. Except for transfers for which Lender
has given express written consent, this provision
shall apply to each and every sale, transfer,
encumbrance or conveyance, regardless of whether
or not the Lender has consented to, or waived, the
Lender's rights hereunder, whether by action or
non-action, in connection with any previous sale,
transfer, encumbrance or conveyance and whether or
not the holder has received any payments after
such event.
Section 1.13. SURVIVAL OF WARRANTIES.
Borrower shall fully and faithfully satisfy
and perform the obligations of Borrower contained
in the Financing Documents, each agreement of
Borrower incorporated by reference therein or
herein each agreement the performance of which is
secured hereby, and any modification or amendment
thereof. All representations, warranties and
covenants of Borrower contained in any such
agreement between Borrower and Lender shall
survive the execution and delivery hereof and
shall remain continuing obligations, warranties
and representations of Borrower during any time
when any portion of the obligations secured hereby
remain outstanding.
Section 1.14. CONDEMNATION AND OTHER AWARDS.
Immediately upon its obtaining knowledge of
the institution or the threatened institution of
any proceeding for the condemnation or other
taking for public or quasi-public use of the Trust
Estate or any part thereof, or if the same be
taken or damaged by reason of any public
improvement or condemnation proceeding, or in any
other manner, or should Borrower receive any
notice or other information regarding such
proceeding, action, taking or damage, Borrower
shall promptly notify Trustee and Lender of such
fact. Borrower shall then, if requested by Lender,
file or defend its right thereunder and prosecute
the same with due diligence to its final
disposition and shall cause any award or
settlements to be paid over to Lender for
disposition pursuant to the terms of this Deed of
Trust. At Lender's option, Lender or Borrower may
be the nominal party in such proceeding but in any
event Lender shall be entitled, without regard to
the adequacy of its security, to participate in
the same and to be represented therein by counsel
of its choice, and Borrower will deliver, or cause
to be delivered, to Lender such instruments as may
be requested by it from time to time to permit
such participation. If the Trust Estate or any
part thereof is taken or diminished in value, or
if a consent settlement is entered, by or under
threat of such proceeding, all compensation,
awards, damages, rights of action, proceeds and
settlements payable to Borrower by virtue of its
interest in the Trust Estate (the "Condemnation
Proceeds") shall be and hereby are assigned,
transferred and set over unto Lender to be held by
it, in trust, subject to the lien and security
interest of this Deed of Trust. Any such
Condemnation Proceeds shall be first applied to
reimburse Trustee and Lender for all costs and
expenses, including reasonable attorney's fees,
incurred in connection with the collection of such
award or settlement. The balance of such award or
settlement shall be applied to pay all sums due
under the Note, the Loan Agreement, and this Deed
of Trust, and any sums then remaining shall be
paid over to Borrower. Application or release of
the Condemnation Proceeds as provided herein shall
not cure or waive any default or notice of default
hereunder or invalidate any act done pursuant to
such notice.
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<PAGE>
Section 1.15. ADDITIONAL SECURITY.
No other security now existing, or hereafter
taken, to secure the obligations secured hereby
nor the liability of any maker, surety, guarantor
or endorser with respect to such obligations, or
any of them, shall be impaired or affected by the
execution of this Deed of Trust; and all
additional security shall be taken, considered and
held as cumulative. The taking of additional
security, execution of partial releases of the
security, or any extension of the time of payment
of the indebtedness shall not diminish the force,
effect or lien of this Deed of Trust and shall not
affect or impair the liability of any maker,
surety, guarantor or endorser for the payment of
said indebtedness. In the event Lender at any time
holds additional security for any of the
obligations secured hereby, it may enforce the
sale thereof or otherwise realize upon the same,
at its option, either before, concurrently, or
after a sale is made hereunder.
Section 1.16. INSPECTIONS, REPORTS AND
FINANCIAL STATEMENTS.
(a) Lender and its agents, representatives or
workers, are authorized upon reasonable notice to
enter at any reasonable time upon or in any part
of the Trust Estate for the purposes of inspecting
the same and for the purpose of performing any of
the acts it is authorized to perform hereunder or
under the terms of any of the Financing Documents
.
(b) Commencing January 30, 1998, and
continuing until this Deed of Trust is reconveyed,
Borrower shall furnish Lender, on an annual basis
or more frequently if requested, a complete rent
roll for the project, listing each unit, the
current rental rate for each unit, and the current
rental rate actually being paid for each unit.
(c) Commencing January 30, 1998, and on the
30th day of January each year thereafter, or more
frequently if requested, until this Deed of Trust
is reconveyed, Borrower shall provide to Lender
complete financial statements for the Project,
including income and expense statements broken
down by month. Borrower shall provide Lender with
current annual report for the Borrower at the same
time the financial statements for the Project are
provided. Lender may elect to audit all financial
statements at the expense of Borrower, but no more
frequently than annually. In addition, beginning
in 1997 and continuing until this Deed of Trust is
reconveyed, Borrower shall also provide Lender
with copies of all tax returns and schedules filed
with the Internal Revenue Service and the
Franchise Tax Board each year, within 30 calendar
days after fling with said agencies.
Section 1.17. LIENS.
Borrower shall pay and promptly discharge
when due, at Borrower's cost and expense, all
liens, encumbrances and charges upon the Trust
Estate, or any part thereof or interest therein,
provided that the existence of any mechanic's,
laborer's, materialman's, suppliers', or vendor's
lien or right thereto shall not constitute a
violation of this Section if payment is not yet
due under the contract which is the foundation
thereof and if such contract does not postpone
payment for more than forty-five (45) days after
the performance thereof. Borrower shall have the
right to contest in good faith the validity of any
such lien, encumbrance or charge, provided that
within ten days after service of a
12
<PAGE>
stop notice or ninety days after recording of a
Mechanic ' s Lien, Borrower shall deposit with
Lender a bond or other security reasonably
satisfactory to Lender in such amounts as Lender
shall reasonably require, but no more than the
amount required to release the lien under
California law and provided further that Borrower
shall thereafter diligently proceed to cause such
lien, encumbrance or charge to be removed and
discharged. If Borrower shall fail either to
remove and discharge any such lien, encumbrance or
charge or to deposit security in accordance with
the preceding sentence, if applicable, then, in
addition to any other right to remedy of Lender,
Lender may, but shall not be obligated to,
discharge the same, without inquiring into the
validity of such lien, encumbrance or charge nor
into the existence of any defense or offset
thereto, either by paying the amount claimed to be
due, or by procuring the discharge of such lien,
encumbrance or
charge by depositing in a court a bond or the
amount or otherwise giving security for such
claim, or in such manner as is or may be
prescribed by law. Borrower shall, immediately
upon demand therefor by Lender, pay to Lender an
amount equal to all costs and expenses incurred by
Lender in connection with the exercise by Lender
of the foregoing right to discharge any such lien,
encumbrance or charge.
Section 1.18. LENDER' S POWERS.
Without affecting the liability of any other
person liable for the payment of any obligation
herein mentioned, and without affecting the lien
or charge of this Deed of Trust upon any portion
of the Trust Estate not then or theretofore
released as security for the full amount of all
unpaid obligations, Lender may, from time to time,
and with advance notice (i) release any person so
liable, (ii) extend the maturity or alter any of
the terms of the obligation, (iii) grant other
indulgences, (iv) release or reconvey, or cause to
be released or reconveyed at any time at Lender's
option any parcel, portion or all of the Trust
Estate, (v) take or release any other or
additional security for any obligation herein
mentioned, or (vi) make compositions or other
arrangements with debtors in relation thereto. By
accepting payment or performance of any obligation
secured by this Deed of trust after the payment or
performance is due or after the filing of a notice
of default and election to sell, Lender shall not
have thereby waived its right to require prompt
payment or performance, when due, of all other
obligations secured hereby, or to declare a
default for failure so to pay or perform, or to
proceed with the sale under any notice of default
and election to sell thereafter given by Lender,
or with respect to any unpaid balance of the
indebtedness secured hereby. The acceptance by
Lender of any sum in an amount less than the sum
then due shall not constitute a waiver of the
obligation of Borrower to pay the entire sum then
due. Borrower's failure to pay the entire sum then
due shall continue to be a default,
notwithstanding the acceptance of partial payment,
and until the entire sum then due shall have been
paid, Lender or Trustee shall at all times be
entitled to declare a default and to exercise all
the remedies herein conferred, and the right to
proceed with a sale under any notice of default
and election to sell shall in no way be impaired,
whether or not such amounts are received prior or
subsequent to such notice. No delay or omission of
Trustee or Lender in the exercise of any right or
power hereunder shall impair such right or power
or any other right or power or shall the same be
construed to be a waiver of any default or any
acquiescence therein.
13
<PAGE>
Section 1.19. OTHER INSTRUMENTS.
Borrower shall punctually pay all amounts due
and payable, and shall promptly and faithfully
perform or observe each and every other obligation
or condition to be performed or observed under
each deed of trust mortgage or other lien or
encumbrance, lease, sublease, declaration,
covenant, condition, restriction, license, order
or other instrument or agreement which affects or
appears to affect the Trust Estate, whether at law
or in equity.
Borrower will promptly supply lender with the
current financial statements of Borrower and other
information concerning the affairs and properties
of Borrower as Lender may reasonably request, and
will promptly notify Lender of any adverse
material change in the financial condition of the
Borrower or in the physical condition of the
Property or the Project.
ARTICLE II
ASSIGNMENT OF RENTS, ISSUES AND PROFITS
Section 2.01. ASSIGNMENT OF RENTS ISSUES AND
PROFITS.
Borrower hereby assigns and transfers
absolutely to Lender all of the Rents of the Trust
Estate (the "Rents") and hereby gives to and
confers upon Lender the right, power and authority
to collect such Rents. Borrower irrevocably
appoints Lender upon event of default its true and
lawful attorney-in-fact, at the option of the
Lender, at any time and from time to time, to
demand, receive and enforce payment, to give
receipts, releases and satisfactions, and to sue,
in its name or in the name of Borrower for all
such Rents, and apply the same to the obligations
secured hereby; provided, however, that Borrower
shall have the right to collect such Rents (but no
more than one month in advance unless the written
approval of Lender has first been obtained), and
to retain and enjoy the same, so long as an Event
of Default shall not have occurred hereunder and
be continuing. The Assignment of the Rents in this
Article II is intended to be an absolute
assignment from Borrower to Lender and not merely
the passing of a security interest. The foregoing
power of attorney is coupled with an interest and
cannot be revoked.
Section 2.02. COLLECTION UPON DEFAULT.
Upon the occurrence of an Event of Default
hereunder, Lender may, at any time, with notice,
either in person, by agent or by a receiver
appointed by a court, and without regard to the
adequacy of any security for the indebtedness
hereby secured, enter upon and take possession of
the Trust Estate, or any part thereof, and, with
or without taking possession of the Trust Estate
or any part thereof, in its own name sue for or
otherwise collect such Rents (including those past
due and unpaid, and all prepaid Rents and all
other monies which may have been or may hereafter
be deposited with Borrower by any lessee or tenant
of Borrower to secure the payment of any rent or
for any services thereafter to be rendered by
Borrower for any other obligation of any tenant to
Borrower arising under any lease, and Borrower
agrees that, upon the occurrence of any Event of
Default hereunder, Borrower shall promptly deliver
all such Rents and other monies to Lender), and
Lender may apply the same less reasonable costs
and expenses of operation
14
<PAGE>
and collection, including, without limitation,
attorneys fees (subject to California Civil Code
Section 1717), whether or not suit is brought or
prosecuted to judgment, upon any indebtedness or
obligation of Borrower secured hereby, and in such
order as Lender may determine notwithstanding that
said indebtedness or the performance of said
obligation may not then be due. The collection of
such Rents, or the entering upon and taking
possession of the Trust Estate, or the application
thereof as aforesaid, shall not cure or waive any
default or notice of default hereunder or
invalidate any act done in response to such
default or pursuant to such notice of default or
be deemed or construed to make Lender a mortgagee-
in-possession of the Trust Estate or any portion
thereof.
Section 2.03. FURTHER ASSIGNMENTS.
Upon demand of Lender, Borrower shall, from
time to time hereafter, execute and deliver to
Lender recordable assignments of Borrower's
interest in any or all leases, subleases,
contracts, rights, licenses and permits now or
hereafter affecting the Trust Estate or any
portion thereof. Such assignments shall be made by
instruments in form and substance satisfactory to
Lender; provided, however, that no such assignment
shall be construed as imposing upon Lender any
obligation with respect thereto. A default by
Borrower in the performance of any covenant of any
lease or other instrument so assigned to Lender
which causes a material diminution in the value of
the Trust Estate, by reason of which default the
lessee or other party thereunder has the right to
cancel such lease or other instrument or to claim
any diminution or offset against future Rents
shall, at the option of Lender, constitute a
default hereunder and under the Financing
Documents, and Lender shall have all the rights
and remedies set forth herein as if such default
had occurred hereunder. Lender may, at its option,
exercise its rights hereunder or under any such
specific assignment, and such exercise shall not
constitute a waiver of any right hereunder or
under such specific assignment.
ARTICLE III
SECURTTY AGREEMENT
Section 3.01. CREATION OF SECURITY INTEREST.
Borrower hereby grants to Lender a security
interest in all of Borrower's estate, right, title
and interest, now owned or hereafter acquired, in
and to the property described in Exhibit "B"
attached hereto and by this reference incorporated
herein (individually and collectively, "Personal
Property"), to the extent that such property is
not real property under the laws of the State of
California, for the purpose of securing all
obligations of Borrower contained in the Note.
Section 3.02. WARRANTIES, REPRESENTATIONS AND
COVENANTS OF BORROWER.
Borrower hereby represents and warrants as of
the date hereof and covenants as follows:
(a) Borrower maintains its principal office
in the State of Washington, and Borrower will
immediately notify Lender in writing of any change
in its principal place of business.
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<PAGE>
(b) All covenants, obligations, waivers and
releases of Borrower contained herein relating to
the Trust Estate (other than the provisions of
Section 4.03 hereof, relating to the sale of the
Trust Estate by Trustee under the Trustee' s power
of sale) shall be deemed to apply to the Personal
Property and the rights and obligations of
Borrower and Lender with respect thereto whether
or not expressly referred to in this Article III.
(c) At the request of Lender, Borrower will
execute one or more financing statements and
renewals and amendments thereof pursuant to the
Uniform Commercial Code of California and such
other documents as Lender deems necessary to
impose, perfect or continue the perfection of the
security interest herein created, all in form
satisfactory to Lender, and will pay the cost of
filing the same in all public offices wherever
filing is deemed by Lender to be necessary or
desirable.
(d) This Deed of Trust constitutes a Security
Agreement as that term is used in the Uniform
Commercial Code of California and any other state
in which any of the Personal Property is located;
and Lender shall have all the rights and remedies
of a secured party under the Uniform Commercial
Code as in effect therein from time to time as
well as all other rights and remedies available at
law or in equity.
(e) Except for the security interest granted
hereby, Borrower is, and as to portions of the
Personal Property to be acquired after the date
hereof will be, the sole owner of the Personal
Property, free from any adverse lien, security
interest, encumbrance or adverse claim thereon of
any kind whatsoever. Borrower will notify Lender
of, and will defend the Personal Property against,
all claims and demands of all persons at any time
claiming the same or any interest therein. Nothing
in this agreement shall prevent Borrower from
obtaining equipment leases secured by equipment on
the property.
(f) Borrower will not lease, sell, convey or
in any manner transfer the Personal Property
without the prior written consent of Lender,
except in the ordinary course of business and
provided any Personal Property so transferred is
replaced immediately with like Personal Property
of equal or greater value.
(g) Except to the extent in transit thereto
after initial acquisition by Borrower, the
Personal Property will be kept on or at the
Premises and Borrower will not, without the prior
written consent of Lender, remove the Personal
Property therefrom except such portions or items
of Personal Property which are consumed or worn-
out in ordinary usage, all of which shall be
promptly replaced by Borrower.
Section 3.03. REMEDIES UPON DEFAULT.
Upon the occurrence of any Event of Default
hereunder, Lender shall have the right to cause
any of the Personal Property to be sold at any one
or more public or private sales as permitted by
applicable law, and Lender shall further have all
other rights and remedies, whether at law, in
equity, or by statute, as are available to secured
creditors under applicable law. Any such
disposition may be conducted by an employee or
agent of Lender or Trustee. Any person, including
both Trustee and Lender, shall be eligible to
purchase any part or all of such property at any
such disposition unless prohibited by law from
doing so. All expenses of retaking, holding,
preparing for sale, selling or the like
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shall be borne by Borrower and shall include,
without limiting the generality of the foregoing,
Lender's and Trustee's reasonable attorneys fees
and legal expenses. Borrower, upon demand of
Lender, shall assemble such Personal Property and
make it available to Lender at such place as shall
be required by Lender in its sole discretion.
Lender shall give Borrower at least ten (10) days
prior written notice of the time and place of any
public sale or other disposition of such property
or of the timing of, or after which, any private
sale or any other intended disposition is to be
made, and if such notice
is sent to Borrower, as the same is provided for
the making of notices herein, it is hereby deemed
that such notice shall be and is reasonable notice
to Borrower.
Section 3.04. OTHER SECURITY AGREEMENTS.
Borrower may, concurrently herewith or
hereafter, execute and deliver to Lender a
security agreement with respect to all or part of
the Personal Property and, at the request of
Lender, other personal property. The rights and
obligations of Borrower and Lender with respect to
all personal property described therein
(including, without limitation, any of the
Personal Property which is described therein)
shall be controlled by the terms and provisions of
such security agreement to the extent, if any,
that the provisions of Article III of this Deed of
Trust are inconsistent therewith. To the extent
not inconsistent, the respective rights and
obligations of Borrower and Lender hereunder and
under any such security agreement shall be
cumulative.
Section 3.05. FIXTURE FILING FINANCING
STATEMENT.
This Deed of Trust is also a financing
statement filed as a fixture filing, covering the
Personal Property described in Exhibit "B" hereto,
and providing as follows:
(a) The debtor is Borrower.
(b) The secured party is Lender.
(c) The Personal Property is attached or
appurtenant to, or arises from, or is located on
or used in connection with, the Land described in
Exhibit "A".
(d) Certain items of the Personal Property
are or are to become fixtures on the Land, and
this Deed of Trust is to be recorded in the Real
Estate Records of the County in which the Land is
located.
ARTICLE IV
REMEDIES UPON DEFAULT
Section 4.01. EVENTS OF DEFAULT.
Any of the following events shall (after
the expiration of any applicable grace
period), be deemed an event of default
("Event of Default") hereunder:
(a) The occurrence of a Default as that term
is defined in the Note or any of the other
Financing Documents;
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(b) Default shall be made in the payment,
when due, of any sum secured hereby; or
(c) To the extent that the following are not
included within the events described in clauses
(a) and (b) of this Section, there has occurred a
breach of or default under any term, covenant,
agreement, condition, provision, representation or
warrant of Borrower contained in (i) any lease to
which the Trust Estate or any portion thereof is
subject; or (ii) any document submitted to Lender
in connection with the obligations secured hereby;
or (iii) any Loan Document including the Note and
this Deed of Trust; provided. however, that if
Lender has received notice of such breach or
default, then the same shall not be an Event or
Default hereunder so long as either: (1) Lender
has waived the same in writing or (2) Borrower
shall have cured the same within the period, if
any, set forth in any such instrument or agreement
for such cure (or if no cure period is specified
then Lender shall give 30 days notice), or (3)
Borrower shall have cured the same within the
period specified by Lender, determined in its sole
discretion, as the period for cure in a written
notice delivered to Borrower;
(d) The Borrower's equity in the real
property which is encumbered by this Deed of Trust
is a material factor to Lender, and Lender makes
the loan which is secured by this Deed of Trust in
material reliance upon that equity. Therefore, in
order to assure Lender that the equity of Borrower
in the subject real property will not subsequently
be diluted, and in consideration for Lender making
the loan which is secured by this Deed of Trust,
Borrower hereby covenants and agrees that so long
as this Deed of Trust is a lien against the real
property described herein, Borrower will not
create or permit to continue in existence any
mortgage, deed of trust, pledge, encumbrance, lien
or charge of any kind against the subject real
property (including any unrecorded instrument
purporting to convey an interest in the real
property described herein) except for liens for
taxes not yet payable. The creation, subject to
the recordation of this Deed of Trust, of any such
mortgage, deed of trust, pledge, encumbrance, lien
or charge of any kind against the subject real
property (including any unrecorded instrument
purporting to convey an interest in the real
property described herein) shall be an Event of
Default under the terms of this Deed of Trust,
unless done in accordance with the terms of the
loan documents.
(e) Any representation or warranty in this
Deed of Trust or in any other instrument or
agreement evidencing, securing, guarantying or
otherwise relating to any of the secured
obligations is or becomes untrue or misleading in
any material respect.
Section 4.02. ACCELERATION UPON DEFAULT;
ADDITIONAL REMEDIES.
Upon the occurrence of an Event of Default,
Lender may, at its option, declare all
indebtedness and obligations secured hereby, to be
immediately due and payable with notice and
whether or not Lender exercises said option,
Lender may:
(a) Either in person or by agent, with or
without bringing any action or proceeding, or by a
receiver appointed by a court and without regard
to the adequacy of its security, enter upon and
take possession of the Trust Estate, or any part
thereof, in its own name or in the name of
Trustee, and do any act which it deems necessary
or desirable to preserve the value, marketability
or rentability of the Trust Estate, or part
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thereof or interest therein increase the income
therefrom or protect the security hereof and, with
or without taking possession of the Trust Estate,
sue for or otherwise collect the Rents including
those past due and unpaid, and apply the same,
less costs and expense of operation and cost
collection including, without limitation,
attorneys fees, upon any indebtedness secured
hereby, all in such order as Lender may determine.
The entering upon and taking possession of the
Trust Estate, the collection of such Rents and the
application thereof as aforesaid, shall not cure
or waive any default or notice of default
hereunder or invalidate any act done in response
to such default or pursuant to such notice of
default and, notwithstanding the continuance in
possession by Trustee, Lender or a receiver of all
or any portion of the Trust Estate or the
collection, receipt and application of any of the
Rents thereby, the Trustee or Lender shall be
entitled to exercise every right provided for in
any of the Financing Documents or by law upon
occurrence of any Event of Default, including the
right to exercise the power of sale;
(b) Commence an action to foreclose this Deed
of Trust as a mortgage, appoint a receiver, or
specifically enforce any of the covenants hereof;
(c) Deliver to Trustee a written declaration
of default and demand for sale, and a written
notice of default and election to cause Borrower's
interest in the Trust Estate to be sold, which
notice the Trustee or Lender shall cause to be
duly filed for record in the Official Records of
the County in which the Trust Estate. is located;
or
(d) Exercise all other rights and remedies
provided herein, in any Financing Document or
other document or agreement now or hereafter
securing all or any portion of the obligations
secured hereby, or provided by law.
Section 4.03. FORECLOSURE BY POWER OF SALE.
(a) Should Lender elect to foreclose by
exercise of the power of sale herein contained,
Lender shall notify Trustee and shall deposit with
Trustee this Deed of Trust and the Note and such
receipts and evidence of expenditures made and
secured hereby as Trustee may require.
(b) Upon receipt of such notice from Lender,
Trustee shall cause to be recorded, published and
delivered to Borrower such Notice of Default and
Election to Sell as is then required by law and by
this Deed of Trust. Trustee shall, without demand
on Borrower, after lapse of such time as may then
be required by law and after recordation of such
Notice of Default and after Notice of Sale having
been given as required by law, sell the Trust
Estate at the time and place of sale fixed by it
in said Notice of Sale, either as a whole, or in
separate lots or parcels or items, and in such
order as Lender may direct Trustee to do, at
public auction to the highest bidder for cash in
lawful money of the United States payable at the
time of sale. Trustee shall deliver to such
purchaser or purchasers thereof its good and
sufficient deed or deeds conveying the property so
sold, but without any covenant or warranty,
express or implied. The recitals in such deed of
any matter or fact shall be conclusive proof of
the truthfulness thereof. Any person, including,
without limitation, Borrower, Trustee or Lender,
may purchase at such sale, and Borrower hereby
covenants to warrant and defend the title of such
purchaser or purchasers.
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(c) Upon nonjudicial foreclosure of this Deed
of Trust, Lender shall be entitled to credit bid
up to and including the entire amount of the
obligations and indebtedness secured hereby. If
Lender is the successful bidder, whether by credit
bid or otherwise, Lender shall take the property.
If Lender makes a combined credit and cash bid and
is the successful bidder, Trustee shall apply the
cash bid first to pay the holders of liens
subordinate hereto and encumbering the Premises,
in their respective order of priority; then to pay
delinquent taxes, if any; and shall pay any
remaining balance to the Borrower; or, if such
order of payment shall be prohibited by law, then
in such other order or priority as is required by
law. If a third party is the successful bidder at
such public auction, upon receipt of cash from
such bidder Trustee shall apply the cash bid
received from the third party, after deducting all
costs, fees and expenses of Lender and of the
trust, including costs of evidence of title in
connection with the sale, (i) first to pay all
sums due and owing to Borrower, with accrued
interest under the Note, and this Deed of Trust
and satisfaction of Borrower' s other obligations
under the Note and this Deed of Trust), and (ii)
the remainder, if any, to the person or persons
legally entitled thereto.
(d) The Trustee may postpone sale of all or
any portion of the Trust Estate by public
announcement at such time and place of sale, and
from time to time thereafter may postpone such
sale by public announcement or subsequently
noticed sale, and without further notice make such
sale at the time fixed by the last postponement,
or may, in its discretion, give a new notice of
sale.
(e) A sale of less than the whole of the
Trust Estate or any defective or irregular sale
made hereunder shall not exhaust the power of sale
provided for herein; and subsequent sales may be
made hereunder until all obligations secured
hereby have been satisfied, or the entire Trust
Estate sold, without defect or irregularity.
Section 4.04. REINSTATEMENT.
Borrower shall have the right to the extent
permitted by California law, following the
recording of the Notice of Default if the power of
sale herein is to be exercised, to pay to Lender
the principal balance due under the Note, with
interest thereon as provided for in the Note,
together with all other amounts advanced and
expenses incurred by Lender or Borrower hereunder
or under the Note, whereupon Borrower shall be
deemed to have cured the default theretofore
existing, and the Note and this Deed of Trust
shall remain in force and effect as if no Notice
of Default had been filed.
Section 4.05. APPOINTMENT OF RECEIVER.
If an Event of Default in this Deed of Trust
shall have occurred and be continuing, Lender, as
a matter of right and without notice to Borrower
or anyone claiming under Borrower, and without
regard to the then value of the Trust Estate or
the interest of Borrower hereby irrevocably
consents to such appointment and waives notice of
any application therefor. Any such receiver or
receivers shall have all the usual powers and
duties of receivers in like or similar cases and
all the powers and duties of Lender in case of
entry as provided herein and shall continue as
such and exercise all such powers until the date
of confirmation of sale of the Trust Estate unless
such receivership is sooner terminated.
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Section 4.06. APPLICATION OF FUNDS AFTER
DEFAULT.
Except as otherwise herein provided, upon the
occurrence of an Event of Default hereunder,
Lender may, at any time without notice, apply any
or all sums or amounts received and held by Lender
to pay insurance premiums, Impositions, or either
of them, or as rents or income of the Trust
Estate, or as insurance or condemnation proceeds,
and all other sums or amounts received by Lender
from or on account of Borrower or the Trust
Estate, or otherwise, upon any indebtedness or
obligation of the Borrower secured hereby, in such
manner and order as Lender may elect,
notwithstanding that said indebtedness or the
performance of said obligation may not yet be due.
The receipt, use or application of any such sum or
amount shall not be construed to affect the
maturity of any indebtedness secured by this Deed
of Trust, or any of the rights or powers of Lender
or Trustee under the terms of the Financing
Documents, or any of the obligations of Borrower
or any guarantor under the Financing Documents; or
to cure or waive any default or notice of default
under any of the Financing Documents; or to
invalidate any act of Trustee or Lender.
Section 4.07. COSTS OF ENFORCEMENT.
If any Event of Default occurs, Lender and
Trustee, and each of them, may employ an attorney
or attorneys to protect their rights hereunder.
Subject to California Civil Code Section 1717,
Borrower promises to pay to Lender, on demand, the
fees and expenses of such attorneys and all other
costs of enforcing the obligations secured hereby
including without limitation, recording fees, the
expense of a Trustee's Sale Guarantee, Trustee's
fees and expenses, receiver's fees and expenses,
and all other expenses of whatever kind or nature,
incurred by Lender and Trustee, and each of them,
in connection with the enforcement of the
obligations secured hereby, whether or not such
enforcement includes the filing of a lawsuit.
Section 4.08. REMEDIES NOT EXCLUSIVE.
Trustee and Lender, and each of them, shall
be entitled to enforce payment and performance of
any indebtedness or obligation secured hereby and
to exercise all rights and powers under this Deed
of Trust or under any Loan Document or other
agreement or any law now or hereafter in force,
notwithstanding some or all of the said
indebtedness and obligation secured hereby may now
or hereafter be otherwise secured, whether by
guaranty, mortgage, deed of trust, pledge, lien,
assignment or otherwise. Neither the acceptance of
this Deed of Trust nor its enforcement whether by
court action or pursuant to the power of sale or
other powers herein contained, shall prejudice or
in any manner affect Trustee's or Lender's right
to realize upon or enforce any other security now
or hereafter held by Trustee or Lender, it being
agreed that Trustee and Lender, and each of them,
shall be entitled to enforce this Deed of Trust
and any other security now or hereafter held by
Lender or Trustee in such or r and manner as they
may m their absolute discretion determine. No
remedy herein conferred upon or reserved to
Trustee or Lender is intended to be exclusive of
any other remedy herein or by law provided or
permitted, but each shall be cumulative and shall
be in addition to every other remedy given
hereunder or now or hereafter existing at law or
in equity or by statute. Every power or remedy
given by any of the Financing Documents to the
Trustee or Lender or to which either of them may
be otherwise entitled may be exercised,
concurrently or
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independently, from time to time and as often as
may be deemed expedient by the Trustee or Lender
and either of them may pursue inconsistent
remedies.
ARTICLE V
MISCELLANEOUS
Section 5.01. AMENDMENTS.
This instrument cannot be waived, changed,
discharged or terminated orally, but only by an
instrument in writing signed by the party against
whom enforcement of any waiver, change, discharge
or termination is sought. A copy of said
instrument shall be sent by said party to all
other parties in the manner specified in Section
5.06 hereof.
Section 5.02. BORROWER WAIVER OF RIGHTS.
Borrower waives to the extent permitted by
law, (i) the benefit of a11 laws now existing or
that may hereafter be enacted providing for any
appraisal before sale of any portion of the Trust
Estate, and, whether now existing or hereafter
arising or created, (ii) valuation, appraisal,
stay of execution, notice of election to mature or
declare due the whole of the secured indebtedness
and marshaling in the event of foreclosure of the
liens hereby created, and (iii) all rights and
remedies which Borrower may have or be able to
assert by reason of the laws of the State of
California pertaining to the rights and remedies
of sureties; however, Borrower does not waive any
rights granted by California Civil Code Sections
2924, 2924b and 2924c or Code of Civil Procedure
Sections 580a, 580d and 726.
Section 5.03. STATEMENT BY BORROWER.
Borrower shall, within ten (10) days after
notice thereof from Lender, deliver to Lender a
written statement setting forth the amounts then
unpaid and secured by this Deed of Trust and
stating whether any offset or defense exists
against such amounts.
Section 5. 04. LENDER STATEMENTS.
For any statement or accounting requested by
Borrower or any other entitled person pursuant to
any provision of applicable law, or for any other
document or instrument furnished to Borrower by
Lender, Lender may charge the maximum amount
permitted by law at the time of the request
therefor, or if there be no such maximum, then in
accordance with Lender's reasonable customary
charges therefor or the actual cost to Lender
therefor, whichever is greater.
Section 5.05. RECONVEYANCE BY TRUSTEE.
Upon written request of Lender stating that
all sums and obligations secured hereby have been
paid and fully performed, and upon surrender by
Lender of this Deed of Trust and the Note to
Trustee for cancellation and retention and upon
payment by Borrower of Trustee's fees and the
costs and expenses of executing and recording any
requested reconveyance, Trustee shall reconvey to
Borrower, or to the person or persons legally
entitled thereto, without warranty, any portion of
the Trust Estate then held
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hereunder. The recitals in any such reconveyance
of any matter or fact shall be conclusive proof of
the truthfulness thereof. The grantee in any such
reconveyance may be described as "the person or
persons legally entitled thereto. "
Section 5.06. ACCEPTANCE BY TRUSTEE.
Trustee accepts this Trust when this Deed of
Trust, duly executed and acknowledged, is made a
public record as provided by law.
Section 5.07. CAPTIONS.
The captions or headings at the beginning of
Articles, Sections and Subparagraphs hereof are
for the convenience of the parties, are not a part
of this Deed of Trust, and shall not be used in
construing it.
Section 5.08. INVALIDITY OF CERTAIN
PROVISIONS.
Every provision of this Deed of Trust is
intended to be severable. In the event any term or
provision hereof is declared to be illegal,
invalid or unenforceable for any reason whatsoever
by a court of competent jurisdiction, such
illegality, invalidity or unenforceability shall
not affect the balance of the terms and provisions
hereof, which terms and provisions shall remain
binding and enforceable. If the lien of this Deed
of Trust is invalid or unenforceable as to any
part of the debt, or if the lien is invalid or
unenforceable as to any part of the Trust Estate,
the unsecured or partially secured portion of the
debt shall be completely paid prior to the payment
of, the remaining and secured or partially secured
portion of the debt, and all payments made on the
debt, whether voluntary or under foreclosure or
other enforcement action or procedure, shall be
considered to have been first paid on and applied
to the full payment of that portion of the debt
which is not secured or fully secured by the lien
of this Deed of Trust.
Section 5. 09. SUBROGATION.
To the extent that sums are paid by Lender,
either directly or indirectly, to pay any
outstanding lien, charge or prior encumbrance
against the Trust Estate, Lender shall be
subrogated to any and all rights and liens held by
any owner or holder of such outstanding liens,
charges and prior encumbrances, irrespective of
whether said liens, charges or encumbrances are
released.
Section 5.10. NO MERGER OF LEASE.
Upon the foreclosure of the lien created by
this Deed of Trust on the Trust Estate pursuant to
the provisions hereof, any lease or sublease then
existing and affecting all or any portion of the
Trust Estate shall be destroyed or terminated by
application of the law of merger or as a matter of
law or as a result of such foreclosure unless
Lender or any purchaser at such foreclosure sale
shall so elect. No act by or on behalf of Lender
or any such purchaser shall constitute a
termination of any lease or sublease unless Lender
or such purchaser shall give written notice
thereto to such tenant or subtenant. If both the
lessor's and lessee's estate under any lease or
any portion thereof which constitutes a part of
the Trust Estate shall at any time become vested
in one owner, this Deed of Trust and the lien
created hereby shall not be destroyed or
terminated by application of the doctrine
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of merger unless Lender shall continue to have and
enjoy all of the rights and privileges of Lender
as to the separate estates.
Section 5.11. GOVERNING LAW.
This Deed of Trust shall be governed by and
construed under the internal the laws of the State
of California except to the extent federal law
applies.
Section 5.12. STATUTE OF LIMITATIONS.
Except insofar as now or hereafter prohibited
by law, the right to plead, use or assert any
statute of limitations as a plea or defense or bar
of any kind, or for any purpose, to any debt,
demand or obligation secured or to be secured
hereby, or to any, complaint or other pleading or
proceeding filed, instituted or maintained for the
purpose of enforcing this Deed of Trust or any
rights hereunder, is hereby waived by Borrower.
Section 5.13. INTERPRETATION.
In this Deed of Trust the singular shall
include the plural and the masculine shall include
the feminine and neuter and vice versa, if the
context so requires; and the word
"person" shall include corporation, partnership or
other form of association.
Section 5.14. TRUST IRREVOCABLE: NO OFFSET.
The Trust created hereby is irrevocable by
Borrower. No offset or claim that Borrower now or
may in the future have against Lender shall
relieve Borrower from paying the indebtedness or
performing any other obligation contained herein
or secured hereby.
Section 5.15. CORRECTIONS.
Borrower shall, upon request of Lender,
promptly correct any defect, error or omission
which may be discovered in the contents hereof or
in the execution or acknowledgment hereof, and
will execute, acknowledge and deliver such further
instruments and do such further acts as may be
necessary or as may be reasonably requested by
Lender to carry out more effectively the purposes
hereof, to subject to the lien and security
interest hereby created any of Borrower's
properties, rights or interest secured or intended
to be secured hereby, or to perfect and maintain
such lien and security interest.
Section 5.16. FURTHER ASSURANCES.
Borrower, Lender and Trustee agree to do or
to cause to be done such further acts and things
and to execute and deliver or to cause to be
executed and delivered such additional
assignments, agreements, powers and instruments,
as any of them may reasonably require or deem
advisable to keep valid and effective the charges
and lien hereof, to carry into effect the purposes
of this Deed of Trust or to better assure and
confirm unto any of them their rights, powers and
remedies hereunder; and, upon request by Lender,
shall supply evidence of fulfillment of each of
the covenants herein contained concerning which a
request for such evidence has been made.
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Section 5.17. EXECUTION OF INSTRUMENTS BY
TRUSTEE.
At any time, and from time to time, without
liability therefor and without notice, upon
written request of Lender and presentation of this
Deed of Trust and the Note secured hereby for
endorsement, and without affecting the personal
liability of any person for payment of the
indebtedness or the performance of any other
obligation secured hereby or the effect of this
Deed of Trust upon the remainder of the Trust
Estate, Trustee may (i) reconvey any part of the
Trust Estate, (ii) consent in writing to the
making of any map or plat thereof, (iii) join in
granting any easement thereon, or (iv) join in any
extension agreement, agreement subordinating the
lien or charge hereof, or other agreement or
instrument relating, hereto or to the Trust Estate
of any portion thereof. ~
Section 5.18. APPOINTMENT OF SUCCESSOR
TRUSTEE.
Trustee or any successor acting hereunder may
resign and thereupon be discharged of the trusts
created hereunder upon thirty (30) days written
notice to Lender. Regardless of whether such
resignation occurs, Lender may, from time to time,
substitute a successor or successors to any
Trustee named herein or acting hereunder in
accordance with any statutory procedure for such
substitution; or if Lender, in its sole
discretion, so elects, Lender may substitute such
successor or successors by recording in the office
of the recorder of the county or counties where
the Land is situated, an instrument executed by
Lender, and containing the name of the original
Borrower. Trustee and Lender hereunder, the book
and page where this Deed of Trust is recorded and
the name and address of the new Trustee, which
instrument shall be conclusive proof of proper
substitution of such successor Trustee or
Trustees; who shall, without conveyance from the
predecessor Trustee, succeed to all its title,
estate, rights, powers and duties hereunder.
Section 5.19. SUCCESSORS AND ASSIGNS.
This Deed of Trust applies to, insures to the
benefit of and binds all parties hereto their
heirs, legatees, devisees, administrators,
executors, successors and assigns.
Section 5.20. TOXIC WASTE.
Borrower represents to Lender that to the
best of its knowledge there are no toxic wastes or
other toxic or hazardous substances or materials
being stored or otherwise held on, under or about
the Property, by Borrower or any of its tenants or
any other person or entity, and Borrower shall at
no time permit the same. In the event that any
such wastes, substances or materials are hereafter
found on, under or about the Property, Borrower
shall take all necessary and appropriate actions
and shall spend all necessary sums to cause the
same to be cleaned up and immediately removed, and
Lender shall in no event be liable or responsible
for any costs or expenses incurred in so doing.
Borrower shall at all times observe and satisfy
the requirements of and maintain the Property in
compliance with all federal, state and local
environmental protection, occupational, health and
safety or similar laws, ordinances, restrictions,
licenses, and regulations, including but not
limited to the Federal Water Pollution Control Act
(33 Y,S,C 1211 et seq.), Resource Conservation &
Recovery Act (42 U.S.C. 6901 et seq.), Safe
Drinking Water Act (42 U.S.C. 3000(f) et seq.),
Toxic Substances Control Act (15 U.S.C. 2601 et
seq.), the Clean Air Act (42 U.S.C. 7401 et seq.),
Comprehensive
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Environmental Response of Compensation and
Liability Act (42 U.S.C. 9601 et. sec.),
California Health & Safety Code (25100 et. seq.),
and California Water Code (13000 et seq.). Should
Borrower at any time default in or fail to perform
or observe any of its obligations under this
Paragraph 5.20, Lender shall have the right, but
not the duty, without limitation upon any of
Lender's rights pursuant thereto, to perform the
same, and borrower agrees to pay to Lender, on
demand, all costs and expenses incurred by Lender
in connection therewith, including without
limitation all attorneys fees, together with
interest from the date of expenditure at the
interest rate then in effect under the Note.
Borrower hereby indemnifies Lender and agrees to
hold Lender harmless for any loss incurred by or
liability imposed on Lender by reason of
Borrower's failure to perform or observe any of
its obligations or agreements under this Paragraph
5.20. The obligations and indebtedness of Borrower
under this Paragraph 5.20, notwithstanding
anything contained herein or in any other document
or agreement which may be construed to the
contrary, (a) shall be deemed to be an unsecured
obligation of Borrower and shall not be secured by
this Deed of Trust, (b) shall not be subject to
California Code of Civil Procedure Sections 580a,
580d, 726 or any other antideficiency laws, and
(c) shall survive the foreclosure of this Deed of
Trust and the repayment of the Note and other
indebtedness secured by this Deed of Trust.
Section 5. 21. PRIORITY.
This Deed of Trust is intended to
have and retain priority over all other liens and
encumbrances upon the Trust Estate, excepting
only: (i) such impositions as, at the date hereof,
have, or by law gain, priority over the lien
created hereby; (ii) covenants, conditions,
restrictions, easements, and rights of way which
are of record or are disclosed of record and which
affect the Trust Estate on the date hereof; and,
(iii) Leases, liens, encumbrances and other
matters as to which Lender hereafter expressly
subordinates the lien of this Deed of Trust by
written instrument in recordable form. Under no
circumstances shall Lender be obligated or
required to subordinate the lien hereof to any
Lease, lien, encumbrance, covenant or other matter
affecting the Trust Estate or any portion thereof.
Lender may, however, at Lender's option,
exercisable in its sole and absolute discretion,
subordinate the lien of this Deed of Trust, in
whole or in part, to any or all Leases, liens,
encumbrances, or other matters affecting all or
any portion of the Trust Estate by executing and
recording in the Office of the County Recorder of
the County and State in which the Land is located,
a unilateral declaration of such subordination
specifying the Lease, lien encumbrance or other
matter or matters to which this Deed of Trust
shall thereafter be subordinate.
5.22. NO ILLEGAL USE: SOURCE OF FUNDS.
Borrower represents and warrants to Lender
that to the best of the knowledge of Borrower, no
portion of the Trust Estate is being used for any
illegal purpose. Borrower covenants that so long
as this Deed of Trust remains a lien against the
Trust Estate, no portion of the Trust Estate will
be used for any illegal purpose. Borrower further
represents and warrants to Lender that none of the
funds used by Borrower to acquire the Trust Estate
come from any source which would render the Trust
Estate subject to seizure and/or forfeiture under
any state or federal law.
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5.23. DISPUTE RESOLUTION.
Except as provided herein, all actions,
disputes, claims or controversies between or among
the parties (collectively "Disputes") shall be
resolved by arbitration as set forth below.
Disputes which are subject to this provision
include, except as provided herein, all contract,
tort and other matters of every kind arising out
of or related to the Note, this Deed of Trust or
any related agreement or instrument, the conduct
of the parties, or the past, present or future
relationship of or agreements between the parties.
Disputes shall be resolved by binding arbitration
in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. Any
party requesting arbitration under this provision
shall submit a demand for arbitration to the
other. The arbitration proceedings will be
conducted in the City of Redlands, California,
except to the extent the parties otherwise
mutually agree.
No provision of nor the exercise of any
rights under this Section shall limit the right of
any party (a) to foreclose against any real or
personal property collateral by the exercise of a
power of sale under the Deed of Trust or other
security agreement or instrument, or applicable
law, (b) to exercise self help remedies, or (c) to
obtain provisional or ancillary remedies such as
injunctive relief or the appointment of a receiver
from a court having jurisdiction, whether before,
during or after pendency of any arbitration or
referral. Lender shall also have the right to
commence an action for judicial foreclosure, and
in such action all disputed issues of fact and law
shall be referred to arbitration as provided in
this section.
In the event of any Dispute governed by this
Section, each of the parties shall pay its own
expenses, and, subject to the award of the
arbitrator or referee, shall pay an equal share of
the arbitrator's or referee's fees. The arbitrator
or referee shall have the power to award recovery
of all costs and fees (including attorneys' fees,
administrative fees, arbitrators' and referees'
fees and court costs) to the prevailing party.
In the event of any Dispute governed by this
Section, each of the parties shall pay its own
expense, and, subject to the award of the
arbitrator or referee, shall pay an equal share of
the arbitrator's or referee's fees. The arbitrator
or referee shall have the power to award recovery
of all costs and fees (including attorneys' fees,
administrative fees, arbitrators' and referees'
fees and court costs) to the prevailing party.
IN WITNESS WHEREOF, Borrower has caused this
Amended and Restated Deed of Trust to be executed
by its duly authorized representatives on March
25th , 1997.
EMERITUS CORPORATION
By: /s/ Raymond R. Brandstrom
Name: Raymond R. Brandstrom
Title: President
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STATE OF WASHINGTON
COUNTY OF KING
On March 25, 1997, before me, Catherine L. Pasquan
personally appeared Raymond R. Brandstrom,
personally known to me to be the person whose name
is subscribed to the within instrument and
acknowledged to me that he executed the same in
his authorized capacity, and that by his signature
on the instrument the person or the entity upon
behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
Signature /s/ Catherine L. Pasquan [SEAL]
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DO NOT DESTROY THIS NOTE
WHEN PAID, THIS NOTE WITH DEED OF TRUST SECURING
SAME MUST BE SURRENDERED TO TRUSTEE FOR
CANCELLATION
BEFORE RECONVEYANCE WILL BE MADE
ALL-INCLUSIVE PROMISSORY NOTE
SECURED BY ALL-INCLUSIVE DEED OF TRUST
INSTALLMENT NOTE
PLACE: Seattle, Washington
DATE: March 25, 1997
For value received, the undersigned ("Maker")
promises to pay NORTHWEST RETIREMENT, an Oregon
general partnership ("Payee") or order, at Post
Office Box 14111, Salem, Oregon 97309 or such
other place as the Payee hereof may from time to
time designate, the principal sum of Seven Hundred
Forty Nine Thousand Five Hundred Twelve and 17/100
Dollars ($749,512.17), together with interest on
the unpaid principal balance.
Five Hundred Thousand Dollars ($500,000) of
the principal balance of this Note shall bear
interest at the rate of Nine Percent (9%) per
annum. Monthly payments of Three Thousand Seven
Hundred Fifty Dollars ($3,750), representing
interest only on the principal, shall be due and
payable on the tenth day of April,1997, and
continuing on the tenth day of each month
thereafter until April 10,1999, at which time an
amount equal to all principal and accrued interest
outstanding shall be paid in full.
One Hundred Four Thousand Nine Hundred Ninety
Nine Dollars and 97/100 ($104,999.97) of the
principal balance of this Note shall bear interest
at the rate of Twelve Percent (12%) per annum.
Monthly payments of Six Thousand Five Hundred
Forty Two and 28/I 00 Dollars ($6,542.28),
including principal and accrued interest, shall be
due and payable on the tenth day of April,1997,
and continuing on the tenth day of each month
thereafter until August 10,1998, at which time an
amount equal to all principal and accrued interest
outstanding under the Dutro Note (as defined
below), if any, shall be paid in full.
One Hundred Forty Four Thousand Five Hundred
Twelve Dollars and 20/100 ($144,512.20) of the
principal balance of this Note shall bear interest
at the rate of Twelve Percent ( 12%) per annum.
Monthly payments of Six Thousand Five Hundred
Forty Two and 28/100 Dollars ($6,542.28),
including principal and accrued interest, shall be
due and payable on the tenth day of April,1997,
and continuing on the tenth day of each month
thereafter until April 10,1999, at which time an
amount equal to all principal and accrued interest
outstanding under the Lund Note (as defined
below), if any, shall be paid in full.
Notwithstanding the foregoing, all
outstanding principal and any unpaid accrued
interest, together with any other charges due
hereunder, shall be due and payable on April
10,1999. This Note may be prepaid in whole or in
part at any time or times without penalty and
without prior notice.
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Also notwithstanding the foregoing, Maker
shall have the right to remit a portion of each
payment due hereunder directly to the holder of
the Senior Notes (as defined below) in
satisfaction of Payee's obligation hereunder, in
which case Maker shall only be obligated to remit
to payee the balance of each payment due
hereunder.
Any principal or interest not paid within ten
(10) days after Maker's receipt (or refusal of
receipt) of written notice of non-payment shall
bear interest at the greater of (i) the Prime Rate
plus 3% per annum or (ii) 12% per annum from the
date due until paid in full (the "Default Rate").
The total principal amount of this Note
includes the unpaid principal balance of the Lund
and Dutro Promissory Notes (collectively referred
to as the "Senior Notes") secured by Deeds of
Trust (the "Senior Deeds of Trust"), more
particularly described as follows:
1. A Deed of Trust recorded February 26,1988
as Document No. 88-089129,
Official Records of San Diego County, California,
in the original principal sum of Five Hundred
Ninety-Two Thousand Two Hundred Thirty-Four and
no/100 Dollars ($592,234.00 ) executed by
Northwest Retirement, an Oregon general
partnership consisting of William E. Colson, Larry
L. Claunch, Norman L. Brenden and Baty
Investments, Inc., a Washington corporation, as
Trustor, in favor of James W. Dutro and Joyce
Dutro as Beneficiaries, securing a note dated
February 1, 1988, in the original amount of Five
Hundred Ninety-Two Thousand Two Hundred Thirty-
Four and no/100 Dollars ($592,234.00 ), in favor
of James W. Dutro and Joyce Dutro, as Payees (the
"Dutro Note");
2. A Deed of Trust recorded February 26,1988
as Document No. 88-089130,0fficial Records of San
Diego County, California, in the original
principal sum of Four Hundred Fifty-Six Thousand
and no/100 Dollars ($456,000.00 ) executed by
Northwest Retirement, an Oregon general
partnership consisting of William S. Colson, Larry
L. Claunch, Norman L. Brenden and Baty
Investments, Inc., a Washington corporation, as
Trustor, in favor of Victor L. Lund and Florence
V. Lund, as Beneficiaries, securing a note dated
February I,1988, in the original amount of Four
Hundred Fifty-Six Thousand and no/100 Dollars
($456,000.00 ), in favor of Victor L. Lund and
Florence V. Lund, as Payees (the "Lund Note");
At all times the equity of the Payee of this
Note shall be the difference between the unpaid
balance of this Note and the total unpaid balance
of the principal and interest of the Senior Notes
secured by the Senior Deeds of Trust now of
record.
Payee agrees to provide Maker with copies of
any and all default notices provided to it by the
holder of the Senior Notes. The obligations of
Payee hereunder shall terminate upon the earliest
of(i) foreclosure of the lien of the All-inclusive
Deed of Trust securing this Note ("All Inclusive
Deed of Trust") or (ii) cancellation of this Note
and reconveyance of the lien of the All- inclusive
Deed of Trust.
This Note is secured by the All-inclusive
Deed of Trust constituting a lien on real
property. It is expressly agreed that all of the
covenants, conditions and agreements contained in
the All-inclusive Deed of Trust, are hereby made a
part of this Note. This Note will be considered in
default upon any default or event by which, under
the terms of
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the All-inclusive Deed of Trust, this Note may or
shall become due and payable, or upon failure to
pay any installment of interest or principal or
any other amount as required to be paid under this
Note or under the All-inclusive Deed of Trust on
the due date thereof or within ten (10) days
thereafter. In the event of default which is not
cured within any applicable cure period, the Payee
may, at its option and without further notice to
Maker declare all unpaid indebtedness evidenced by
this Note and any modifications thereof less the
unpaid balance of principal and interest of the
Senior Notes immediately due and payable. Failure
at any time to exercise this option shall not
constitute a waiver of the right to exercise the
same at any other time with respect to any other
uncured default. -
Should Maker be in default under the terms of
this Note, and Payee consequently incurs any
penalties, charges or other expenses on account of
the Senior Notes during the period of such
default, the amount of such penalties, charges and
expenses shall be added to the principal amount of
this Note and shall be immediately payable by
Maker to Payee.
Failure to exercise any right the Payee may
have or be entitled to in the event of any default
hereunder shall not constitute a waiver of such
right or any other right in the event of any
subsequent default.
Maker and all guarantors and endorsers hereof
hereby severally waive presentment for payment,
protest and demand, notice of protest, demand,
dishonor and nonpayment of this Note, and consent
that Payee may extend the time of payment or
otherwise modify the terms of payment of any part
or the whole of the debt evidenced by this Note,
by written agreement between Payee and Maker, and
such consent shall not alter or diminish the
liability of any person or the enforceability of
this Note. Each and every party signing or
endorsing this Note binds itself as a principal
and not as a surety.
In the event that an action is commenced,
whether or not suit is brought, and including
bankruptcy and appellate proceedings to enforce
the terms of this Note, the prevailing party shall
be entitled to recover all its costs of
enforcement, including its reasonable attorneys'
fees. This Note may not be terminated or amended
orally, but only by discharge in writing and
signed by the party who is the holder and owner of
this Note at the time enforcement of any discharge
is sought. This Note shall be governed by and
construed in accordance with the laws of the State
of Washington.
This Note 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.
All amounts payable under this Note and the
All-inclusive Deed of Trust shall be payable only
in the lawful money of the United States of
America.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING
REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
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<PAGE>
IN WITNESS HEREOF, the parties do hereby
execute this note:
MAKER:
EMERITUS CORPORATION,
a Washington corporation
By: /s/ Kelly J. Price
----------------------------
Kelly J. Price
Its: Secretary
PAYEE
NORTHWEST RETIREMENT,
an Oregon general partnership.
By: /s/
----------------------------
---
Norman L. Brenden,
Its: General Partner
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<PAGE>
WHEN RECORDED MAIL TO:
ALL-INCLUSIVE DEED OF TRUST
This ALL-INCLUSIVE DEED OF TRUST, made March 26,
1997 between EMERITUS CORPORATION, a Washington
Corporation, hereinafter called TRUSTOR, whose
address is 3131 Elliott Avenue, Suite 500,
Seattle, WA 98121; Chicago Title Insurance
Company, a Missouri corporation, herein called
TRUSTEE; NORTHWEST RETIREMENT, an Oregon general
partnership, herein called BENEFICIARY,
WITNESSETH: That Trustor grants to Trustee in
Trust, with Power of Sale, that property in the
County of San Diego, State of California,
described as:
(See legal description attached.)
For the purpose of securing (1) payment of the sum
of Seven Hundred Forty Nine Thousand Five Hundred
Twelve and 17/100 Dollars ($749,512.17) with
interest thereon according to the terms of an all-
inclusive promissory note of even date herewith
(hereinafter the "Secured Note") made by Trustor,
payable to the order of Beneficiary, and
extensions or renewals thereof, and (2) the
performance of each agreement of Trustor
incorporated by reference contained herein.
A. Senior Deeds of Trust:
This is an All-Inclusive Deed of Trust,
securing the Secured Note and is subject and
subordinate to the following instruments:
1. A Deed of Trust recorded February
26,1988 as Document No. 88-089130, Official
Records of San Diego County, California, in the
original principal sum of Four Hundred Fifty-Six
Thousand and no/100 Dollars ($456,000.00 )
executed by Northwest Retirement, an Oregon
general partnership consisting of William S.
Colson, Larry L. Claunch, Norman L. Brenden and
Baty Investments, Inc., a Washington corporation,
as Trustor, in favor of Victor L. Lund and
Florence V. Lund, as Beneficiaries ( the "Lund
Senior Deed of Trust"), securing a note dated
February 1,1988, in the original amount of Four
Hundred Fifty-Six Thousand and no/100 Dollars
($456,000.00 ), in favor of Victor L. Lund and
Florence V. Lund, as Payees;
2. A Deed of Trust recorded February
26,1988 as Document No. 88-089129, Official
Records of San Diego County, California, in the
original principal sum of Five Hundred Ninety-Two
Thousand Two Hundred Thirty-Four and no/100
Dollars ($592,234.00 ) executed by Northwest
Retirement, an Oregon general partnership
consisting of William E. Colson, Larry L. Claunch,
Norman L. Brenden and Baty Investments, Inc., a
Washington corporation, as Trustor, in favor of
James W. Dutro and Joyce Dutro as Beneficiaries (
the "Dutro Senior Deed of Trust"), securing a note
dated February 1, I 988, in the original amount of
Five Hundred Ninety-Two Thousand Two Hundred
Thirty-Four and no/100 Dollars ($592,234.00 ), in
favor of James W. Dutro and Joyce Dutro, as
Payees;
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3. A Deed of Trust recorded February
26,1988 as Document No. 88-089128, Official
Records of San Diego County, California, in the
original principal sum of Three Million Three
Hundred Sixty Thousand and no/100 Dollars
($3,360,000.00) executed by Northwest Retirement
an Oregon Partnership, as Trustor, in favor of
Redlands Federal Savings and Loan Association, as
Beneficiary, securing a note dated January
20,1988, in the original amount of Three Million
Three Hundred Sixty Thousand and no/100 Dollars
($3,360,000.00), in favor of Redlands Federal
Savings and Loan Association, as Payee, AS AMENDED
AND RESTATED IN ITS ENTIRETY by that certain
Amended and Restated Deed of Trust recorded March
__, 1997 as Document No. _____________, Official
Records of San Diego County, California, in the
original principal sum of Three Million Thirty
Thousand Seven Hundred Seventy Three and 40/100
Dollars ($3,030,773.40) executed by Trustor (as
Northwest Retirement's assignee), in favor of
Redlands Federal Bank, securing that certain
Restated Promissory Note dated March, 1997, in the
original amount of Three Million Thirty Thousand
Seven Hundred Seventy Three and 40/100 Dollars
($3,030,773.40), in favor of Redlands Federal
Bank, as Payee
(the "Redlands Note").
B. To protect the security of the All-Inclusive
Deed of Trust, Trustor agrees:
(1 ) To keep the property secured hereby
in good condition and repair; not to remove or
demolish any building thereon; to complete or
restore promptly and in good and workmanlike
manner any building which may be constructed,
damaged or destroyed thereon and to pay when due
all claims for labor performed and materials
furnished therefore (provided, however, Trustor's
obligation to restore set out herein shall be
limited to the extent that the holders of the
Senior Notes as defined in the Secured Note, and
the Redlands Note make insurance proceeds
available to Trustor for such purpose); except to
the extent any claim for payment is being
contested by Trustor and Trustor has posted
reasonable security for any liens which may arise
during the period of such contest, to comply with
all laws affecting the property secured hereby or
requiring any alterations or improvements to be
made thereon except to the extent duly and
lawfully contested by Trustor; not to commit or
permit waste thereon; not to commit, suffer or
permit any act upon the property secured hereby in
violation of law.
(2) To provide, maintain and deliver to
Beneficiary fire, vandalism and malicious mischief
insurance satisfactory to and with loss payable to
Beneficiary. The amount collected under any fire
or other insurance policy may be applied by
Beneficiary upon any indebtedness secured hereby
and in such order as Beneficiary may determine, or
at option of Beneficiary the entire amount so
collected or any part thereof may be released to
Trustor. However, provided that Trustor is not in
default hereunder, Beneficiary shall be required
to release all such proceeds to Trustor to be
applied to the reconstruction or repair of the
insured property. Such application or release
shall not
cure or waive any default or notice of default
hereunder or invalidate any act done pursuant to
such notice.
(3) To appear in and defend any action or
proceeding purporting to affect the security
hereof or the rights or powers of Beneficiary or
Trustee and to pay all costs and expenses,
including costs of evidence of title and attorney
fees in a reasonable sum, in any such action or
proceeding in which Beneficiary or Trustee may
appear, and in any suit brought by Beneficiary to
foreclose this All-Inclusive Deed of Trust.
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<PAGE>
(4) To pay; (a) before delinquency all taxes
and assessments affecting the property secured
hereby; (b) when due, subject to the mutual
agreements of the parties as below set forth, all
encumbrances, charges and liens, with interest, on
the property secured hereby or any part thereof,
which appear to be prior or superior hereto other
than the Lund and Dutro Senior Deeds of Trust
which shall be and remain the responsibility of
the Beneficiary, unless Trustor has exercised its
rights under the Secured Note to pay a portion of
the payments due thereunder directly to the holder
of the Senior Notes; and (c) all allowable
expenses of this Trust.
Should Trustor fail to make any payment or to
do any act as herein provided and should Trustor
fail to cure such failure within ten (10) days
after written notice thereof in the case of a
monetary obligation or within thirty (30) days
after written notice thereof in the case of non
monetary obligation, then without further notice
to or demand upon Trustor and without releasing
Trustor from any obligation hereof, Trustee or
Beneficiary may: make or do the same in such
manner and to such extent as either may deem
necessary to protect the security hereof,
Beneficiary or Trustee being authorized to enter
upon the property secured hereby for such
purposes; appear in and defend any action or
proceeding purporting to affect the security
hereof or the rights or powers of Beneficiary or
Trustee; pay, purchase, contest or compromise any
encumbrance, charge or lien which in the judgment
of either appears to be prior or superior hereto,
other than the liens of the Senior Deeds of Trust;
and, in exercising any such powers, pay allowable
expenses.
(5) To pay immediately and without demand all
sums so expended by Beneficiary or Trustee, with
interest from date of expenditure at the Default
Rate provided for in the Secured Note.
C. It is mutually agreed:
(1) That any award of damages in connection
with any condemnation for public use of or injury
to the property, or any part thereof, secured
hereby or any thereof is hereby assigned and shall
be paid to Beneficiary which may or shall, as
applicable, apply or release such monies received
by it in the same manner and with the same effect
as above provided for disposition of proceeds of
fire or other insurance
(2) That by accepting payment of any sum
secured hereby after its due date, Beneficiary
does not waive its right either to require prompt
payment when due of all other sums so secured or
to declare default for failure to pay.
(3) That at any time from time to time,
without liability therefore and without notice
upon written request of Beneficiary and Trustor
and presentation of this All-Inclusive Deed of
Trust and the Secured Note for endorsement,
Trustee may: reconvey any part of the property
secured hereby; consent to the making of any map
or plat thereof; join in granting any easement
thereon; or join in any extension agreement or any
agreement subordinating the lien or charge hereof.
(4) That upon written request of Beneficiary
stating that all sums secured hereby have been
paid, and upon surrender of this All-Inclusive
Deed of Trust and the Secured Note to Trustee for
cancellation and retention or other disposition as
Trustee in its sole discretion may choose and upon
payment of its fees, Trustee shall reconvey the
property then held hereunder. The recitals in such
reconveyance of any matters or facts shall be
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conclusive proof of the truthfulness thereof. The
grantee in such reconveyance may be described as
"the person or persons legally entitled thereto."
(5) That upon default by Trustor in payment
of any indebtedness secured hereby or in
performance of any agreement hereunder, which is
not cured within any cure period provided for
herein or in the Secured Note, Beneficiary may
declare all sums secured hereby immediately due
and payable by delivery to Trustee of written
declaration of default and demand for sale and of
written notice of default and of election to cause
to be sold the property secured hereby, which
notice Trustee shall cause to be filed for record.
Beneficiary also shall deposit with Trustee this
All-Inclusive Deed of Trust, the Secured Note and
all documents evidencing expenditures secured
hereby.
After the lapse of such time as may then be
required by law following recordation of said
notice of default, and notice of sale having been
given as then required by law, Trustee, without
demand on Trustor, shall sell the property secured
hereby at the time and place fixed by it in said
notice of sale, either as a whole or in separate
parcels, and in such order as it may determine, at
public auction to the highest bidder for cash in
lawful money of the United States, payable at time
of sale. Trustee may postpone sale of all or any
portion of the property secured hereby by public
announcement at such time and place of sale, and
from time to time thereafter may postpone such
sale by public announcement at the time fixed by
the preceding postponement. Trustee shall deliver
to such purchaser its deed conveying the property
so sold, but without any covenant or warranty,
express or implied. The recitals in such deed of
any matters of facts shall be conclusive proof of
the truthfulness thereof. Any person, including
Trustor, Trustee, or Beneficiary as hereinafter
defined, may purchase at such sale.
After deducting all costs, fees and expenses
of Trustee and of this Trust, including cost of
evidence of title in connection with sale, Trustee
shall apply the proceeds of sale to payment of all
sums expended under the terms hereof, not then
repaid, with accrued interest at the Default Rate
provided for in the Secured Note; all other sums
then secured hereby; and the remaining, if any, to
the person or persons legally entitled thereto
(6) Beneficiary, or any successor in
ownership of any indebtedness secured hereby, may
from time to time, by instrument in writing,
substitute a successor or successors to any
Trustee named herein or acting hereunder, which
instrument, executed by the Beneficiary and duly
acknowledged and recorded in the office of the
recorder of the county or counties where the
property secured hereby is situated, shall be
conclusive proof of proper substitution of such
successor Trustee or Trustees, who shall, without
conveyance from the Trustee predecessor, succeed
to all its title, estate, rights, powers and
duties. Said instrument must contain the name of
the original Trustor, Trustee and Beneficiary
hereunder, the book and page where this All-
Inclusive Deed of Trust is recorded and the name
and address of the new Trustee.
(7) That this All-Inclusive Deed of Trust
applies to, inures to the benefit of, and binds
all parties hereto, their heirs, legatees,
devisees, administrators, executors, successors
and assigns. The term Beneficiary shall mean the
owner and holder, including pledgees, of the
Secured Note secured hereby, whether or not named
as Beneficiary herein. In this All-Inclusive Deed
of Trust, whenever the context so requires, the
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masculine gender includes the feminine and/or
neuter, and the singular number includes the
plural.
(8) That Trustee accepts this Trust when
this All-Inclusive Deed of Trust, duly executed
and acknowledged, is made a public record as
provided by law. Trustee is not obligated to
notify any party hereto of pending sale under any
other Deed of Trust or of any action or proceeding
in which Trustor, Beneficiary or Trustee shall be
a party unless brought by Trustee.
D. The Parties Further Agree:
(1) By Beneficiary's acceptance of this All-
Inclusive Deed of Trust, Beneficiary agrees for
the benefit of Trustor, that provided Trustor is
not in default on the Secured Note, Beneficiary
shall pay all installments of principal and
interest which become due under the terms of the
Senior Notes unless Trustor has exercised its
rights under the Secured Note to make payments on
behalf of Trustor directly to the holder of the
Senior Note. Notwithstanding the foregoing, in the
event Trustor shall be in default on the Secured
Note, although Beneficiary's obligation under the
Senior Notes shall not be deferred until the
default on the Secured Note is cured, Trustor
shall, in such event, have no recourse against
Beneficiary for any damages suffered by it as a
result of Beneficiary's non-payment, if any, of
the Senior Notes as a result of Trustor's default
hereunder. Should Beneficiary default in any of
the installments as to the payment of the Senior
Notes at a time when Trustor is not in default in
the performance of the obligations of the Trustor
under the Secured Note or this All-Inclusive Deed
of Trust, the Trustor may make said payments
directly to the holder of such Senior Notes; any
and all payments so made shall be credited to the
Secured Note against the next succeeding
installments of principal and interest. Nothing
contained herein shall be construed to create a
third party beneficiary relationship between the
Beneficiary and any other person, including the
holders of the Senior Notes.
(2) Notwithstanding any covenants contained
in the Senior Notes or Deeds of Trust securing
same, Beneficiary shall have no further duty under
this All-Inclusive Deed of Trust when: (i) the
lien of this All-Inclusive Deed of Trust has been
extinguished by foreclosure sale or (ii) this All-
Inclusive Deed of Trust has been duly reconveyed
after payment in full of the Secured Note and the
Senior Notes.
If at any time the total of: the unpaid
balance of the Secured Note, the accrued interest
thereon, all other sums due under the terms
thereof and all sums advanced by Beneficiary
pursuant to the terms of this All-Inclusive Deed
of Trust, is equal to or less than the unpaid
principal balance of the Senior Notes and accrued
interest thereon, the Secured Note shall be
canceled and the property secured hereby shall be
reconveyed from the lien of this All-Inclusive
Secured Deed of Trust.
(3) Trustor and Beneficiary agree that in
the event the proceeds of any condemnation award
or settlement in lieu thereof, or the proceeds of
any casualty insurance covering destructible are
applied by the holders of the Senior Notes in
reduction of the unpaid principal amount thereof,
the unpaid principal balance of the Secured Note
secured hereby shall be reduced by an equivalent
amount and be deemed applied to the last sums due
under the Secured Note.
5
<PAGE>
(4) Any demand hereunder delivered by
Beneficiary to Trustee for the foreclosure of the
lien of this All-Inclusive Deed of Trust may be
not more than the sum of the following amounts:
(i) The equity of Beneficiary in the Secured Note,
being the difference between the then unpaid
balance of principal and interest accrued and
unpaid on the Secured Note on the date of such
foreclosure sale and the then unpaid balance of
principal and interest so accrued and unpaid on
the Senior Notes as of the date of such
foreclosure sale; plus (ii) The aggregate of all
amounts theretofore paid by Beneficiary pursuant
to the terms of this All-Inclusive Deed of Trust
prior to the date of such foreclosure sale, for
taxes and assessments, insurance premiums,
delinquency charges, foreclosure costs, and any
other sums advanced by Beneficiary pursuant to the
terms of this All-Inclusive Deed of Trust, to the
extent the same were not previously repaid by
Trustor to Beneficiary; plus (iii) The costs of
foreclosure together with attorney fees and costs
incurred by Beneficiary in enforcing this All-
Inclusive Deed of Trust or the Note secured hereby
as permitted by law.
(5) Notwithstanding any provision to the
contrary herein contained, Beneficiary for itself,
its successors and its assigns, agrees, that, in
the event of a foreclosure of this All-Inclusive
Deed of Trust, it will, at the trustee s sale,
offset its bid b an amount not exceeding the
amount representing the total amount then due
under the Secured Note plus any advances or other
disbursements which Beneficiary and its successors
or assigns, may, by law, be permitted to include
as an offset to its bid, less the then actual
total balance due upon any notes or obligations
secured by any and all deeds of trust having
priority over this All-Inclusive Deed of Trust and
covering the above described real property or any
portion thereof. The Trustee may rely on any
statements received from Beneficiary as to the
unpaid total balance, advances or disbursements
and such statements shall be deemed binding and
conclusive as between Beneficiary and Trustor, on
the one hand, and Trustee, on the other hand, to
the extent of such reliance.
(6) Trustor covenants and agrees that
Trustor shall perform and observe all obligations
to be performed and observed by Trustor under this
All-Inclusive Deed of Trust securing the Secured
Note and Beneficiary covenants and agrees that
Beneficiary shall perform and observe all
obligation to be performed and observed by it
under the Senior Notes and the Deeds of Trust.
(7) Beneficiary shall not have the right to
refinance either Senior Note unless (i) the
principal balance of the new debt after such
refinancing does not exceed the principal balance
of said Senior Note as the time of said
refinancing, (ii) the monthly principal and
interest payments due thereunder do not exceed the
monthly interest payments of Trustor due hereunder
and (iii) the holder thereof agrees to provide
Trustor with notice of any default thereunder and
an opportunity to cure same and with the right to
make a portion of the payments due under the
Secured Note directly to the holder thereof.
(8) All of the rights granted to Beneficiary
hereunder are subject to the rights of the holder
of the Senior Notes and the Redlands Note.
(9) 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.
6
<PAGE>
(10) 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.
(11) In the event of a dispute between
the parties hereto with respect to the
interpretation or enforcement of the terms hereof,
the prevailing party in any action resulting
therefrom shall be entitled to collect from the
other its reasonable costs and attorneys' fees,
including its costs and fees on appeal.
IN WITNESS WHEREOF, the parties hereto
execute this All-Inclusive Deed of Trust.
TRUSTOR:
EMERITUS CORPORATION,
a Washington corporation
By: /s/ Kelly J. Price
---------------------------
--
Kelly J. Price
Its: Secretary
BENEFICIARY:
NORTHWEST RETIREMENT,
an Oregon general partnership.
By: /s/
-----------------------------
----
Norman L. Brenden,
Its: General Partner
7
<PAGE>
ACKNOWLEDGMENTS
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 25th day of March, 1997, before me
personally appeared Kelly J. Price, to me known to
be the Secretary 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 was authorized to execute
said instrument and that the seal affixed is the
corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed my official seal the day and year
first above written.
/s/ Catherine L. Pasquan
-------------------------
- ---------------------
NOTARY PUBLIC
in and for the state of
Washington
Residing at Seattle, WA
My commission expires: 3-
30-99
8
<PAGE>
PARTNERSHIP AGREEMENT
OF
TDC/EMERITUS PASO ROBLES ASSOCIATES
This Agreement is made and entered into as of
the 1st day
June, 1995 between TDC CONVALESCENT INC., a
California corporation
( "TDC" ) and EMERITUS CORPORATION, a Washington
corporation ("Emeritus"). TDC and n Emeritus are
sometimes referred to herein individually as
"Partner" and collectively as "Partners." The
Partners desire to form a general partnership upon
the terms and conditions set forth herein. Except
as otherwise provided herein
the rights and liabilities of the Partners shall
be governed by
the Washington Uniform Partnership Act, Ch. 25.04
RCW.
It is agreed:
Section 1. NAME. The name of the Partnership.
shall be TDC/Emeritus Paso Robles Associates
(sometimes referred to herein as the
"Partnership").
Section 2. OFFICE. The principal office of
the Partnership shall be at 8219 Santa Juanita
Avenue, Orangeville, California 95662, or at such
other place designated by the Partners. The
principal office of the Partnership in the state
of Washington shall be at Market Place One, 2001
Western Avenue, Suite 660, Seattle, Washington
98121.
Section 3. TERM, The term of the Partnership
shall be 25 years unless sooner terminated as
provided herein.
Section 4. PURPOSE AND POWERS.
4.1 PURPOSE. The purpose af the Partnership
shall be to acquire and own the real property in
Paso Robles, California described on Exhibit A
attached hereto (the "Property"), to develop,
construct and operate a residential care facility
with approximately 100 units on the Property, (the
Property and improvements constructed thereon are
collectively referred to herein as the "Project"),
and to do all things necessary or incidental to
the foregoing. The Partnership shall have no
other purpose without the unanimous consent of the
Partners.
4. 2 POWERS. Subject to the provisions of
this Agreement, the Partnership shall have the
following powers:
(a) To conduct and operate the business
of the Partnership and to execute such documents
and instruments as the Partners in their
discretion determine are necessary, convenient or
incidental to accomplish the purpose of the
Partnership, including, without limitation notes,
mortgages, deeds of trust, leases, management
agreements, contracts and other documents.
(b) To acquire real and personal property by
purchase ,
lease or otherwise as may be necessary, convenient
or incidental to accomplish the purposes of the
Partnership.
1
<PAGE>
(c) To enter into such construction design,
development, management and other agreements as
the Partners determine are necessary, convenient
or incidental to the development and operation of
the Property, including, without limitation, the
agreements set forth in Section 6.5 below.
(d) To borrow money on a secured or
unsecured basis on such terms and conditions and
in such amounts as the Partners determine is
necessary, convenient or appropriate to accomplish
the purposes of the Partnership.
(e) To institute, prosecute, defend,
settle, compromise and dismiss legal and other
proceedings brought by or against the Partnership
or the Partners.
(f) To procure and maintain insurance
covering the subject risks to which the
Partnership or its operations may be
(g) To open bank accounts in the name
of the Partnership, designate the authorized
signatures therefor and make deposits and
withdrawals from Partnership accounts on the
signatures of one or more designated individuals.
(h) To pay expenses incurred in
performing the business and purposes of the
Partnership.
(i) To do all other things necessary,
incidental or convenient to accomplish the
purposes of the Partnership. .
Section 5. PERCENTAGE INTERESTS CAPITAL
CONTRIBUTIONS PROFITS AND LOSSES AND CASH
DISTRIBUTIONS.
5.1 PERCENTAGE INTERESTS. The Partners shall
have the Percentage Interest in the Partnership as
set forth opposite each Partner's name below:
Partner Percentage Interest
---------- --------------------
- ----
TDC
50%
Emeritus
50%
The Percentage Interest of the Partners shall be
subject to adjustment as provided in Section 5.3.
5.2 INITIAL CAPITAL CONTRIBUTIONS. Upon
execution of this Agreement, each of the Partners
shall contribute to the Partnership all of their
interest in the Property and all plans, licenses,
permits, contracts, and other rights with respect
to the Project. Each Partner shall be credited
with making a contribution to the
Partnership equal to its actual out-of-pocket cost
for its contributions pursuant to this Section
5.2, net of any reimbursement received from the
Partnership. If the contributions to the
partnership pursuant to this Section 5.2 are
uneven; the Partnership shall reimburse the
Partner making the greater contribution in the
amount required to equalize the contributions of
both Partners.
2
<PAGE>
5.3 Capital Contributions After Initial
Capital Contribution. If the Partnership requires
contributions from time to time (in excess of the
Initial Capital Contributions provided for in
Section 5. 2 and amounts borrowed by the
Partnership from time to time), the Partners by
Percentage Interest shall contribute such amounts
in cash to the Partnership when required.
In the event either Partner fails to
contribute its share of capital to the
Partnership, then the other Partner who has
contributed its share may at its option:
(a) Treat the noncontributing Partner as a
Defaulting Partner under Section 8,
(b) Contribute the amount required from the
noncontributing Partner and elect to readjust the
Percentage Interests of the Partners in the
Partnership so that the Percentage Interest of
each Partner is in the ratio of a fraction, the
numerator of which is the aggregate contributions
of each Partner pursuant to this Section 5. 3 and
Section 5. 2 and the denominator of which is the
aggregate contributions of both Partners pursuant
to this Section 5.3 and Section 5.2, or
(c) May advance the noncontributing Partner's
pro rata share to the Partnership and treat such
amount as a loan from the contributing Partner to
the noncontributing Partner (a "Default Loan").
Such Default Loans shall bear interest at the
lesser of the maximum rate permitted by law or
Seattle-First National Bank's published prime rate
in effect as of the first day of each calendar
month, plus two percent per annum. Default Loans
shall be repayable within thirty (30) days after
written demand and if not sooner repaid, shall be
repaid from any cash distributions otherwise to be
made to the noncontributing Partner by the
Partnership or offset against any amount to be
paid to the noncontributing Partner in purchase of
its interest in the Partnership.
5.4 PAYMENT OF GUARANTEE. Any amount paid by
a Partner to a lender of the Partnership which is
credited as a reduction to the liabilities of the.
Partnership, whether such payment is made by such
Partner as a guarantor of the indebtedness or in
some other capacity, shall be treated as a
contribution to the Partnership. The Partner
making such payment shall be entitled to a right
of contribution from the other Partner, so that
the Partners, respective contributions are in
proportion to their Percentage Interests, and upon
reimbursement to the Partner making the payment of
the excess-amount, the books of the Partnership
shall be adjusted to reflect the net contribution
made by each.
5.5 ALLOCATION OF PROFITS AND LOSSES. Profits
and Losses of the Partnership resulting from
operations shall be allocated between the Partners
in proportion to their Percentage Interests.
Profits and Losses of the Partnership resulting
from the sale or disposition of Partnership assets
shall be allocated in accordance with Section 9.3.
Solely for federal income tax purposes, if the
book value of any Partnership assets differs from
its adjusted tax basis and Section 704(c) of the
Internal Revenue Code of 1986 as amended (the
"Code" ) applies to such Partnership assets, , the
Partners, distributive shares of depreciation,
amortization, gain or loss as computed for federal
income tax purposes for Partnership assets shall
be allocated between the Partners so as to take
into account any variation between the adjusted
tax basis of such assets to the Partnership and
their book value in accordance with the Treasury
Regulations promulgated under Section 704(c) of
the Code.
3
<PAGE>
5.6 CASH DISTRIBUTIONS FROM OPERATIONS. Cash
flow of the Partnership in any period shall
consist of the total cash receipts of the
Partnership less all cash disbursements and less
reserves reasonably required for Partnership
business, as agreed upon from time to time by the
Partners. Cash flow of the Partnership resulting
from operations shall be distributed quarterly
between the Partners in accordance with Percentage
Interests. Cash flow of the Partnership resulting
from the sale or disposition- of Partnership
assets or financing proceeds shall be distributed
between the Partners in accordance with Section
9.2.
5. 7 NO INTEREST ON CAPITAL CONTRIBUTIONS. No
interest shall be paid on any capital
contributions or capital accounts of the Partners.
Section 6. MANAGEMENT AND ACCOUNTING
6.1 MANAGEMENT. Except as provided in Section
6.2, all management decisions or other matters
affecting the Partnership shall be made by
unanimous agreement of the Partners, including but
not limited to, approval of the Project design,
development budget and change orders, sale of the
Project and dissolution of the Partnership prior
to the end of its stated term. Upon completion of
the development of the Property, the Partners
shall prepare or cause to be prepared an annual
operating budget for the Property, which shall
include, among other things, a projection of
Partnership income and expense, capital
expenditures, and cash flow. Unless otherwise
agreed, all expenditures by or on behalf of the
Partnership shall be made in accordance with said
budget. Partners may designate from time to time
one of them to implement the decisions of the
Partners and shall designate a Partner to be the
"Tax Matters Partner" of the Partnership.
6.2 PROJECT FINANCING. Emeritus shall have
sole responsibility to secure construction and
take-out permanent financing for the Project (the
"Project Loan").
Emeritus shall have full authority to commit the
Partnership to the Project Loan, and to execute
such commitment letters, mortgages, deeds of
trust, security documents, pledges, assignments,
notes, and other documents which Emeritus, in its
discretion, determines are necessary or
appropriate to document and close the Project
Loan. Notwithstanding the foregoing, without the
prior written approval of TDC, Emeritus shall not
commit the Partnership to any Project Loan in
which the lender receives an equity interest in
the Partnership or receives any payment of
interest (or otherwise) calculated by referenced
to the gross income, net income or gain of the
Partnership or the Project.
6.3 ACCOUNTING. The Partnership shall
prepare financial statements in accordance with
generally accepted accounting principles ("GAAP"),
and federal income tax returns shall be filed
using the accrual method of accounting. The fiscal
year of the Partnership shall be the calendar
year. All books and records of Partnership shall
be open at all times for inspection by either
6.4 CAPITA1 ACCOUNTS.
(a) Establishment of Capital Accounts.
The Partnership shall establish and maintain a
capital account ( "Capital Account" ) for each
Partner in accordance with Treasury Regulations
issued under Code Section 704.
4
<PAGE>
(i) The Capital Account for each
Partner shall be increased to reflect: (1) such
Partner's contributions, (2) such Partner's share
of Profits (including all gain as calculated
pursuant to Section 1001 of the Code) of the
Partnership, and (3) such Partner's share of
income and gain exempt from tax.
(ii) The Capital Account of each
Partner shall be reduced to reflect: (1) the
amount of money and the fair market value of
property distributed to such Partner (net of
liabilities securing such distributed property
that the Partner is considered to assume or take
under Section 152), (2) such Partner's share of
non-capitalized expenditures not deductible by the
Partnership in computing its taxable income as
determined under Code Section 705(a)(2)(B) and
Treas. Reg. Section 1.704-1(b) (2) (iv) (i), ( 3 )
such Partner's share of Losses of the Partnership,
and ( 4 ) such
Partner's share of amounts paid or incurred to
organize the Partnership to the extent that an
election under Code Section 709(b) has not
properly been made for such amounts.
(b) ADJUSTMENTS. If the Partnership
distributes an asset to a Partner in kind, and the
fair market value of such asset differs from its
adjusted basis for federal income tax purposes,
the Capital Accounts of both Partners shall be
adjusted as though the Partnership had sold such
asset for its fair market value on the date of
such distribution and the resulting income, gain,
loss or deduction had been allocated to the
Partners to the extent that such income, gain,
loss or deduction had not previously been
reflected in the Partners' Capital Accounts.
(c) DEFINITIONS. "Profits" or "Losses" means,
for each fiscal year, an amount equal to the
Partnership's taxable income or taxable loss under
Section 703(a) of the Code (including all items of
income, gain, loss or deduction required to be
stated separately under Section 703 (a) (1) of the
Code), adjusted as required to take into account
any variances between the "tax" and "book" basis
of Partnership assets, as required pursuant to the
Treasury Regulations promulgated under Section
704(c) of the Code. .
6. 5 TRANSACTIONS WITH PARTNER'S.
(a) DEVELOPMENT FEE. The Partnership
shall pay a development fee of $150,000 for
services to develop and manage construction of the
Project, which shall be payable $100,000 to TDC
and $50,000 to Emeritus. The above amounts shall
be payable in six equal monthly installments
commencing on the date of the first construction
loan draw.
(b) PROPERTY MANAGEMENT. The Partnership
shall retain TDC to provide property management
services. TDC shall receive a management fee of
six percent of the gross operating income from the
Project. Prior to the opening of the Property, TDC
shall execute a management agreement with the
Partnership in the form attached hereto as Exhibit
B, subject to such changes as may be agreed upon
by the Partners, if any.
5
<PAGE>
Section 7. TRANSFERS.
7.1 TRANSFER PROHIBITED. Without the prior
written consent of the other Partner, no Partner
may directly or indirectly sell, transfer, assign,
pledge or otherwise encumber, voluntarily or
involuntarily, all or any part of its interest in
the Partnership except as provided in this Section
7, any other transfer or encumbrance shall be
void. Notwithstanding the foregoing, both Partners
hereby agree and consent to a pledge of their
Partnership interests as required to obtain the
Project Loan in accordance with Section 6.2 above.
7.2 RIGHT OF FIRST REFUSAL. A Partner may
sell its entire interest in the Partnership upon
compliance with the following conditions:
(a) In the event a Partner ("Selling
Partner") desires to sell its entire interest in
the Partnership and receives a written offer
("Offer") therefor which the Selling Partner
intends to accept, the Selling Partner before
accepting such Offer shall first notify the other
Partner and provide it with a copy of the Offer.
The Offer must contain all material terms relating
to the purchase and sale (including the name of
the transferee), the consideration must be
entirely monetary (but may include the delivery of
a promissory note), and the Offer must contain a
provision that the transferee agrees to be bound
by all the terms and conditions of this Agreement.
(b) After receiving a copy of the Offer,
the other Partner shall have sixty (60) days
within which to elect to purchase the interest of
the Selling Partner upon the terms and conditions
set forth in the Offer. If the other Partner does
not respond or does not elect to purchase the
interest of the Selling Partner within 60 days,
the Selling Partner may effect the purchase and
sale to the purchaser identified in the Offer and
upon the terms and conditions set forth in the
Offer, but not otherwise. Any such sale shall be
completed within 90 days of the date on which the
other Partner notifies the Selling Partner of its
decision not to purchase the interest, or, if no
such notice is provided, the expiration of the
period during which the other Partner may elect to
purchase the interest of the Selling Partner. If
such sale does not occur within the 90 day period
specified above, then this Section 7.2 shall again
be applicable in its entirety.
(c) In the event the other Partner
elects to purchase the interest of the Selling
Partner, the other Partner shall close the
purchase and sale within the time period set forth
in the Offer or within 60 days after receipt of
the offer, whichever is later.
7.3 BUY-SELL IN EVENT OF DEADLOCK. If the
Partners are unable to agree concerning the
affairs of the Partnership, either Partner may
proceed as follows:
(a) The Partner declaring the deadlock
"Initiating Partner") shall provide to the other
Partner a written notice of its intention to
invoke the provisions of this section together
with a) price for all the assets of the
Partnership (!'Price Notice
(b) The other Partner within thirty (30)
days after receipt of the written notice and the
Price Notice provided for in subsection 7.3(a)
must elect to either: (i) purchase the interest of
the Initiating Partner in the Partnership for the
amount, if any, the Initiating Partner would
receive if the assets of the Partnership were sold
for cash equal to the price specified in the Price
Notice and the Partnership immediately liquidated
in
6
<PAGE>
accordance with Sections 9.2 and 9.3 (i.e.,
allocating all gain or loss upon the sale and
liquidation, satisfying all debts- and
obligations, and then distributing the balance of
the proceeds to the Partners), or (ii) sell its
interest to the Initiating Partner for the amount
the other Partner would receive if the assets of
the Partnership were sold for cash equal to the
price specified in the Price Notice and the
Partnership immediately liquidated in accordance
with Sections 9.2 and 9.3.
(c) The purchase and sale shall close
within 3o days after the other Partner has
notified the Initiating Partner of its election
pursuant to subsection 7. 3 (b). If the Initiating
Partner or the other Partner fails to purchase and
sell in accordance with the election pursuant to
subsection 7.3(b), it shall be a Defaulting
Partner as defined in Section 8, and the other
Partner shall have the rights and remedies
provided for therein.
(d) A Partner who is a Defaulting
Partner as defined in Section 8 may not invoke the
provisions of this Section '7.3.
7. 4 PURCHASE OF DEFAULTING PARTNER 'S
INTEREST. In the event either Partner shall be a
Defaulting Partner, the other Partner may elect to
purchase the interest of the Defaulting Partner in
the Partnership upon the following terms:
(a) The other Partner shall notify the
Defaulting Partner of its election to purchase the
Defaulting Partner's interest and along with such
notice shall designate an MAI appraiser who shall
establish within twenty (20) days thereafter the
appraised fair market value of the Partnership's
assets. Goodwill of the Partnership, if any, shall
not be considered in determining fair market
value. The cost of the appraisal shall be charged
to the Defaulting Partner.
(b) The other Partner shall then
purchase the Defaulting Partner's interest in the
Partnership for an amount equal to 90% of the
amount the Defaulting Partner would have received
had the assets of the Partnership been sold for
the appraised fair market value determined as
provided in subsection 7. 4 (a), the liabilities
of the Partnership satisfied, and the assets of
the Partnership distributed in cash as provided in
Section 9.2.
(c) The purchase shall close within 30
days after the appraised fair market value is
determined as provided in subsection 7. 4 (a).
7.5 GENERAL CONDITIONS. The Partner whose
interest is purchased pursuant to Sections 7. 3
through 7. 4 shall be indemnified by the
purchasing Partner from any Partnership
liabilities except to the extent any such
liabilities were not known and taken into account
in determining the amount the Partner would
receive pursuant to Section 9.2. The purchasing
Partner shall pay the applicable purchase price in
cash at closing and the Selling Partner shall
assign its partnership interest and convey by
quitclaim deed its interest in the Project to the
purchasing Partner at closing; provided, however,
the purchasing Partner at its option may pay 25%
of the applicable purchase price in cash and the
balance in three equal annual installments of
principal and interest with interest at 12% per
annum for any purchase pursuant to Section 7.4. In
the case of any sale pursuant to Sections 7.2
through 7. 4, the Purchasing Partner shall be
entitled to assign all or of a portion of its
rights to purchase to an assignee, but such
assignment shall not release the Purchasing
Partner of any purchase obligation it may have.
7
<PAGE>
Section 8. DEFAULT.
8.1 EVENTS OF DEFAULT. A Partner shall be in
default ( "Defaulting Partner" ) hereunder upon
the occurrence of any of the following events:
(a) If such Partner makes an assignment for
the benefit of creditors or applies for the
appointment of a trustee, liquidator or receiver
for its assets or commences any proceedings
relating to such Partner under any federal or
state law relating to bankruptcy, insolvency
reorganization or similar laws;
(b) If such Partner has a proceeding
commenced against it relating to the appointment
of a trustee, liquidator or receiver or pursuant
to any proceedings under any federal or state law
relating to bankruptcy, insolvency, reorganization
or similar laws,
which proceeding is not dismissed or stayed within
ninety ( 9 0 ) days after the filing of such
proceeding;
(c) If such Partner suffers its interest in
the Partnership to become subject to any
attachment, levy, execution or other judicial
seizure which is not dismissed or stayed within
ninety (90) days;
(d) If such Partner either (i) fails to
contribute capital to the Partnership as provided
in Section 5 and the other Partner fails to
exercise the options provided for in Sections
5.3(b) or (c) or (ii) fails to repay a Default
Loan within 30 days after demand;
(e) If such Partner transfers its interest in
violation of Section 7; or
(f) If such Partner breaches or fails to
perform any other provision of this Agreement and
such breach or failure is not cured within 30 days
after written notice from the other Partner
provided, however, if the default cannot be cured
within 30 days but is curable without material
irreparable harm to the Partnership, the
defaulting Partner shall be entitled to a
reasonable time to complete the cure, provided it
commences the cure within 30 days and diligently
prosecutes the cure to completion, but in no event
shall such cure period be more than 180 days.
8.2 REMEDIES. Upon either Partner becoming a
Defaulting Partner, the other Partner may:
(a) Dissolve and terminate the
Partnership as provided in Section 9. In such
event if the other Partner asserts damages, were
caused by the Defaulting Partner, the other
Partner may cause the Partnership to pay in escrow
from funds otherwise distributable to the
Defaulting Partner, an amount up to the damages
reasonably asserted against the Defaulting
Partner. Upon payment of funds into escrow
pursuant to the preceding sentence, the other
Partner shall promptly provide notice to the
Defaulting Partner setting forth the nature of the
default asserted against the Defaulting Partner,
the amount of damages claimed, the manner in which
damages have been calculated, and the amount which
has been paid into escrow which shall remain in
escrow until the Partners agree on a distribution
thereof or until a final non-appealable order of a
court of competent jurisdiction is entered
providing for the distribution thereof;
(b) Elect to purchase the interest of
the Defaulting Partner pursuant to Section 7.4; or
8
<PAGE>
(c) Pursue any remedy at law or in
equity against the Defaulting Partner.
A Defaulting Partner shall have no right to
vote upon or otherwise participate in management
or winding up of the affairs of the Partnership,
whether pursuant to Section 6.1 or otherwise,
regardless of whether the remaining Partner has
commenced to exercise any available remedies.
Section 9. DISSOLUTION AND TERMINATION.
9.1 DISSOLUTION. The Partnership shall
dissolve upon expiration of its term as stated in
Section 3 above, or if earlier, upon the
occurrence of any of the following events:
(a) Unanimous agreement of the Partners
;
(b) Sale or disposition of all the
Partnership assets ;
(c) Election of the nondefaulting
Partner pursuant to Section 8.2;
(d) The Partners are unable to arrange
the financing or secure the permits required to
develop the Project; or
(e) Any other event which causes a
dissolution of the Partnership under state or
federal law.
Neither Partner shall have the right to
dissolve or terminate the Partnership for any
reason other than as set forth above or to
withdraw from the Partnership other than as set
forth in Section 7 and each Partner hereby waives
any other right it may have.
9.2 DISTRIBUTION OF CASH UPON TERMINATION. If
the Partnership is dissolved pursuant to Section
9.1, the Partnership affairs shall be wound up as
expeditiously as possible, the assets sold, and
the Partnership terminated. Either Partner may be
a purchaser of any or all of the assets. A
Defaulting Partner shall have no right to
participate in winding up the affairs of the
Partnership or in determining the disposition of
Partnership assets. After payment of all
Partnership liabilities and expenses of sale and
allocations pursuant to Section 9. 3, the
remaining cash shall be distributed to the
Partners in accordance with their positive Capital
Accounts as adjusted by the allocations provided
for in Section 9.3; provided, however, that any
Partner which has a negative Capital Account
balance (following the allocations pursuant to
Section 9.3) shall be required to contribute to
the Partnership for distribution cash in an amount
equal to such negative Capital Account balance,
which contribution shall be made in all events
within ninety (90) days of liquidation of the
Partner s interest as determined under Treasury
Regulations Section 1.704-1(b) (2) (i) (g).
Following a liquidation of the Partnership
and notwithstanding the provisions of Section 8. 2
(b), a Defaulting Partner shall remain liable to
the other Partner for any damages which resulted
from the Defaulting Partner's breach of this
Agreement.
9
<PAGE>
9.3 ALLOCATION OF GAIN AND LOSS UPON
LIQUIDATION. Any Profits or Losses upon
disposition of the Partnership assets which cause
a dissolution of the Partnership (including gain
or-loss resulting from condemnation, conversion,
insurance awards, or similar capital events)
("Gain on Sale" or "Loss on Sale ", respectively)
shall be allocated between the Partners as
follows:
(a) Loss on Sale shall be allocated
between the Partners as follows:
(i) First, proportionately to
those Partners having positive Capital Account
balances until all positive Capital Accounts have
been reduced to zero; and
(ii) Thereafter, to the Partners
in proportion to their Percentage Interests.
(b) Gain on Sale to the extent available
shall be allocated b2tween the Partners as
follows:
(i) First,
proportionately to those Partners having negative
Capital Account balances until such negative
balances are eliminated;
(ii) Second, to the Partners in
such amounts as necessary to cause the Capital
Account of each Partner to be equal to the excess
of such Partner's aggregate Capital Contributions
over the amount of distributions to such Partner
pursuant to Section 5.5; and
(iii) Thereafter, to the
Partners in proportion to their Percentage
Interests.
Section
Section 10. CONFLICTS OF INTEREST. The
Partners shall devote so much of their time to the
business of the Partnership as in their reasonable
judgment the conduct of the Partnership's business
reasonably requires. Except as otherwise provided
in the following sentence and in the Management
Agreement, the Partners and their affiliates may
engage in business ventures and activities of any
nature and description independently or with
others or not in competition with the business of
the Partnership, and shall have no obligation to
disclose business opportunities available to them,
and neither the Partnership nor either of the
Partners shall have any rights in or to such
independent ventures and activities or the income
or profits derived therefrom by reason of their
acquisition of interests in the Partnership.
Notwithstanding the foregoing, neither Partner
shall engage in any such business or venture in a
manner which is intended, or is reasonably likely,
to cause harm to the business of the Partnership.
Section 11. INDEMNITY AND CONTRIBUTION. All
liabilities of the Partnership shall be shared by
the Partners by Percentage Interest. Excepti as
otherwise provided herein, the Partnership and
each Partner by its respective Percentage
Interest shall indemnify, defend and hold harmless
either Partner against any Partnership liability
in excess of such Partner's respective Percentage
Interest thereof. Any Partner who incurs a
Partnership liability without authority to do so
shall indemnify, defend and hold harmless the
Partnership and the other Partner against the
entire amount of such liability.
10
<PAGE>
Section 12. NOTICES. Any notice required or
permitted under this Agreement shall be delivered
to the address set forth opposite each Partner's
name on the signature page hereof.
Section 13. GOVERNING LAW. This Agreement
shall be governed by the internal 2aws of the
State of Washington.
Section 14. AGREEMENT BINDING UPON ON
SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the successors and assigns of the
Partners.
Section 15. ARBITRATION.
Any controversy or claim between the Parties
including but not limited to those arising out of
or relating to this Agreement including any claims
based on or arising from an alleged tort, shall be
determined by arbitration in accordance with the
Commercial Arbitration Rules of the American
Arbitration Association (AAA) as modified below.
All statutes of limitations which would otherwise
be applicable shall apply to any arbitration
proceeding hereunder.
There shall be one arbitrator agreed upon by
the Parties, or if the Parties cannot agree, then
the arbitrator shall be selected by the
administrator of the AAA office in Seattle,
Washington. The arbitrator shall be an attorney
with at least 5 years, experience in assisted
living or residential care facilities and at least
15 year experience in real estate and partnership
transactions. The venue of the arbitration shall
be Seattle, Washington.
There shall be no discovery or dispositive
motion practice (such as motions for summary
judgment or to dismiss or the like) except as may
be permitted by the arbitrator, who shall
authorize only such discovery as may be shown to
be necessary to ensure a fair hearing, and no such
discovery permitted by the arbitrator shall extend
the time limits contained herein.
The arbitrator shall not be bound by the
rules of evidence or of civil procedure, but
rather may consider such writings and oral
presentations as reasonable businessmen would use
in the conduct of their day-to-day affairs, and
may require the parties to submit some or all of
their case by written declaration or such other
manner of presentation as the arbitrator may
determine to be appropriate. It is the intention
of the parties to limit live testimony and cross-
examination to the extent necessary to ensure a
fair hearing to the parties on significant and
material issues.
The arbitrator shall take such steps as may
be necessary to hold the hearing within ninety
(90) days of the initial request for arbitration
and to conclude the hearing within two (2) days;
and the arbitrator's written decision shall be
made not later than fourteen (14) calendar days
after the hearing. The parties have included these
time limits in order to expedite the proceeding,
but they are not jurisdictional, and the
arbitrator may for good cause afford or permit
reasonable extensions or delays, which shall not
affect the validity of the award. The written
decision shall contain a brief statement of the
claim(s) determined and the award made on each
claim. Absent fraud, collusion or willful
misconduct by the arbitrator, the award shall be
final and judgment may be
11
<PAGE>
entered in any court having jurisdiction thereof.
The arbitrator may award attorneys' fees and costs
to the prevailing party but shall not have the
power to award punitive damages.
The parties have included the foregoing
provisions limiting the scope and extent of the
arbitration with the intention of providing for
prompt, economic and fair resolution of any
dispute.
Section 16. PRONOUNS. As required by the
context, all pronouns shall be deemed to refer to
and include masculine feminine, neuter, singular,
and plural.
Section 17. ENTIRE AGREEMENT. This Agreement
constitutes the entire agreement among the parties
and supersedes any prior agreement or
understandings among them, oral or written, all of
which are hereby cancelled. This Agreement may not
be modified or amended except with the unanimous
approval of all of the Partners.
Section 18. NO WAIVER. The failure of any
Partner to insist upon strict observance or
performance of any of the provisions of this
Agreement, or to exercise any right or remedy
provided for in this Agreement shall not impair
its rights or
remedies or be construed as a waiver or release
with respect to any continuing or subsequent
defaults. Each Partner's rights and remedies
granted hereunder may be exercised from time to
time and as often as such Partner shall be deem
desirable. All rights and remedies provided to a
Partner hereunder shall be cumulative and in
addition to all other rights and remedies provided
herein.
Section 19. SEVERABILITY. In the event one or
more provisions contained in this Agreement is
deemed to be invalid or unenforceable in any
respect for any reason, the validity and
enforceability of the remaining provisions shall
not be impaired in any way.
Section 20. COUNTERPARTS. This Agreement may
be executed in several counterparts, each of which
shall be deemed an original, but all of which
shall constitute one agreement, binding on all of
the parties hereto, notwithstanding that all of
the parties are not signatory to the same
counterpart.
Section 21. PARAGRAPH HEADINGS. Paragraph
headings shall be inserted solely for the
convenience of the parties and shall not be
considered a part of this Agreement for
interpretation or construction.
TDC CONVALESCENT, INC., .a
California corporation
BY: /s/ Thomas D. Clark,
----------------------------
-----------
Thomas D. Clark, President
EMERITUS CORPORATION, a
Washington corporation.
By: /s/ Raymond R. Brandstrom
----------------------------
-------------------
Raymond R. Brandstrom, President
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement") is
entered into as of the 18th day of February, 1997,
by and between FINOVA Capital Corporation, a
Delaware corporation ("Lender") and TDC/Emeritus
Paso Robles Associates, a Washington general
partnership ("Borrower").
RECITALS:
A. Borrower desires to obtain a loan in an
amount of up to SIX
MILLION AND NO/100 DOLLARS ($6,000,000.00) from
Lender for the purpose of providing construction
and term financing for the Creston Village at Paso
Robles, California retirement center.
B. Lender is willing to make the loan to
Borrower based on the terms and conditions of, and
Borrower's compliance with, this Agreement and the
other Loan Documents (as hereafter defined).
AGREEMENT:
NOW, THEREFORE, for good and valuable
consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby
agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement and in the Loan
Documents, unless otherwise expressly indicated
herein or therein, the following terms shall have
the following meanings (such meanings to be
applicable equally both to the singular and plural
terms defined):
1.1 "ADVANCE" shall mean the Initial Advance
and any subsequent
advance of proceeds of the Loan by Lender pursuant
to this Agreement.
1.2 "AFFIDAVIT OF BORROWER" shall mean a
sworn Affidavit of Borrower in the form of Exhibit
F-2, to accompany a Work-Related Advance Request.
1.3 "AFFILIATE" shall mean with respect to
any Person, a Person that directly or indirectly,
through one or more intermediaries, controls or is
controlled by or is under common control with such
Person; any officer, director, partner or
shareholder of such Person; and any relative of
any of the foregoing. Notwithstanding anything to
the contrary set forth in this definition,
Affiliate shall not include (a) any shareholder of-
Emeritus Corporation or any relative of such
shareholder, or (b) Daniel R. Baty or any Person
who otherwise would be an Affiliate of Daniel R.
Baty. The term "control" means possession,
directly or indirectly, of the power to direct or
cause the direction of the management and policies
of a Person, whether through the ownership of
voting securities, by contract or otherwise.
1.4 "APPLICATION FEE" shall mean that certain
non-refundable fee in the amount of Ten Thousand
Dollars ($ 10,000.00) paid by Borrower to Lender
prior to the issuance of Lender's commitment
letter dated November 21,1996.
<PAGE>
1.5 "ARCHITECT/ENGINEER" shall mean an
architect or engineer employed by Borrower to
perform architectural or engineering services.
1.6 "ARCHITECT/ENGINEER AGREEMENT" shall mean
a contract (written or oral, now or hereafter in
effect) between Borrower and an Architect/Engineer
for the performance of architectural or
engineering services, as approved by Lender in
writing and modified from time to time with
Lender's prior written consent.
1.7 "BASE RATE" shall mean: (a) the Citibank
prime rate; or (b) such per annum rate which has
been selected by Lender as the Base Rate pursuant
to the terms of the following sentences. If the
Base Rate then being utilized ceases to be
published, then Lender shall choose as the Base
Rate a reference rate which Lender deems
comparable in its sole and absolute discretion. As
used above, the Citibank prime rate shall mean the
rate per annum publicly announced from time to
time by Citibank, N.A., New York, New York
(together with any successor, "Citibank"), as its
base rate or equivalent rate of interest charged
by Citibank to its largest and most creditworthy
commercial borrowers, notwithstanding the fact
that some borrowers of Citibank may borrow from
Citibank at rates less than such announced prime
rate.
1.8 "BASIC INTEREST" shall mean the interest
due and payable on the outstanding principal
balance of the Note, which shall accrue on the
outstanding principal balance of the Loan Amount
at the lesser of (i) the Maximum Rate, or (ii) a
floating rate per annum equal to seventy-five (75)
basis points above the Base Rate ("Basic Rate");
which shall be initially determined using the Base
Rate in effect on the first Business Day of the
month in which the Loan Closing occurs, and
thereafter shall automatically change on each
Interest Rate Change Date.
At any time during the first one-year period
following the Permanent Term Commencement Date,
Borrower shall have the one time right upon seven
(7) days prior written notice to Lender to convert
the floating Basic Rate to a fixed rate for the
remaining term of the Loan (the "Conversion
Option") at a rate equal to the sum of the
Treasury Constant Maturity Rate as published by
the Federal Reserve Bank for Treasury Notes having
a maturity closest to the remaining term of the
Note plus three hundred (300) basis points,
provided that no Event of Default or Incipient
Default of which Lender has notified Borrower has
occurred and that Borrower has paid to Lender a
conversion fee equal to one-quarter of one percent
(0.25%) of the then outstanding principal balance
of the Note as of the date of Borrower's notice of
Borrower's exercise of the Conversion Option. In
the event that Borrower does not exercise the
Conversion Option and convert the floating Basic
Rate to a fixed Basic Rate during the first year
after commencement of the Permanent Term, Borrower
shall be conclusively deemed to have elected to
retain the variable Basic Rate set forth in the
preceding paragraph for the remainder of the term
of the Loan until the Maturity Date.
Notwithstanding the foregoing to the contrary, in
the event Borrower is unable to exercise the
Conversion Option on the date one year after the
commencement of the Permanent Term because at such
time there exists an Incipient Default of which
Lender has notified Borrower, and such Incipient
Default is subsequently cured by Borrower, then
Borrower may exercise the Conversion Option at any
time within thirty (30) days after the date the
Incipient Default is cured.
Basic Interest shall be calculated on the basis of
actual number of days elapsed during the period
for which interest is being charged predicated on
a year consisting of 360 days.
2
<PAGE>
Interest shall accrue from Lender's wiring or
disbursement of funds through Lender's receipt of
repayment.
1.9 "BORROWER" shall mean TDC/Emeritus Paso
Robles Associates ,
a Washington general partnership and its permitted
successors, beneficiaries and assigns. The members
of Borrower are each of the Guarantors.
1.10 "BUDGET" shall mean a detailed budget
cost itemization prepared by Borrower with respect
to construction of the Work, and approved in
writing by Lender, which specifies by item the
cost, source of payment and draw schedule of (a)
all labor, materials and services necessary for
Completion of the Work; and (b) all other expenses
incidental to the Completion of the Work. The
Budget shall include an interest reserve,
retainage and contingency reserve deemed adequate
by Lender. The original Budget for the Work shall
be attached hereto as Exhibit D at such time as it
has been prepared by Borrower and approved by
Lender in writing.
1.11 "BUSINESS DAY" shall mean any day other
than a Saturday, Sunday or any holiday on which
banks in Phoenix, Arizona are required to close.
1.12 "CASH FLOW" shall mean, for any given
accounting period, net income (as determined in
accordance with GAAP applied on a basis consistent
with prior periods) plus (to the extent deducted
from revenues in arriving at net income)
depreciation, amortization, interest expense, and
Management Fees, less, without duplication,
capital gain on the sale of assets, extraordinary
income, and an amount equal to two percent (2%) of
Gross Revenues (as a replacement reserve). In no
instance will any capital expenditure be accounted
for in determining Cash Flow.
1.13 "CERTIFICATE OF COMPLETION" shall mean,
with respect to the Work, a certificate issued by
the governmental authority having jurisdiction
over the Work when all of the Work has been
completed, allowing the use of the Improvements by
Borrower for their intended purpose.
1.14 "COLLATERAL" shall mean the Property and
the Leases and any and all other property
constituting security for the Loan under the
Mortgage or any of the other Loan Documents.
1.15 "COMPLETION" or "COMPLETION OF THE WORK"
shall mean completion of the Work (excluding
certain "punch-list" items which are not necessary
for the full operation of the Project),
substantially in accordance with the Plans and
Specifications, the Construction Contracts, all
applicable, zoning, building and other
governmental laws, regulations and private
restrictions, the Loan Documents, sound
construction, engineering and architectural
principles and commonly accepted safety standards,
and lien free and free of defective materials and
workmanship; and receipt by Lender of the
following in form and substance satisfactory to
it:
1.15.1 A certificate of completion from
Borrower and its Architect/Engineer and, if Lender
elects, from Lender's Consultant, certifying that
the Work has been so completed in accordance with
the Loan Documents including, without limitation,
the Construction Contract, in a good and
workmanlike manner, all utilities necessary to
serve the Property have been connected and are
operating, and the Improvements are ready for
3
<PAGE>
occupancy by those Tenants whose tenant
improvement work is included in the Budget (if
any);
1.15.2 A Certificate of Completion;
1.15.3 If applicable laws provide that the
recording of a notice of completion for the Work
will cause the expiration upon a date certain of
the statutory period within which mechanics' and
similar liens can be filed, verification of the
recording of such notice in the manner prescribed
by such laws;
1.15.4 Final lien waivers (which may be
conditional on payments only with respect to the
work, material, equipment, or services to be paid
from proceeds of the final Advance);
1.15.5 The Re-Issued Title Policy required
pursuant to paragraph 5.16. 9 ;
1.15.6 The "as-built survey" required
pursuant to paragraph 5.16.8 and "as built plans"
for the Property;
1.15.7 All environmental licenses or
approvals for operation within or on the Project
if any; and any other applicable governmental
permits, approvals, consents, licenses and
certificates for the use and operation of the
Project as a 100-unit independent and assisted
living facility; and
1.15.8 Evidence satisfactory to Lender that
there are no material judgments or pending
litigation or, to the best of Borrower's
knowledge, threatened litigation of a material
nature outstanding against the Borrower, or the
Project, including but not limited to litigation
or judgments which may affect title or Lender's
lien position with respect to any of the
Collateral or any litigation or judgment which
might materially affect the ability of Borrower to
perform its obligations under the Loan Documents.
1.16 "COMPLETION DATE" shall mean the date
upon which the. final Advance is funded by Lender
pursuant to paragraph 3.2.7.
1.17 "CONSTRUCTION CONTRACT" shall mean a
contract (written or oral, now or hereafter in
effect) between Borrower and a Contractor, or
between any Contractor and any other person or
entity relating in any way to the Completion of
the Work, including the performing of labor and
the furnishing of equipment, materials or services
(other than architectural or engineering
services), as approved by Lender in writing and
modified from time to time with Lender's prior
reasonable written consent.
1.18 "CONSTRUCTION TERM" shall mean a term
commencing on the Loan Closing and ending on the
earlier of (a) the date twelve ( 12) months after
the Loan Closing, or (b) the Completion Date.
1.19 "CONTRACTOR" shall mean a contractor
employed by Borrower to provide labor and/or to
furnish equipment, materials or services for any
portion of the Work. .
4
<PAGE>
1.20 "CONTRACTS, INTANGIBLES, LICENSES AND
PERMITS" shall mean the property so described in
Exhibit A-2.
1.21 "CONVERSION OPTION" shall have the
meaning prescribed in paragraph 1. 8.
1.22 "DEBT" means for any Person: (i) all
indebtedness, whether or not represented by bonds,
debentures, notes, securities, or other evidences
of indebtedness, for the repayment of money
borrowed, (ii) all indebtedness representing
deferred payment of the purchase price of property
or assets, (iii) all indebtedness under any lease
which, in conformity with GAAP, is required to be
capitalized for balance sheet purposes, (iv) all
indebtedness under guaranties, endorsements,
assumptions, or other contingent obligations, in
respect of, or to purchase or otherwise acquire,
indebtedness of others, and (v) all indebtedness
secured by a Lien existing on property owned,
subject to such lien, whether or not the
indebtedness secured thereby shall have been
assumed by the owner thereof.
1.23 "DEBT SERVICE" shall mean, for any given
accounting period, all regularly scheduled
principal and interest payments due under the Note
plus all payments on operating and capital leases
(including Equipment Leases) and any other Debt
permitted under the Loan Documents or approved in
writing by Lender.
1.24 "DEBT SERVICE AFTER MANAGEMENT FEE
COVERAGE RATIO" shall mean the ratio of (a) Post
Management Fees Cash Flow for the relevant period,
to (b) Debt Service.
1.25 "DEBT SERVICE COVERAGE RATIO" shall mean
the ratio of (a) Cash Flow for the relevant
period, to (b) Debt Service for the relevant
period.
1.26 "DEFAULT RATE" shall mean the Default
Rate of interest more fully described and set
forth in paragraph 7.1.10.
1.27 "DISTRIBUTIONS" shall have the meaning
prescribed in paragraph 5.10.
1.28 "DUE DATE" shall mean the first to occur
of (i) the Maturity Date, (ii) full repayment of
the Loan, or (iii) acceleration of the Loan upon
the occurrence of an Event of Default under the
Loan Documents.
1.29 "EQUIPMENT LEASES" shall have the
meaning prescribed in paragraph 3.1.18.
1.30 "EVENT OF DEFAULT" shall have the
meaning described and set forth in Article 6.
a
1.3 1 "EXCESS CASH FLOW" shall mean Cash Flow
minus Debt Service ,
for the relevant period.
5
<PAGE>
1.32 "FORCE MAJEURE EVENT" shall mean any
"Act of God, governmental moratorium, civil
commotion, enemy action, fire, strike, casualty,
or governmental order, or injunction issued by a
court of competent jurisdiction, which are entered
for reasons other than for Borrower's acts or
omissions which would constitute a default under
this Agreement, or similar occurrences beyond
Borrower's control.
1.33 "GAAP" shall mean generally accepted
accounting principles.
1.34 "GENERAL CONTRACT" shall mean that
Construction Contract dated as of , 1996, between
Borrower and General Contractor covering the Work
for a guaranteed fixed or maximum price not to
exceed $ , as the same may be modified from time
to time with Lender's prior written consent. The
General Contract shall provide that the Work shall
be fully completed for the foregoing guaranteed
maximum price notwithstanding (a) any future
events, including without limitation, cost
governs, whether foreseeable or unforeseeable
(except Force Majeure Events) or (b) any defaults,
disputes or litigation between the General
Contractor and its subcontractors or materialmen.
1.35 "GENERAL CONTRACTOR" shall mean
_______________, a _______________corporation.
1.36 "GROSS REVENUE" shall mean for any given
accounting period, the aggregate gross rental
income, percentage rental income and all other
income from the Property realized during such
period in accordance with GAAP.
1.37 "GUARANTIES" shall mean those guaranties
of payment and performance and subordinations
executed by the Guarantors and more particularly
described in paragraph 5.12. "Guaranty" shall mean
any one of the Guaranties.
1.38 "GUARANTORS" shall mean TDC
Convalescent, Inc., a California corporation, and
Emeritus Corporation, a Washington corporation.
1.39 "IMPROVEMENTS" shall mean all
improvements to be constructed upon the Real
Property as part of the Work, together with any
off site improvements which must be completed in
connection therewith, all as set forth in the
Plans and
Specifications and the Construction Contract(s)
and as described in the Budget.
1.40 "INCIPIENT DEFAULT" shall mean the
occurrence of any event, which with the giving of
notice or the passage of time or both, would
constitute an Event of Default under the Loan
Documents.
1.41 " INITIAL ADVANCE" shall mean the
initial Advance in an amount not to exceed $ , in
accordance with the terms and provisions of this
Agreement including, without limitation, paragraph
2.3.
1.42 "INTEREST RATE CHANGE DATE" shall mean
the first Business Day of the publisher of the
Base Rate during each calendar month following the
date of the Initial Advance of the Loan.
6
<PAGE>
1.43 "LEASES" shall mean all of the leases,
subleases, lease guaranties, residency agreements,
licenses, rents, issues and profits related to or
arising from the Real Property or any portion
thereof made by Borrower as landlord, together
with any and all other existing or future leases
or other agreements for the use and/or occupancy
of the Real Property or any portion thereof by
Borrower as landlord, as the same may from time to
time be modified or amended.
1.44 "Lender" shall mean FINOVA Capital
Corporation, a Delaware corporation, and/or its
successors and assigns.
1.45 "LENDER'S CONSULTANT" shall have meaning
given to it in paragraph 9.1.
1.46 "LOAN" shall mean the advances of money
(including any accrued interest and other charges
under the Loan Documents not paid when due) made
by Lender to Borrower, or on Borrower's behalf,
pursuant to this Agreement and the Loan Documents.
1.47 "LOAN CLOSING" shall mean the date the
Initial Advance is advanced to Borrower from
Lender, which advancement will be made through
escrow with the Title Agent, and which Lender and
Borrower contemplate will be no later than
February 28, 1997.
1.48 "LOAN DOCUMENTS" shall mean those
documents (including this Agreement) now or
hereafter evidencing, securing or otherwise
ancillary to the Loan, as they may be hereafter
amended, renewed, replaced or restated.
1.49 "LOAN FEE" shall mean a fee for the Loan
in the amount of One Hundred Twenty Thousand
Dollars ($120,000.00).
1.50 "MANAGEMENT AGREEMENT" shall mean that
Agreement to Provide Management Services to an
Assisted Living Facility dated
between Borrower and Manager, or such other
management agreement from time to time entered
into between Borrower and a manager governing the
management of the Property, and reasonably
approved in writing by Lender.
1.51 "MANAGEMENT FEE ACCOUNT" shall have the
meaning prescribed in paragraph 5.6.2.
1.52 "MANAGEMENT FEES" fees payable pursuant
to the Management Agreement, not to exceed seven
percent (7%) of the Gross Revenue for the period
with respect to which the Management Fees are
paid.
1.53 "MANAGER" shall mean Emeritus
Corporation, a Washington corporation or such
other Person who has been designated to act as the
manager of the Property and approved in writing by
Lender.
1.54 "MATURITY DATE" shall mean the earlier
to occur of (i) the date falling seventy-two (72)
months after the Loan Closing, or (ii) the fifth
(5th) anniversary date of the Permanent Term
Commencement Date.
7
<PAGE>
1.55 "Maximum Loan Amount" shall mean the
maximum principal amount of the Loan, which shall
be the least of (a) SIX MILLION AND NO/100 DOLLARS
($6,000,000.00), (b) the sum of (i) one hundred
percent ( 100%) of the costs of the Work set forth
in the Budget and designated as costs to be paid
from Loan proceeds, and (ii) all other amounts
Lender is obligated to advance hereunder, or (c)
eighty percent (80%) of the appraised completed
stabilized value of the Project upon Completion,
as determined by Valuation Counselors, Inc.
1.56 "MAXIMUM RATE" means the maximum rate of
nonusurious interest permitted from day to day by
applicable law, and calculated after taking into
account any and all relevant fees, payments, and
other charges in respect of the Loan Documents
which are deemed to be interest under applicable
law.
1.57 "MORTGAGE" shall mean the Deed of Trust,
Security Agreement, Assignment of Leases and Rents
and Fixture Filing securing Borrower's obligations
under the Loan Documents as more fully described
in paragraph 3.1.1.2, as it may be hereafter
amended, renewed, replaced or restated.
1.58 "NOTE" shall mean the promissory note of
Borrower evidencing the Loan, as more fully
described in paragraph 2.6, as it may be hereafter
amended,
renewed, replaced or restated.
1.59 "OBLIGATIONS" shall mean any and all of
the covenants ,
warranties, representations and other obligations,
including the obligation to repay the Loan, made
or undertaken by Borrower or others to Lender, as
set forth in the Loan Documents, any other
documents or instruments executed in connection
with the Loan.
1.60 "OPERATING CASH FLOW ACCOUNT" shall have
the meaning prescribed in paragraph 5.6.1.
1.61 "PERMITTED ENCUMBRANCES" shall mean all
matters shown on Exhibit B.
1.62 "PERSON" shall mean an individual,
trust, estate, partnership ,
limited liability company, corporation or any
other incorporated or unincorporated organization.
1.63 "PERSONAL PROPERTY" shall mean all items
of personal property, tangible and intangible
(including without limitation, fixtures,
furniture, inventory, supplies, vehicles,
machinery and equipment, together with all chattel
paper, documents, instruments, accounts, contract
rights, proprietary rights, rights to payment,
trademarks, tradenames, copyrights, patents and
patent rights, general intangibles, and books and
records) owned by Borrower and used in connection
with the Real Property or the operation of
Borrower's business thereon, or necessary or
incident to the operation of Borrower's business
on the Real Property, whether now owned or
hereafter acquired, together with all products and
proceeds of the same, all as more fully described
in Exhibit A-2 attached hereto and incorporated
herein by this reference.
1.64 "Permanent Term" shall mean a permanent
term for the Loan running from the Permanent Term
Commencement Date through the Maturity Date.
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1.65 "PERMANENT TERM COMMENCEMENT DATE" shall
mean the first day following the end of the
Construction Term.
1.66 "PLANS AND SPECIFICATIONS" shall mean
the architectural, structural, mechanical,
electrical and other plans and specifications for
the construction of the Project and the completion
of the Work and prepared by the
Architect(s)/Engineer(s), as approved by Lender
and as modified from time to time with Lender's
prior written consent.
1.67 "POST MANAGEMENT FEES CASH FLOW" shall
mean Cash Flow less
Management Fees paid by Borrower.
1.68 "PREPAYMENT FEE" shall have the meaning
prescribed in paragraph 2.7.1.
1.69 "PRINCIPAL COMMENCEMENT DATE" shall mean
the first day of the thirteenth (13th) full
calendar month after the Permanent Term
Commencement Date.
1.70 "PRINCIPAL WORK-RELATED ITEMS" shall
mean the Plans and Specifications and all
agreements between Borrower and third parties
pertaining to the Work, including, without
limitation, the Construction Contract(s) and the
Architect/Engineer Agreement(s), as approved by
Lender in writing and modified from time to time
with Lender's prior written consent.
1.71 "PROJECT" shall mean the 100-unit
independent and assisted living facility to be
constructed on the Real Property.
1.72 "PROPERTY" shall mean the Personal
Property and the Real Property.
1.73 "REAL PROPERTY" shall mean the real
property legally described on Exhibit A-1 attached
hereto and incorporated herein by this reference,
and all improvements and additions thereto, and
all mineral rights, easements and other rights
appurtenant thereto, all as more fully described
in the Mortgage.
1.74 "REQUIRED COMPLETION ASSURANCE DEPOSITS"
shall mean all amounts deposited by Borrower with
Lender pursuant to paragraph 5.22 of this
Agreement.
1.75 "REQUIRED COMPLETION DATE" shall mean
the date which is twelve (12) months after the
Loan Closing subject to Force Majeure Events not
exceeding sixty (60) days in the aggregate.
1.76 "REQUIRED FINANCIAL INFORMATION" shall
mean:
(a) Copies of financial statements of
Borrower and the Property for all fiscal quarters
ending prior to the scheduled Maturity Date of the
Note, which shall be delivered to Lender no more
than thirty (30) days after the end of each fiscal
quarter;
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(b) Copies of annual financial statements for
Borrower and the Property for all fiscal years
ending prior to the Maturity Date of the Note,
which shall be delivered to Lender no more than
one hundred twenty (120)
days after the end of each fiscal year;
(c) Copies of the annual financial statement
of such Guarantor as of December 31 of each
calendar year prior to the Maturity Date of the
Note, to be delivered no later than May 1 of each
calendar year with respect to the immediately
preceding calendar year. Copies of the federal
income tax returns of each Guarantor (except for
Emeritus Corporation) shall be delivered to Lender
within thirty (30) days after same are filed with
the Internal Revenue Service;
(d) A copy of each Form 10-K and Form 10-Q
filed by Emeritus Corporation with the United
States Securities Exchange Commission, which shall
be delivered to Lender within thirty (30) days
after filing such form with said commission; and
(e) To the extent not included under
subparagraph (a) above, a rent roll/tenant summary
reflecting the status of all Leases of the
Property or portions thereof, and accounts
receivable and accounts payable agings for each
calendar quarter (with year-to-date figures) and
each calendar year falling within the term of the
Loan prepared in accordance with GAAP, which shall
be delivered to Lender within thirty (30) days
after the end of each calendar quarter (in the
case of quarterly statements) and within ninety
(90) days after the end of each calendar year (in
the case of annual statements) during the term of
the Loan.
The financial statements delivered pursuant
to subparagraphs (a) and (b) above shall include:
for Borrower, certified balance sheets, statements
of income and expenses and statements of cash
flow; and for Guarantors, balance sheets. The
financial statements shall be prepared in
accordance with GAAP, consistently applied and
prepared in accordance with the "accrual basis" of
accounting; and shall be in detail satisfactory to
Lender. Borrower's financial statements shall
include calculations of Cash Flow, Debt Service,
Excess Cash Flow, Gross Revenue, the Debt Service
Coverage Ratio for the period in question and the
Debt Service After Management Fee Coverage Ratio
for the period in question; and shall include a
reconciliation of, and copy of the bank statement
from, each of the Special Accounts including a
summary of all expenditures made therefrom. All
financial statements of Borrower shall be
certified to be true, complete and correct in all
material aspects by the general parties of
Borrower, and include a signed statement by the
general partners of Borrower that the financial
statements represent fairly, in all material
respects, the financial position and operation of
Borrower subject to annual year end adjusting
entries. All Guarantors' financial statements
shall be signed and certified as true, correct and
complete in all material respects by the subject
Guarantor. Borrower's annual financial statements
required pursuant to Subparagraph (b) shall be
audited by a firm of certified public accountants
satisfactory to Lender and shall include a
separate accountant's certificate acceptable to
Lender, and a management letter from the auditors
to Borrower detailing any deficiencies in
Borrower's accounting practices and commenting on
any other accounting-related matters.
1.77 "SPECIAL ACCOUNTS" shall mean the
Operating Cash Flow Account and Management Fee
Account, all as defined in paragraph 5.6.
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1.78 "STABILIZATION" shall mean the earlier
to occur of (i) the last day of the calendar month
in which the Property reaches ninety-four percent
(94"%) occupancy, or (ii) the last day of the
fifteenth full calendar month after the Permanent
Term Commencement Date.
1.79 "TENANTS" shall mean each and every
party now or hereafter entitled to the possession
and use of the Property, or any part thereof,
pursuant to the Leases.
1.80 "TITLE AGENT" shall mean Chicago Title
Company.
1.81 "TITLE COMPANY" shall mean Chicago Title
Company.
1.82 "TITLE POLICY" shall have the meaning
given to it in paragraph 3.1.4.
1.83 "UNCOVERED COST OF THE WORK" shall mean
the amount equal to the excess (if any) of (a) the
remaining unpaid costs of Completion of the Work
over (b) the committed and undisbursed portion of
the Loan and any Required Completion Assurance
Deposits held by Lender.
1.84 "WORK" shall mean the construction of
the Project and the installation of any and all
furniture, furnishings, fixtures and/or equipment
required by this Agreement or shown as costs on
the Budget, the Plans and Specifications or the
Construction Contract(s) for the Project.
1.85 "WORK PROGRESS SCHEDULE" shall mean the
schedule for the Completion of the Work and parts
thereof, as approved by Lender in writing. The
Work Progress Schedule shall be attached hereto as
Exhibit E at such time as it has been prepared by
Borrower and reasonably approved by Lender in
writing.
1.86 "WORK-RELATED ADVANCE" shall mean any
Advance made for the
purpose of paying or reimbursing Borrower for the
costs of the Work.
1.87 "WORK-RELATED ADVANCE REQUEST" shall
mean the written application of Borrower on
Lender's standard forms made by Borrower
specifying by name and amount all parties to whom
Borrower is obligated for labor, materials,
equipment or services supplied for the Completion
of the Work whether or not specified in the
Budget, and requesting a Work-Related Advance for
payment of such items, accompanied by an Affidavit
of Borrower and such schedules, affidavits,
releases, waivers, statements, invoices, bills and
other documents as Lender may request.
ARTICLE 2
LOAN AMOUNT AND TERMS
2.1 MAXIMUM LOAN AMOUNT AND TERM. Lender
hereby agrees to make the Advances to Borrower in
a principal sum not to exceed the Maximum Loan
Amount, provided Borrower has complied with, and
subject to the terms and conditions of, this
Agreement and all other Loan Documents. Unless
Lender, in its sole and absolute discretion,
agrees in writing with Borrower to make such
Advances thereafter on terms and conditions
satisfactory to Lender, Borrower shall not be
entitled to obtain Work-Related Advances after the
Required Completion Date.
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2.2 USE, ALLOCATION AND TIMING OF ADVANCES.
Borrower shall use Advances (after the Initial
Advance) only for payment of and reimbursement for
hard and soft construction costs and interest
reserve set forth in the Budget and designated as
costs to be paid from the Loan proceeds. All
Advances shall be subject to the conditions and
limitations of paragraph 3.2 below.
2.3 Use and Allocation of Initial Advance.
The proceeds of the Initial Advance shall be
disbursed by Lender on the Loan Closing to or for
the benefit of Borrower for use in strict
accordance with the Initial Advance Disbursement
Schedule attached hereto as Exhibit G.
2.4 (INTENTIONALLY NOT USED)
2.5 BASIC INTEREST. Basic Interest shall
begin to accrue on each Advance as of the date
disbursed by Lender by check or wire transfer to
the Title Agent or Borrower, and such Advance
shall be added to the outstanding principal
balance of the Loan on such date. An Advance shall
be deemed to have been disbursed by Lender to
Borrower and deemed to be part of the outstanding
principal balance of the Loan if disbursed to a
third party on Borrower's behalf or disbursed to
the Title Agent to hold for disbursement to
Borrower subject to the fulfillment of certain
conditions to which Borrower has agreed. Interest
shall accrue on Advances only to the extent of the
outstanding principal balance of the Loan.
2.6 THE NOTE. In order to evidence the Loan,
Borrower shall execute and. deliver to Lender the
Note in the Maximum Loan Amount, which Note shall
be payable in accordance with the terms set forth
therein and in this Agreement, with Basic Interest
at the rates set forth therein and herein. The
principal balance and interest thereon shall be
payable as follows:
2.6.1 CONSTRUCTION INTEREST PAYMENTS.
Commencing on the first day of the second calendar
month following the Loan Closing and on the first
day of each calendar month thereafter during the
Construction Term
,Borrower shall remit monthly payments consisting
of accrued Basic Interest (at the Basic Rate) on
the outstanding principal balance of the Loan (in
arrears); provided that, during the Construction
Term, as long as there is no Event of Default or
Incipient Default, such Basic Interest shall be
paid from the interest reserve set forth in the
Budget; until such interest reserve is exhausted,
at which point Borrower will commence making such
interest payments.
2.6.2 PERMANENT TERM INTEREST PAYMENTS.
Commencing on the first day of the first full
calendar month after the Permanent Term
Commencement Date, and on the first day of each
calendar month thereafter until the Principal
Commencement Date, Borrower shall remit monthly
payments consisting of accrued Basic Interest (at
the Basic Rate) on the outstanding principal
balance of the Loan (in arrears). .
2.6.3 PERMANENT TERM PRINCIPAL AND INTEREST
PAYMENTS. Commencing on the Principal Commencement
Date through Lender's receipt of repayment of the
Loan in full, Borrower shall remit monthly
payments consisting of the amounts specified in
2.6.2 above plus principal in an amount which
would be amortized monthly if the outstanding
principal balance of the Loan Amount on the
Principal
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Commencement Date was being fully amortized in
consecutive level monthly installments of
principal and interest calculated over 240 months,
assuming a fixed interest rate for purposes of
calculating such amortization equal to the Basic
Rate in effect on the Principal Commencement Date.
2.6.4 PAYMENT OF REMAINING AMOUNTS. The
remaining principal balance of the Note together
with all accrued but unpaid Basic Interest and all
other amounts payable thereunder and hereunder
shall be all due and payable in full upon the Due
Date.
2.7 PREPAYMENT.
2.7.1 VOLUNTARY, FULL PREPAYMENT. Borrower
shall have the right, at any time upon giving
Lender (i) thirty (30) days advance written notice
thereof (which notice shall be irrevocable) if
Borrower has exercised the Conversion Option, or
(ii) ninety (90) days advance written notice
thereof (which notice shall be irrevocable) if
Borrower has not exercised the Conversion Option,
to prepay all, but not a portion of, the amount of
principal and interest due on the Note provided
that (A) on the date of such prepayment Borrower
shall also pay to the order of Lender on the date
of prepayment a fee equal to the "Prepayment Fee"
set forth below; (B) no Event of Default then
exists; and (C) Borrower pays, in addition to the
full principal amount of the Note, all accrued but
unpaid interest at the applicable interest rate
and all fees and other charges then outstanding.
The Prepayment Fee shall be equal to the
appropriate amount set forth below:
(a) Borrower shall pay to Lender a prepayment
premium equal to six percent (6%) of the amount
prepaid if such prepayment occurs during the first
Loan Year; an amount equal to five percent (5%) of
the amount prepaid if such prepayment occurs
during the second Loan Year; an amount equal to
four percent (4%) if such prepayment occurs during
the third Loan Year; an amount equal to three
percent (3%) if such prepayment occurs during the
fourth Loan Year; and an amount equal to $50,000
if the prepayment occurs after the fourth Loan
Year.
(b) In addition to the amount set forth in
paragraph 2.7.1(a) above, if Borrower has
exercised the Conversion Option, if there is a
decline between the yield to maturity (expressed
as a percentage) on the date the Basic Rate was
fixed pursuant to the Conversion Option on United
States Treasury Notes with a maturity closest to
and prior to the scheduled Maturity Date (the
"Existing Treasury Note Rate") and the yield on
United States Treasury Notes with a maturity
closest to and prior to the scheduled Maturity
Date as reported in The Wall Street Journal or
similar publication reasonably acceptable to
Lender on the fifth business day preceding the
prepayment date (the "Future Treasury Note Rate"),
an amount equal to the product of (i) the
difference between the Existing Treasury Note Rate
and the Future Treasury Note Rate (expressed as a
percentage) multiplied by (ii) the outstanding
balance of the Note inclusive of all accrued and
unpaid interest as of the date of prepayment and
further
multiplied by (iii) the number of whole and
fractional years remaining until the scheduled
Maturity Date.
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2.7.2 INVOLUNTARY PREPAYMENT. Upon the
occurrence of an Event of Default under any of the
Loan Documents at any time during the term of the
Loan which results in Lender's acceleration of all
amounts due under the Note, Borrower shall pay, in
addition to all other amounts to which Lender is
entitled upon such an acceleration, the Prepayment
Fee described above, and such Prepayment Fee shall
be fully due and payable upon such acceleration
unless the Event of Default is cured and Lender
reinstates the Loan. The foregoing Prepayment Fee
represents the estimate of Lender and Borrower of
a fair average compensation for the loss that may
be sustained by Lender due to the payment of any
of the indebtedness evidenced by the Note prior to
the due date thereof stated herein. Such
Prepayment Fee shall be paid without prejudice to
the right of Lender to collect any other amounts
provided to be paid hereunder.
2.7.3 UNPERMITTED PARTIAL PAYMENTS. In the
event Borrower makes any partial prepayment(s) of
principal not permitted hereunder, such
prepayment(s) shall be deemed a payment(s) of the
principal as of the scheduled Maturity Date, and
interest shall continue to accrue on the full Loan
amount as if such prepayment(s) had not been made
until the scheduled Maturity Date.
2.8 APPLICATION OF PAYMENTS. All payments
received by Lender in respect of the Loan shall be
applied first to any late charges and other fees
and expenses due under the Loan Documents, then to
accrued and unpaid interest and then to
outstanding principal.
ARTICLE 3
CONDITIONS PRECEDENT TO THE LOAN
3.1 CONDITIONS TO LOAN CLOSING AND INITIAL
ADVANCE. The obligation of Lender to make the
Initial Advance is subject to the following
express conditions precedent, which requirements
must be satisfied at least ten (10) days prior to
the Loan Closing.
3.1.1 LOAN DOCUMENTS. On or before the Loan
Closing, Borrower shall have executed or obtained
execution of and delivered to Lender the following
documents and instruments, the final form and
substance of which shall be acceptable to Lender:
3.1.1.1 The Note;
3.1.1.2 Deed of Trust, Security Agreement,
Assignment of Leases and Rents and Fixture Filing
securing the Note and all of Borrower's
obligations under the other Loan Documents
(excluding the Environmental Certificate with
Representations, Covenants and Warranties
described in paragraph 3.1.18), and constituting:
(a) a first and prior lien on the fee title to the
Real Property, including all buildings and
improvements now or hereafter located on the Real
Property, and all fixtures and attachments of and
to the buildings now on the Real Property, if any,
and those to be erected on the Real Property and
all rights and interest appurtenant thereto; (b) a
first priority assignment of all Borrower's
interest in and to the Leases including without
limitation all rents, issues or pro its therefrom;
and (c) a security agreement establishing a valid
first priority security interest in and to all of
the Personal Property not otherwise encumbered in
another Loan Document;
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3.1. I.3 UCC-1 Financing Statements for
filing and recording as required to perfect all of
the security interests granted and/or created
pursuant to the Loan Documents;
3.1.1.4 A Collateral Assignment of
Agreements, granting to Lender, inter alia, a
first priority assignment in the Construction
Contract, in the Architect/Engineer Agreement and
the Plans and Specifications, and in the
Management Agreement;
3. 1.1.5 An Acknowledgment of Assignment and
Subordination Agreement (Contractor);
3.1.1.6 An Acknowledgment of Assignment and
Subordination Agreement (Engineer);
3.1. I.7 An Acknowledgment of Assignment and
Subordination Agreement (Architect);
3.1.1.8 An Environmental Certificate with
Representations, Covenants and Warranties;
3.1.1.9 The Guaranties;
3.1.1.10 A Subordination Agreement executed
by
Emeritus Corporation, and TDC Convalescent, Inc.
3.1.1.11 The Account Agreements required by
paragraph 5.6 below;
3.1.1.12 A separate Assignment of Leases and
Rents, granting to Lender, as additional security
for the Loan, a first priority assignment of all
of Borrower's rights under and interest in all
Leases and the rents payable thereunder;
3.1.1.13 This Agreement; and
3.1.1.14 Such other documents and security
instruments as Lender deems necessary to
effectuate the purposes hereof.
3.1.2 ORGANIZATION DOCUMENTS. Borrower shall
provide, at Borrower's cost and expense, the
following organizational documents, the final form
and substance of which shall be acceptable to
Lender (collectively, the
"Organization Documents"):
3.1.2.1 Partnership agreement of Borrower,
and evidence from the State of Washington that
Borrower is a partnership which is duly formed and
in good standing.
3.1.2.2 If applicable, certificate of "good
standing" from the state of organization
addressing the status of each corporate partner of
Borrower.
3.1.2.3 A Partnership Resolution of Borrower
authorizing its obtaining the Loan, and a
corporate resolution of each general partner of
Borrower with respect thereto, ratifying the terms
of this Agreement, approving the Loan Documents,
and
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setting forth the person or persons authorized to
execute the Loan Documents on behalf of Borrower;
3.1.2.4 Certified copies of the Articles of
Incorporation and by-laws of each Guarantor and
all amendments thereto;
3.1.2.5 Certificate of "Good Standing" or
"Status" from the State of incorporation
addressing the corporate status of each Guarantor
and tax clearance from the California franchise
tax board for each Guarantor which is organized
under the laws of or does business in the State of
California;
3. 1.2.6 Corporate Resolution of each
Guarantor authorizing such Guarantor's guarantee
of the Loan, ratifying the terms of the Guaranty,
approving the Guaranty, and setting forth the
person or persons authorized to execute the
Guaranty on behalf of such corporation; and
3.1.2.7 Any other organization documents
and/or verifications of authority, consent and
existence as Lender may reasonably require.
3.1.3 GOVERNMENTAL APPROVALS. Borrower shall
deliver to Lender, and Lender shall be satisfied
with copies of any licenses or approvals for
construction of the Improvements and operation
(within or on the Real Property) of the Property
as an independent and assisted living facility, if
any; and any other applicable governmental
permits, approvals, consents, licenses and
certificates for the construction of the
Improvements of the Property or which may affect
the value of the Collateral.
3.1.4 TITLE INSURANCE COMMITMENT. Title Agent
shall issue or be committed to issue an extended
coverage lender's policy of title insurance (the
Title Policy ) underwritten by Title Company in an
amount not less than the amount of the Loan (with
a pending disbursements clause acceptable to
Lender) and insuring the lien of the Mortgage to
be a first priority lien on the Property, subject
only to the Permitted Encumbrances, and including
such endorsements and co-insurance as Lender
requires.
3.1.5 SURVEY. Borrower shall deliver to
Lender an ALTA/ACSM survey of the Property by a
licensed surveyor acceptable to Lender and the
Title Company dated not more than sixty (60) days
prior to the Loan Closing and certified in favor
of Borrower, Lender, and the Title Company. The
certification shall be in a form acceptable to
Lender and the Title Company.
3.1.6 APPRAISAL. Borrower shall deliver to
Lender a current MAI appraisal of the Property
prepared by Valuation Counselors, Inc. Upon
Completion and prior to commencement of the
Permanent Term, Borrower shall provide to Lender
an appraisal of the Property prepared by Valuation
Counselors, Inc., establishing that the completed
stabilized value of the Project is not less than
$7,500,000.
3.1.7 INSURANCE. Borrower shall provide
evidence that there
is in effect such hazardous, earthquake, flood,
business intervention, public
liability, builder's risk and other insurance as
is required by Lender, and written by insurers,
and in forms and amounts, satisfactory to Lender.
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3.1.8 LITIGATION. There shall be no material
judgments or pending litigation or, to the best of
Borrower's knowledge, threatened litigation of a
material nature outstanding against Borrower, the
Property or any Guarantor, including but not
limited to litigation or judgments which may
affect title or Lender's lien position with
respect to any of the Collateral or any litigation
or judgment which might materially, adversely
affect the ability of Borrower or any Guarantor to
perform its obligations under the Loan Documents.
3.1.9 TAXES. Borrower shall provide evidence
that all taxes and assessments levied against or
affecting the Collateral have been paid current;
or in the event Borrower has commenced a legal or
administrative challenge to any such tax or
assessment, evidence that such liability has been
bonded over, or that funds for the payment thereof
(in the amount of the original assessment) have
been escrowed with an independent third party with
provisions for the payment thereof satisfactory to
Lender.
3.1.10 HAZARDOUS WASTE. Borrower shall
provide to Lender, at Borrower's sole cost and
expense, a Phase I Environmental Site Assessment
of the Property (the "Site Assessment"). The
results of such Site Assessment must be
satisfactory to Lender in its sole and absolute
discretion. Lender has the right to require
Borrower to retain the services of an
environmental engineer acceptable to Lender to
perform such additional environmental
investigations as may be required by Lender in its
sole and absolute discretion. Such investigations
may include but are not limited to soil and ground
water testing to fully identify the scope of any
environmental issues impacting the Property. All
costs incurred in performing any additional
investigation shall be borne by Borrower. If any
environmental issues exist prior to the Loan
Closing, Lender reserves the right, in its sole
and absolute discretion, to terminate this
Agreement. However, if Lender determines, in its
sole discretion, that known environmental problems
with respect to the Property are capable of being
resolved at a reasonable cost, Lender may proceed
with the closing and funding of the Loan provided
that sufficient funds, as determined by Lender in
its sole discretion, are held back from the Loan
proceeds and deposited into an escrow account
which is established for the purpose of securing
all aspects of correcting the subject
environmental problems and is pledged to Lender.
Release of such escrowed funds will be controlled
exclusively by Lender.
3.1.11 ZONING. Borrower shall provide
evidence satisfactory to Lender that the Real
Property is properly zoned for its intended use as
a 100-unit independent and assisted living
facility and that any and all zoning stipulations
have been complied with.
3.1.12 ACCESS, PARKING AND COMMON AREAS.
Lender shall be satisfied that all easements and
other agreements providing for public access to,
adequate parking for, and the maintenance of any
and all common areas and party walls related to
the Property and its intended use as an
independent and assisted living facility are in
effect, fully enforceable, and fully assignable to
Lender as part of its collateral for the Loan.
3.1.13 UTILITIES. Borrower shall provide
evidence satisfactory to Lender that all
utilities, including without limitation, water,
gas and electricity, are available to the Real
Property (or will be upon Completion of the Work),
and that the suppliers of such utilities have the
capacity to serve the Real Property in amounts
necessary for its intended
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use as an independent and assisted living facility
and are committed to supply those utilities in
such amounts upon Completion of the Work.
3.1.14 ADDITIONAL CONSTRUCTION-RELATED
REQUIREMENTS. Borrower shall provide to Lender (at
least ten ( 10) days prior to the Loan Closing):
3.1.14.1 a payment bond which is issued by a
surety satisfactory to Lender and in a form
satisfactory to Lender and is for the construction
of the Improvements adequate to cause all persons
providing labor, materials, equipment or services
with respect thereto to look solely to such bond,
rather than the Property and other security for
the Loan, in the event of non-payment;
3. 1.14.2 a performance bond or bonds which
is/are issued by a surety satisfactory to Lender
and in a form satisfactory to Lender, covering
contracts for the Improvements and naming Lender
as co-obligee;
3.1.14.3 a soils test report with respect to
the suitability of the soils on the Real Property
for purposes of constructing the Work;
3.1.14.4 if required by Lender, a traffic
study with respect to the impact of existing and
anticipated traffic upon the Property ;
3.1.14.5 a flood and drainage study with
respect to the Real Property and the Improvements;
3.1.14.6 the Architect/Engineer Agreement and
consent to the assignment of that agreement to
Lender; such certificates as Lender may require
from the Architect/Engineer regarding the adequacy
of the Plans and Specifications (including,
without limitation, their compliance with the
Americans With Disabilities Act and all other
applicable laws and regulations) and the Budget
and such other matters as Lender may deem
pertinent;
3.1.14.7 the Plans and Specifications;
3.1.14. 8 the Budget;
3.1.14.9 a detailed draw schedule acceptable
to Lender, and the Work Progress Schedule;
3.1.14.10 The General Contract and any other
Construction Contracts, any other consents from
the General Contractor and any other Contractor to
the assignment of their contracts to Lender; and
such certificates and financial information as
Lender may request from the General Contractor and
any other direct contractors regarding their
financial viability, the adequacy of the Budget
and such other matters as Lender may deem
appropriate;
3.1.14.11 A construction completion schedule
to which Borrower shall agree to adhere; failure
of Borrower to comply with and adhere to such
construction schedule (subject to a Force Majeure
Event) shall constitute an Event of Default;
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3.1.14.12 A list of all contractors and major
subcontractors who will perform work, all whom
must be satisfactory to Lender;
3.1.14.13 Evidence that the General Contract
provides that (a) the General Contractor must
begin and complete construction by certain
specified dates in accordance with the Loan
Documents and (b) change orders will be permitted
only up to amounts of $10,000 for any single
occurrence and up to $100,000 in the aggregate;
3.1.14.14 Financial statements for the last
two (2) years and federal employer tax
identification numbers for the General Contractor,
any other direct contractors, and, if required by
Lender, the major subcontractors; and
3. 1. 1 4.15 Copies of all other direct
contracts with contractors and all major
subcontracts all of which shall be acceptable to
Lender.
3.1.14.16 A guaranteed maximum "Lump Sum"
price construction contract for the general
contractor in such form as shall be acceptable to
Lender, including without limitation, terms
regarding the timing of payments to the general
contractor, which contract shall provide that the
Work shall be fully completed for the guaranteed
maximum price (as approved by Lender)
notwithstanding (a) any future events, including
without limitation, cost overruns, whether
foreseeable or unforeseeable (except Force Majeure
Events) or (b) any defaults, disputes or
litigation between the general contractor and its
subcontractors or materialmen; and
3.1.14.17 Consents from the general
contractor and all other direct contractors to the
assignment of their contracts to Lender; and such
certificates as Lender may request from the
general contractor and any other direct
contractors regarding the adequacy of the budget
and such other matters as Lender may deem
appropriate.
3. 1.15 EQUITY INVESTMENT. Borrower shall
deliver evidence that Borrower has access to
$1,500,000 to be advanced by Emeritus Corporation
and TDC Convalescent, Inc., and that any amounts
already advanced by Emeritus Corporation and TDC
Convalescent, Inc., have been or will be spent for
items in the approved budget.
3.1.16 GENERAL INFORMATION. Borrower shall
provide Lender with legible copies of all Property-
related information which Lender may from time to
time request.
3.1.17 REVIEW AND APPROVAL OF RELATED
DOCUMENTATION. Borrower shall have provided to
Lender, and Lender shall have reviewed and
approved all documentation deemed material by
Lender to the present condition and proposed
operation or use of the Property.
3.1.18 EQUIPMENT LEASES. Lender shall have
reviewed and approved all leases and financing
agreements covering furniture, fixtures, equipment
and other personal property used on the Property
(the "Equipment Leases"). The obligations under
the Equipment Leases shall be considered
"indebtedness for borrowed money" and "debt", to
the extent such Equipment Leases would be
accounted for as "capitalized leases" in
accordance with GAAP, and the interest element of
the Borrower's obligations under Equipment Leases
which constitute capitalized leases, together with
all of
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Borrower's obligations under Equipment Leases
constituting true operating leases, shall be
considered an "expense" of Borrower for purposes
of this Loan Agreement. In addition, Borrower
shall provide to Lender written agreements from
each of the equipment lessors or financiers under
such Equipment Leases granting to Lender rights to
notice and cure under such Equipment Leases.
3.1.19 ESTABLISHMENT OF SPECIAL ACCOUNTS.
Borrower shall have established each of the
Special Accounts.
3.1.20 MATERIAL ADVERSE CHANGE. Lender shall
have the right to terminate this Agreement at any
time prior to the Loan Closing and to retain the
Application Fee and the Loan Fee in the event of
any material adverse change in the financial
condition of Borrower or of any Guarantor (as
compared to the financial condition as presented
in the financial information provided to Lender as
of the date of the commitment letter dated
November 21,1996, from Lender to Borrower). .
3.1.21 OPINION LETTERS. A favorable legal
opinion of counsel for Borrower and each
Guarantor, which counsel must be acceptable to
Lender, dated as of the Closing Date, covering the
due authorization, execution, delivery,
enforceability, validity and binding effect of the
Loan Documents to which the Borrower and each of
the Guarantors, respectively, is a party, and
(except with respect to the Guarantors and
Guaranties) of all liens and security interests
granted thereby, compliance with applicable usury
laws (provided, however, such opinion may assume
that Lender is the holder of a valid commercial
finance lender license issued by the State of
California and/or that the Loan was arranged by a
real estate broker licensed in the State of
California) and such other matters as Lender may
require. The Loan Documents provide that
California law applies to certain portions of the
Loan Documents and that Arizona law applies to all
other portions of the Loan Documents. The attorney
for Borrower and the Guarantors will not be
required to opine on the enforceability of the
choice of law provisions and will
be entitled to assume, with respect to the
portions of the Loan Documents covered by Arizona
Law, that Arizona law is identical to California
Law. In connection with such usury opinion,
counsel shall be required to opine that the Loan
is not usurious (without reliance on any usury
savings clause). Each such opinion of counsel
shall confirm, to the satisfaction of Lender, that
the opinion is being delivered to Lender at the
instruction of the party represented by such
counsel, that Lender is entitled to rely on such
opinion, that for purposes of such reliance Lender
is deemed to be in privity with the opining
counsel, and that such counsel shall not assert
and waive any position to the contrary.
3.1.22 TAX LIEN SEARCH. Lender will have
obtained a tax lien, litigation, judgment and UCC
searches conducted on Borrower and each Guarantor,
all of which shall be satisfactory to Lender.
3.1.23 CREDIT REFERENCES. Borrower shall
provide to Lender credit references for Borrower
and each Guarantor, which shall be satisfactory to
Lender.
3.1.24 START-UP FINANCIAL STATEMENTS.
Borrower shall provide to Lender copies of the
"start-up" financial statements of Borrower and
copies of the financial statements of each
Guarantor for the last two (2) fiscal year ends.
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3. 1.25 TERMINATIONS BY EXISTING LENDERS. On
or before the Loan Closing, Borrower shall deliver
to Lender evidence that all debt owing to third
parties and secured by the Property has been
repaid in full, and Borrower's existing lenders
shall have executed and delivered to the Title
Agent all UCC and mortgage terminations evidencing
the termination of their liens and security
interests, in a form satisfactory to Lender and
the Title Company.
3.1.26 MISCELLANEOUS. Borrower shall fulfill
any other conditions and provide such additional
information, security and documentation as may be
required by Lender and the results of all credit
inquiries, tax lien, litigation, judgment and UCC
searches on Borrower, Guarantors and the Property
shall have proven satisfactory to Lender.
3.1.27 ASSIGNMENT OF RIGHTS. To the extent
assignable, Lender shall receive from Borrower a
valid first priority assignment of (and to the
extent reasonably required by Lender, Borrower
will use reasonable efforts to obtain rights to
cure defaults under) any and all management
contracts, equipment leases and any other
contracts, agreements, licenses and permits as are
necessary or desirable for the operation, design,
construction and use of the Property as an
independent and assisted living facility (the
"Contracts and Licenses"). The form and content of
all Contracts and Licenses shall be fully
acceptable to Lender.
3.1.28 SITE INSPECTION. The Property shall
have been inspected and approved by
representatives of Lender. In connection with such
inspection, Borrower shall pay to Lender an
inspection fee equal to the costs associated with
the inspection.
3.2 ADDITIONAL CONDITIONS TO ADVANCES. In
addition to all other terms and conditions set
forth herein, Advances shall be subject to
satisfaction of all of the following conditions
and limitations:
3.2.1 FUNDING OF BORROWER EQUITY; APPROVAL OF
CONSTRUCTION BUDGET. No Advances shall be made
hereunder until Borrower has advanced $ 1,500,000
for amounts shown in an approved construction
budget. Prior to the Closing, Borrower shall
provide to Lender a complete construction budget,
showing all categories and expected fundings for
each month with respect to each category. Such
construction budget shall be acceptable to Lender
in Lender's sole determination.
3.2.2 FREQUENCY OF ADVANCES. Advances shall
be made no more frequently than monthly and each
such monthly disbursement shall be based upon
actual completed work in place rather than upon
percentage of completion.
3.2.3 ADVANCE LIMITATIONS. Lender shall have
no obligation to make an Advance (including,
without limitation, the Initial Advance) if the
undisbursed portion of the Loan Amount (or, in
reference to the Initial Advance, the full Loan
Amount) is less than the remaining Completion
Costs, as defined in paragraph 5.22, until
Borrower has deposited the Required Completion
Deposit Assurances.
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3.2.4 RETAINAGE. During the Construction
Term, Lender shall withhold from each Work-Related
Advance an amount equal to ten percent (10%) of
such costs ("Basic Retainage") or such greater
amount as is provided for in the General Contract
or any other Construction Contracts for the Work
("Additional Retainage"). The Basic Retainage
shall be released as provided in paragraph 3.2.8
below. The Additional Retainage shall be released
at the times specified in the applicable
Construction Contract(s).
3.2.5 ADVANCE REQUEST AFFIDAVIT. Each Work-
Related Advance shall be Conditioned upon Lender's
receipt and approval of all items
required to be delivered by Borrower pursuant to
Exhibit F hereof.
3.2.6 TITLE INSURANCE AND SURVEY; NO BREAK IN
PRIORITY. Advances shall be subject to the receipt
of the Title Policy, Title Policy endorsements,
trailing mechanics' and materialmen's lien waivers
on a thirty (30) day basis and any surveys
required pursuant to paragraphs 3.1.4, 3.1.5,
5.16.8 and 5.16.9. Borrower shall not commence any
work on the Property prior to recordation of the
Mortgage, if it would affect priority of the
Mortgage.
3.2.7 FINAL CONSTRUCTION ADVANCES. Subject to
the escrow provisions of paragraph 3.2.8 below,
the final Advance (including all Basic Retainage
and any unused contingency reserves) shall be made
directly to the Title Agent upon Completion,
provided that there does not then exist any Event
of Default or Incipient Default.
3.2.8 POST-COMPLETION ESCROW. Upon the
funding of the final Advance, Lender shall hold
back and retain the Basic Retainage and any unused
contingency reserves. The Basic Retainage and any
unused contingency reserves shall be funded by
Lender to, or at the direction of, Borrower upon
Borrower's written certification to Lender that
all "punch list items" have been resolved to
Borrower's satisfaction, accompanied by a
certificate from the Borrower's Architect/Engineer
and Lender's Consultant certifying to the same and
subject to Lender's approval of such items. At the
time of making each disbursement of the Basic
Retainage and any unused contingency reserves, the
Title Agent shall, as a condition to such
disbursement by Lender, be irrevocably committed
to issue to Lender a date-down endorsement to the
Title Policy meeting the substantive requirements
of paragraph 5.16.9 hereof; provided, however,
that actual issuance of a date-down endorsement
may be deferred by the Title Agent until its final
advance of such Basic Retainage and any unused
contingency reserves, whereupon a final date-down
endorsement (or reissued Title Policy, as the case
may be) shall be issued to Lender.
3.2.9 DISBURSEMENTS THROUGH TITLE COMPANY.
Lender will make the initial Advance and the final
Advance directly to the Title Agent. Other
Advances may, at Borrower's election, be made
directly to Borrower provided that all conditions
precedent to the making of an Advance have been
satisfied.
3.3 CONDITIONS TO ALL ADVANCES AFTER THE LOAN
CLOSING. All
Advances made after the Loan Closing shall be
subject to the fulfillment of each of
the following conditions precedent:
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3.3.1 NO DEFAULT; REAFFIRMATION OF
REPRESENTATIONS AND WARRANTIES. No Event of
Default or Incipient Default exists and all
representations and warranties shall be reaffirmed
as of the Advance date.
3.3.2 MATERIAL ADVERSE CHANGE. There shall
exist no material adverse change in the financial
condition of Borrower, the Property proforma, or
any Guarantor (as compared to the financial
condition as presented in the financial
information provided to Lender as of the date of
this Agreement).
3.3.3 OTHER. Lender shall have received,
reviewed and approved all other items required
under this Agreement that are conditional to the
making of an Advance.
3.3.4 ADVANCES AGAINST GOODS. Lender shall
have the right to approve or disapprove
disbursements for stored or ordered goods. Without
limiting the generality of such right, Lender may
condition its approval of disbursements of the
Loan for payments of or deposits upon stored or
ordered goods upon Lender's prior receipt of the
following:
3.3.4.1 Evidence satisfactory to Lender that
such goods are covered by the insurance policies
required to be delivered pursuant to paragraph
5.14 ;
3.3.4.2 Evidence satisfactory to Lender from
the vendor of such goods that, upon full payment
to the vendor, ownership of such goods will vest
in the name of Borrower free and clear of any
liens or claims of the vendor or any other third
party;
3.3.4.3 (i) Evidence satisfactory to Lender
that the goods are and upon disbursement shall be
stored upon the Property in a manner which is
adequate to protect the goods against theft and
damage and otherwise satisfactory to Lender; or
(ii) if the goods will not be stored upon the
Property at disbursement, evidence (including the
original warehouse receipt) satisfactory to Lender
that the goods are being fabricated or sold by a
reputable and creditworthy vendor, that the goods
are being or will be stored in a bonded warehouse
or storage yard unless the goods are still being
fabricated ant that the warehouse or storage yard
has been notified of Lender's security interest.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower hereby represents and warrants as
follows:
4.1 Borrower is a validly existing general
partnership duly organized and in good standing
under the laws of the State of Washington; is in
good standing and is authorized and has the
requisite power and authority to conduct business
in the State of California; and has the full legal
right and authority to make this Agreement and to
borrow hereunder.
4.2 The execution, delivery, and performance
by Borrower of the Loan Documents will not (a)
violate any provision of any law of the United
States of America, the State of California, the
State of Washington, any municipal department or
23
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governmental authority; or (b) result in the
breach of, or require any consent under, or result
in the creation of any lien, charge, or
encumbrance upon any property or assets of
Borrower pursuant to, any indenture or other
agreements or instruments to which Borrower is a
party or by which Borrower or its property may be
bound or affected, other than as specifically
provided herein.
4.3 The proceeds of the Loan will be used by
Borrower solely for the purposes specified in this
Agreement, and in all events for a valid business
purpose of Borrower.
4.4 All information set forth in Borrower's
loan application and in the financial statements
given by Borrower to Lender and all other
information given (or to be given) by Borrower to
Lender in connection with the Loan, including any
statement regarding Borrowers last credit
dealings, is true, correct, and complete in all
material respects. No material adverse change has
occurred as of the Loan Closing in any such
financial condition nor with respect to any other
information supplied by Borrower to Lender.
4.5 The Loan Documents are in all respects
legal, valid, and binding upon Borrower, according
to their terms (other than as such enforceability
may be subject to or limited by bankruptcy,
insolvency, reorganization, arrangement,
moratorium, similar laws relating or affecting
rights of creditors generally or general
principles of equity) and grant to Lender direct,
valid, and enforceable first liens upon, and
security interests in, the Collateral, and the
Loan Documents executed by the
Guarantors are in all respects legal, valid and
binding upon Guarantors according to
their terms.
4.6 No bill of sale, security agreement,
financing statement or other instrument affecting
title or creating security interests (except those
executed in favor of Lender) has been or will be
executed in connection with or with respect to any
of the Collateral, except for liens which have
been released on or before the Loan Closing, the
Permitted Encumbrances and Personal Property
financing or dispositions disclosed to and
approved in writing by Lender or permitted under
the Loan Documents.
4.7 The consummation of the Loan described in
this Agreement and the performance of the
obligations of Borrower under and by virtue of the
Loan Documents will not result in any breach of,
or constitute a default under, any mortgage, deed
of trust, loan or credit agreement, articles of
organization, regulations, or any breach of any
other agreement or instrument to which Borrower is
a party or by which Borrower may be bound or
affected.
4.8 There are no judgments, and no actions,
suits, or proceedings pending, or to Borrower's
knowledge threatened, against or affecting
Borrower or the Collateral, or involving the
validity or enforceability of any of the Loan
Documents or the priority of the lien thereof, at
law or in equity, or before or by any governmental
authority, and Borrower is not in default with
respect to any writ, injunction, decree, or demand
of any court or any governmental authority.
4.9 Borrower has received no written notice
of and, to Borrower's knowledge, there is not any
violation of any law, municipal ordinance, or
order, or of any requirement of the State of
California or any other state, municipal
department or other
governmental authority, which violations in any
way relate to or affect Borrower or the Property.
24
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4.10 The title to the Collateral and
Borrower's interest therein as of the Loan Closing
is free and clear of all liens, encumbrances, and
security interests except only the Permitted
Encumbrances.
4.11 The Loan Documents and all other
instruments executed and delivered to Lender in
connection with this Loan were executed and
delivered in accordance with the requirements of
law.
4.12 Borrower is and shall continue to be the
lawful owner of the Collateral; no third party,
including without limitation any Affiliate of
Borrower has any interest in the Collateral (or
any part thereof or in Borrower's interest in the
Collateral except as described in Exhibit "B"; and
Borrower agrees to protect,
preserve, and defend Lender's interest in the
Collateral and the title thereto.
4.13 All utility services (including water,
storm and sanitary sewer, gas, electric and
telephone facilities and garbage removal)
necessary for the Completion of the Work and the
intended use of the Property as an independent and
assisted living facility are available to the Real
Property (or will be upon Completion); the
suppliers of such utilities have the capacity to
serve the Property and are committed to supply
such utilities in such amounts as are required
upon Completion; and all fees and deposits due to
the suppliers of such utilities have been paid
current or amounts adequate for such purposes have
been reserved in the Budget.
4.14 All Leases, contracts and agreements
relating to the Property, or utilized in
connection therewith, or constituting any portion
of the Collateral, are in full force, and true and
correct copies of all such Leases, contracts and
agreements have previously been furnished to
Lender.
4.15 No services, work, equipment or
materials of any kind that may give rise to any
mechanics or similar statutory lien, including,
without limitation, site work, clearing, grubbing,
draining or fencing of the Real Property has been
performed or commenced on the Real Property or
otherwise provided in connection with the Work,
except to the extent that such services, work,
equipment, materials have been fully disclosed in
writing to Lender and Title Company and the Title
Policy insures the priority of the Mortgage over
all mechanics and similar liens.
4.16 Each of the representations and
warranties made by Borrower in the Loan Documents
shall be considered and determined to have been
made by Borrower at the time of its execution of
this Agreement and to have been made again at the
time of each Advance and shall survive funding of
the Loan, and shall survive the Loan Closing.
4.17 The relationship of Borrower and Lender
is that of debtor and creditor, and it is not the
intention of either of such parties by this or any
other instrument being executed in connection with
the Loan to establish a partnership, and the
parties hereto shall not under any circumstances
be construed to be partners or joint venturers.
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4.18 Borrower has dealt with no mortgage
broker, finder or placement agent with regard to
the Loan. Borrower shall indemnify and hold Lender
harmless from any and all claims for fees or
compensation claimed to be due in connection with
the Loan as a result of the acts of Borrower.
4.19 The Real Property has legal access to
publicly dedicated streets.
ARTICLE 5
COVENANTS OF BORROWER
Borrower hereby covenants and agrees as
follows (with the understanding that unless
specifically provided to the contrary herein, a
breach of any of the following covenants shall
constitute an Event of Default upon expiration of
any cure period provided in Article 6):
5.1 NO ADDITIONAL LIENS. Subject to its right
to contest such lien in accordance with the
Mortgage, and except for the Permitted
Encumbrances, Borrower shall not allow any liens,
encumbrances or other interests to affect the
Collateral or any part thereof or Lender's first
priority lien therein without the prior written
consent of Lender, which may be withheld in
Lender's sole and absolute discretion.
5.2 NO ADDITIONAL DEBT. During the term of
the Loan, Borrower shall not, without Lender's
prior written consent, which may be withheld in
Lender's sole and absolute discretion, incur any
additional Debt with respect to, or in connection
with its ownership and operation of the Property
(including without limitation any contingent or
guarantor liability), except for short term
accounts payable incurred in connection with the
ordinary course of Borrower's construction and
operation of the Property.
5.3 RESTRICTIONS ON TRANSFER. Except for (a)
the lease of space in accordance with the approval
requirements of paragraph 5.18 (including the
lease of space to residents occupying the Project
pursuant to the Lender-approved form of residency
agreement), and (b) the disposal of Personal
Property when such property is replaced with
property of equal or greater value subject to
Lender's first priority lien, without repayment of
the Loan in full (including any applicable
prepayment premium), Borrower shall not (i) sell,
transfer, lease, encumber or otherwise dispose of
the Collateral or any part thereof or interest
therein or (ii) permit a sale, transfer, lease,
encumbrance or other disposition of any
partnership interest in Borrower which would
result in the Guarantors failing to own more than
fifty percent (50%) of the partnership interests
in Borrower or failing to maintain the control of
Borrower
,without the prior written consent of Lender,
which consent may be withheld by Lender in its
sole and absolute discretion.
5.4 REQUIRED FINANCIAL INFORMATION. Borrower
shall timely tender, or cause to be tendered, the
Required Financial Information as described in
Article 1 hereof.
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5.5 LIMITATION ON MANAGEMENT AND DEVELOPMENT
FEES.
5.5.1 LIMITATION ON MANAGEMENT CONTRACT.
Borrower shall not pay to any Affiliate of
Borrower or of any Guarantor, any fees for the
operation and management of the Project or any
fees for consulting services rendered in
connection therewith, until the thirteenth full
calendar month after the commencement of the
Permanent Term. Borrower may pay to the Management
Fee Account (defined in paragraph 5.6 below) any
fees for the operation and management of the
Project which would otherwise have been paid to
any Affiliate of Borrower prior to the date
thirteen full calendar months after the
commencement of the Permanent Term. Thereafter,
Borrower shall pay only such fees for the
operation and management of the Project (and
consulting services rendered in connection
therewith) which do not exceed those provided for
in any management or consulting agreement as
approved by Lender and in any event shall not
exceed seven percent (7%) of the Gross Revenues of
the Project. Borrower shall not enter into any
contract to manage the Project or any substantial
portion thereof or to render consulting services
to Borrower in connection therewith without
Lender's prior written consent. Any consent to
such management contract may be conditioned upon
(a) the agreement of the manager thereunder that
all fees to be paid to it are subordinated to the
payment of any sums owing to Lender under the Note
and any other sums then due and payable by
Borrower to Lender under any other instrument
securing the payment of the Note and cannot be
paid or collected during the occurrence and
continuance of an Event of Default, (b) Borrower
collaterally assigning its rights under such
contract to Lender as additional collateral for
the Note, and (c) the consent of the manager to
such collateral assignment. The form of such
collateral assignment and consent of manager shall
be subject to the approval of counsel for Lender.
Borrower agrees to pay all of Lenders costs and
expenses incurred in connection with reviewing the
foregoing described matters.
5.5.2 LIMITATION ON CONSTRUCTION TERM FEES.
During the Construction Term, Borrower shall not
pay to any Affiliate of Borrower or of any
Guarantor, any contractor's fee, construction
management fee, development fee or any other
similar fee, compensation or payment
(collectively, the "Construction and Development
Fees"), except that Borrower shall be permitted to
pay Construction and Development Fees in the
aggregate of One Hundred Twelve Thousand Dollars
($112,000) to Guarantors, the general partners of
Borrower, from their equity contribution to the
Project, in consideration of the time and effort
spent by such Persons prior to the Closing with
respect to the development of the Project, and
Borrower shall further be permitted to pay to
Guarantors, as part of their equity contribution,
up to the
aggregate amount of an additional Thirty-seven
Thousand Five Hundred
Dollars ($37,500) during the construction phase
for the Project, such amount to be paid and
disbursed on a monthly basis. Any Construction and
Development Fees in excess of the foregoing
amounts may be paid by Borrower to any Affiliate
of Borrower or of any Guarantor only with the
approval of Lender upon the achievement of
Completion and the commencement of the Permanent
Term of the Loan. Lender shall have the right to
approve all agreements between Borrower and any
Affiliate of Borrower or of any Guarantor
regarding the Construction and Development Fees.
5.6 SPECIAL ACCOUNTS. Borrower shall maintain
two (2) segregated interest bearing accounts
(collectively, the "Special Accounts") with a
federally insured bank
approved by Lender, as provided herein. Such bank,
Borrower and Lender shall enter
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into an account agreement acceptable to Lender,
which includes the bank's waiver of any
right of set off and grants to. Lender the
exclusive right to withdraw all funds in the
Special Accounts upon an Event of Default under
the Loan Documents. Borrower shall deliver to
Lender within thirty (30) days after the end of
each calendar quarter, an accounting of all
deposits and withdrawals of each of the Special
Accounts. The Special Accounts shall consist of
the Operating Cash Flow Account, and the
Management Fee Account as follows:
5.6.1 Prior to the commencement of the
Permanent Term, Borrower shall deposit all of
Borrower's Cash Flow into an account (the
"Operating Cash Flow Account"). Borrower shall
have no right to make withdrawals from the
Operating Cash Flow Account prior to the Permanent
Term. So long as there is no Event of Default or
Incipient Default of which Lender has notified
Borrower under the Loan Documents, on the first
day of the Permanent Term (or, if such funds may
not be withdrawn due to the existence of an
Incipient Default which is thereafter cured, then
on the date such Incipient Default is cured),
Borrower may withdraw all amounts previously
deposited in the Operating Cash Flow Account.
5.6.2 As more fully set forth in paragraph
5.5.1, prior to the thirteenth (13th) full
calendar month after the commencement of the
Permanent Term, Borrower shall deposit within an
account (the "Management Fee Account") any fees
for the operation and management of the Project
and fees for consulting services rendered in
connection therewith. So long as there is no Event
of Default or Incipient Default of which Lender
notified Borrower under the Loan Documents, on the
first day of the Permanent Term (or if such funds
may not be withdrawn due to the existence of an
Incipient Default which is thereafter cured, then
on the date such Incipient Default is cured)
Borrower
may withdraw all amounts previously deposited in
the Management Fee
Account.
5.7 INSPECTIONS. Lender and Lender's
Consultant or Lender's designee shall have the
right to inspect the Property at any time prior to
Completion, and Borrower hereby agrees to
reimburse Lender upon request and presentation of
written invoices, for any and all travel expenses
and other costs incurred by Lender in performing
inspections of the Work prior to Completion;
provided, however, Lender may, at its election,
advance such expenses and costs directly to itself
under the Loan. Borrower agrees that Lender
retains the right to inspect the Property after
Completion once each calendar year when no Event
of Default exists and as often as Lender may deem
appropriate when an Event of Default exists; and,
Borrower hereby agrees to reimburse Lender upon
request and presentation of written invoices, for
any and all travel expenses and other costs
incurred by Lender in performing such annual
inspections.
5.8 ANNUAL RECERTIFICATION REGARDING
ENVIRONMENTAL MATTERS. Borrower shall, on each
anniversary of the Loan Closing, throughout the
term of the Loan, provide to Lender a written
statement signed by a general partner of Borrower
certifying that all representations and warranties
set forth in the Environmental Certificate with
Representations, Covenants and Warranties executed
by Borrower on the Loan Closing remain, as of such
anniversary date, true, correct and complete in
all material respects, together with a detailed
explanation of any exceptions to such
certification.
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5.9 DEBT SERVICE RATIOS.
5.9.1 DEBT SERVICE COVERAGE RATIO. Commencing
with the first full calendar quarter after
Stabilization, Borrower shall maintain with
respect to the Property a Debt Service Coverage
Ratio of not less than 1.25 : I. The foregoing
ratio shall be tested quarterly, on a trailing
twelve (12) month basis.
5.9.2 DEBT SERVICE AFTER MANAGEMENT FEE
COVERAGE RATIO. Commencing with the first full
calendar quarter after Stabilization, Borrower
shall maintain with respect to the Property a Debt
Service After Management Fee Coverage Ratio of not
less than 1.15 :1. The foregoing ratio shall be
tested quarterly, on a trailing twelve (12) month
basis.
5.10 LIMITATIONS ON DISTRIBUTIONS. Capital
distributions, loans to, and/or repayment of loans
from any Affiliates (including without limitation
any loans to Borrower by partners of Borrower in
lieu of capital contributions to Borrower)
(collectively "Distributions") shall be made by
Borrower during the term of the Loan
only on the following terms and conditions:
5.10.1 No Distributions shall be made prior
to the Permanent Term;
5.10.2 During the Permanent Term,
Distributions may be made only once each calendar
quarter from Excess Cash Flow after all Required
Financial Information for the immediately
preceding calendar quarter has been delivered to
and approved by Lender; Lender shall deliver
notice of approval or disapproval to Borrower
within thirty (30) days of Lender's receipt of the
Required Financial Information for such quarter;
5. 10.3 There exists no Event of Default or
Incipient Default of which Lender has notified
Borrower under the Loan Documents;
5.10.4 Without limiting the generality of
subparagraph 5.10.3 above, the most current
financial information provided by Borrower to
Lender demonstrates that the Property is in
compliance with the Debt Service Coverage Ratio
and Debt Service After Management Fee Coverage
Ratio requirements set forth in paragraph 5.9
above; and
5.10.5 Without limiting the generality of
subparagraph 5.10.3 above, Borrower has not
incurred any additional Debt except as permitted
by the Loan Documents, without Lender's prior
written consent.
Any Distribution not taken in one quarter may
be carried over to a future quarter and taken out
at that time, so long as Borrower is entitled to a
Distribution at that time under the requirements
set forth in this paragraph.
5.11 EQUIPMENT LEASES. Borrower shall not
enter into any Equipment Leases unless (i) the
amount of all such Equipment Leases then
outstanding, after giving effect to the Equipment
Lease proposed to be entered into, will not exceed
$250,000, and (ii) Borrower has first offered to
permit Lender to enter into any such Equipment
Lease on the same terms and conditions offered by
a third party lender, and Lender has refused such
offer.
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5.12 GUARANTIES. Borrower shall cause
Guarantors to execute the Guaranties and shall
deliver them to Lender at the Loan Closing. The
Guaranties shall constitute an unconditional
guarantee of the Obligations of Borrower to
Lender. Provided there is no Event of Default or
Incipient Default of which Borrower has received
notice from Lender at such time, on the fifth
anniversary of the Loan Closing Lender will
consider a reduction in the amount of the
guaranteed indebtedness
covered by the Guaranties, such reduction, if any,
to be in such amounts and upon such terms as
Lender, in its sole and absolute discretion, may
determine.
5.13 LAWS. Borrower will comply with all
applicable laws and regulations, including,
without limitation, all environmental laws and
regulations applicable to the Property.
5.14 INSURANCE. Borrower will maintain all
insurance policies required by Lender, upon forms
required by Lender, and written by insurers and in
amounts satisfactory to Lender; and will deliver
such policies or copies thereof to Lender.
5.15 MAINTENANCE OF LICENSES ETC. Borrower
shall maintain in force at all times, and apply in
a timely manner for renewal of, all licenses,
patents, approvals, permits, franchises,
trademarks, tradenames and other agreements
necessary to cause Completion of the Work to occur
and to operate the Property, the loss of which
would have a material adverse effect upon Borrower
or upon the operation of the Property or the
ability of Borrower to perform its obligations
under the Loan Documents, and shall give Lender at
least thirty (30) days prior written notice of the
proposed amendment of any of such licenses,
patents, permits, franchises, trademarks,
tradenames and other agreements.
5.16 CONSTRUCTION-RELATED COVENANTS. Borrower
shall:
5.16.1 commence construction of the Property
promptly after the Loan Closing and in any event
no later than thirty (30) days after the Loan
Closing. Borrower shall cause Completion of the
Work to occur in substantial compliance with the
Work Progress Schedule, subject to Force Majeure
Events (not to exceed sixty (60) days in the
aggregate), all in accordance with the Plans and
Specifications, Construction Contract(s),
applicable laws, regulations and private
restrictions, the Loan Documents, sound
construction, engineering and architectural
principles and commonly accepted safety standards
and free from defective materials and workmanship;
subject to Force Majeure Events not to exceed
sixty (60) days in the aggregate, cause Completion
to occur on the Required Completion Date. The Work
Progress Schedule shall require commencement of
the Work to occur in thirty (30) days following
Loan Closing;
5.16.2 pay when due all costs, expenses and
claims pertaining to the Work; and deliver to
Lender during the course of the Work in order to
monitor and/or provide assurance that the Work is
proceeding lien free in accordance with the
requirements of this Agreement: bills of sale,
conveyances and paid invoices pertaining to the
Work; all waivers and releases of lien or claims
on the Rea1 Property and/or the Improvements on
account of the Work Lender may deem necessary or
may request for its protection; and
from persons acceptable to Lender, additional
engineering or architectural studies and reports
as Lender or Lender's Consultant may require;
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5.16.3 record all notices of
commencement/completion and similar notices
permitted by applicable laws and regulations which
have the effect of shortening periods within which
mechanics and similar liens may be filed;
5.16.4 not enter into any Architect/Engineer
Agreement or Construction Contract with respect to
the Work except upon terms and with such parties
as Lender may reasonably approve in writing (which
approval or rejection shall occur within five (5)
Business Days after Lender's receipt of a request
for such approval);
5.16.5 deliver to Lender true and complete
copies of all Principal Work-Related Items and all
other Contracts, Intangibles, Licenses and
Permits;
5.16.6 not amend any of the Principal Work-
Related Items without Lender's consent, except for
change orders which (a) do not change the cost of
Completion of the Work by more than Ten Thousand
and No/100 Dollars ($10,000.00) individually or
One Hundred Thousand and No/100 Dollars
($100,000.00) in the aggregate beyond that shown
in the Budget as originally approved by Lender,
and (b) do not materially affect the design,
structural integrity or quality of the
Improvernents. Borrower shall deliver to Lender,
immediately upon execution thereof, all change
orders with respect to the Work including those
within the scope of clauses (a) and (b) above;
5.16.7 perform all its obligations and
preserve its rights under the Principal Work-
Related Items in force and secure the performance
of the other parties to the Principal Work-Related
Items and all other Contracts, Intangibles,
Licenses and Permits;
5.16.8 deliver to Lender promptly after the
completion of the foundation and, if required by
Lender, after the pouring of a street, curbstone
or concrete slab on the Real Property, a survey
prepared in accordance with the requirements of
paragraph 3.1.5 showing such Improvements, their
location within Property lines and a lack of
encroachments, and deliver to Lender promptly upon
the Completion, a survey which is certified to
Lender, and the Title Company showing the "as-
built" Improvements and otherwise satisfying the
requirements of paragraph 3.1. 5 ;
5.16.9 deliver to Lender prior to or
concurrently with each Work-Related Advance, a
date down endorsement in a form acceptable to
Lender issued by the Title Company insuring that
the Mortgage at the time of each Work-Related
Advance, constitutes a valid first lien upon the
Real Property or title, subject only to the
Permitted Encumbrances; upon construction of the
foundation for any building comprising part of the
Improvements deliver to Lender an endorsement
("foundation endorsement") insuring that the
foundations, as constructed, are located within
all set-back and boundary lines of the Real
Property and do not encroach upon any easements,
rights of way (public or private) or upon any
other adjoining landowner s property; and upon the
final advance by Title Agent of the Basic
Retainage described in paragraph 3.2.8 hereof,
Borrower shall deliver, or cause Title Agent to
deliver, to Lender a date down endorsement or a re-
issued title policy ("Re-Issued Title Policy")
meeting the substantive requirements set forth
above.
5.16.10 after obtaining knowledge or
receiving notice thereof, correct or cause to be
corrected (a) any material defect in the Work, (b)
any material departure in the completion of the
Work from the Plans and Specifications and the
Construction
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Contract(s) unless expressly permitted in this
Agreement or consented to in writing by Lender,
(c) any failure of the Work to comply with
applicable laws, regulations or restrictions of
record, sound construction, engineering or
architectural principles or commonly accepted
safety standards or (d) any encroachment of any
part of the Improvements on any set-back or
boundary line, easement, or other restricted area;
5.16.11 promptly deliver to Lender any and
all notices received by Borrower that it is not
complying with applicable laws, regulations and
private restrictions pertaining to the Work or
that the Work is not being completed in accordance
with the Plans and Specifications, the
Construction Contract(s), sound construction,
engineering and architectural principles and
commonly accepted safety standards;
5.16.12 notify Lender in writing if and when
the unpaid costs of Completion of the Work exceeds
or appears likely to exceed the undisbursed
portion of the Loan and any undisbursed Required
Completion Assurance Deposit(s) held by Lender;
5.16.13 cause all materials supplied for or
intended to be
utilized in the Completion of the Work, but
previously not affixed to or incorporated into the
improvements, to be stored on the Real Property
with adequate safeguards, to prevent loss, theft,
damage or commingling with other materials; and
5.16.14 promptly after receipt by Borrower,
deliver to Lender copies of all building permits
and certificates of acceptance and/or occupancy
relating to the Work.
5.17 SUBORDINATION OF DEBT TO AFFILIATES.
Borrower shall obtain and deliver to Lender
Subordination Agreements (collectively, the
"Subordination Agreements") in form and substance
satisfactory to Lender, from Guarantors, and from
the Project general contractor, architect and
engineer, Affiliates of Borrower or of Guarantor
(collectively, the "Subordinating Parties")
subordinating any and all obligations now or
hereafter owing to such Subordinating Party by
Borrower (including, without limitation, all
management fees, salaries and loan repayments) to
Borrower's obligations to Lender under the Loan
Documents; subordinating the lien of any deed of
trust or other security instrument in any of
Borrower's assets to liens created by Lender's
Mortgage and other Loan Documents; and evidencing
such Subordinating Party's agreement to not
exercise any remedies against Borrower with
respect to such loans so long as the Loan is
outstanding. Bona fide indebtedness owed by
Borrower to an Affiliate in the way of salary and
other compensation paid on an arm's-length basis
to bona fide employees of Borrower shall not be
subject to a Subordination Agreement.
5.18 LEASES. Prior to the commencement of the
Permanent Term, Borrower shall obtain from all
tenants and subtenants under any leases or
subleases (except for residents occupying the
Project pursuant to the Lender approved form of
residency agreement) which will be in effect upon
the commencement of the Permanent Term, and
deliver to Lender, estoppel certificates executed
and effective as of a date not earlier than thirty
(30) days prior to the commencement of the
Permanent Term, and (where required) subordination
agreements, embodying such subordination,
attornment and other provisions as Lender deems
necessary. The form and content of all leases,
subleases, tenancies, licenses and any other
agreements with tenants or subtenants of the
Project shall be acceptable to Lender; however
Lender may elect to approve Borrower's standard
form of residency agreement in advance in which
event Borrower shall be authorized to
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enter into residency agreements on such standard
form without, in each instance, Lender's consent.
All leases, subleases, tenancies, licenses and
other agreement shall contain provisions, in form
and content acceptable to Lender, subordinating
such leases, in lien and priority to all payments
due Lender under the Loan Documents.
5.19 SIGNAGE. Throughout the Construction
Term, Borrower shall maintain prominent
informational signage acceptable to Lender,
stating that financing was provided by Lender and
including the telephone numbers of Lender's New
York, Chicago, and Scottsdale, Arizona offices.
5.20 FURTHER ASSURANCES. Borrower will
execute or cause to be executed all documents and
do or cause to be done all acts reasonably deemed
necessary or appropriate by Lender to perfect and
to continue the perfection of the first priority
security interests of Lender in the security for
the performance of the obligations or otherwise to
effect the intent and purposes of the Loan
Documents.
5.21 MEDICARE/MEDICAID REPORTS. Borrower
shall submit to Lender all certificates of
necessity, licenses, inspection reports for
licensure, and, if applicable, Medicaid and
Medicare purposes, for the Project, within thirty
(30) days of issuance.
5.22 REQUIRED COMPLETION ASSURANCE DEPOSITS.
If at any time the remaining Project costs which
must be incurred before Completion can occur
("Completion Costs") are more than the committed
and undisbursed portion of the Loan and, in any
event within ten (10) days after Lender's demand
that it do so, Borrower shall deliver to Lender
cash deposits equal to the shortfall ("the
Required Completion Deposit Assurances"). In the
event of any dispute, the necessity for an amount
of any Completion Deposit shall be determined by
Lender in its discretion based upon the approved
Budget and the advice of Lender's Consultant. The
required Completion Deposit may be deposited in a
non-interest bearing account and need not be
segregated from any of Lender's other funds.
Lender shall disburse the Required Assurance
Completion Deposits to pay and/or reimburse
Borrower for the cost of the Work prior to any
further disbursement of Loan proceeds for such
purposes, but subject to the terms and conditions
of the Loan Documents. Borrower shall promptly
notify Lender in writing if and when the
Completion Costs appear likely to exceed the
committed and undisbursed portion of the Loan and
any undisbursed Required Completion Assurance
Deposits held by Lender.
5.23 ARCHITECTURAL AND ENGINEERING REPORTS.
Borrower shall pay when due the cost of all
architectural, engineering, structural and
mechanical studies, reports and inspections with
respect to the design and construction of the
Project.
5.24 OTHER COVENANTS. Borrower shall timely
perform and strictly comply with all other
covenants set forth in the Loan Documents.
ARTICLE 6
EVENTS OF DEFAIJLT
For all purposes under this Agreement, any of
the following shall be deemed to constitute an
Event of Default hereunder and under the Loan
Documents:
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6.1 A failure to pay when and as the same
shall become due and payable, whether by maturity
or otherwise, any interest, principal or other
amounts required to be paid hereunder or on the
Note or under any of the Loan Documents, which
default continues for a period of five (5) days
after Lender delivers written notice of such
failure to Borrower; provided, however, Lender
shall only be obligated to deliver two (2) such
notices within any twelve (12) month period and if
Lender has delivered two written notices of prior
failures to Borrower, Lender shall not be
obligated to deliver any additional written
notices of subsequent failures within the twelve
(12) month period after the two (2) written
notices of the prior failures and an Event of
Default shall be deemed to occur automatically
upon the subsequent failure to pay any such sum
when due and payable within said twelve (12) month
period without any notice to Borrower;
6.2 Any failure on the part of Borrower to
strictly comply with and perform any term,
provision, covenant, or condition contained in the
Loan Documents not covered by paragraph 6.1 above,
or the default on any other indebtedness or
obligation of Borrower to Lender, or the failure
of any warranty or representation of Borrower to
be true (provided, however, that any such failure
shall not constitute an Event of Default if
performance of any non-monetary obligation or
covenant not specifically addressed in paragraph
6.3 through 6.23 below is commenced immediately
and completed within thirty (30) days after
written notice demanding performance thereof;
provided, however, that if such performance is of
a nature that it cannot be completed solely by the
payment of money to a third party, and cannot
otherwise be accomplished within such thirty (30)
day period, then so long as Borrower has commenced
and is diligently pursuing such performance, it
shall have such additional time as is necessary
(but in no event more than an additional sixty
(60) days to complete such performance); '
6.3 The voluntary or involuntary commencement
of bankruptcy or insolvency proceedings or the
filing for an arrangement or composition of
creditors against Borrower or upon the filing of
any suit or legal action materially adversely
affecting the Collateral or adversely affecting
Borrower's ability to perform its obligations
under the Loan Documents unless such proceeding is
involuntary and is dismissed within sixty (60)
days of commencement or filing;
6.4 Immediately upon any final action, rule,
law, or decision of any
legislative or administrative body or of any court
which would materially impair or
adversely affect the lien or enforceability of
this Agreement or any one or more of the Loan
Documents;
6.5 Immediately upon the commencement of any
action or proceeding to establish, assert,
perfect, foreclose, or enforce any claim,
restriction, encumbrance, deficiency tax
assessment, or tax lien, on or with respect to the
Collateral, whether or not superior or inferior to
the lien of the Loan Documents unless such matter
is fully insured by the Title Company, unless
Borrower within thirty (30) days from the
commencement of such action causes the same to be
dismissed, or unless Borrower shall within such
thirty (30) day period record and serve a surety
bond pursuant to California law or otherwise fully
protect Lender from any loss or liability arising
therefrom;
6.6 Immediately upon the assignment by
Borrower, without Lender's prior written consent,
of any of the Loan Documents or any rights of
Borrower thereunder;
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6.7 Immediately upon the material damage or
destruction of the Collateral by any casualty not
covered by insurance required pursuant to
paragraph 5.14 hereof or rendering impossible, in
Lender's reasonable judgment, the Completion of
the Work in accordance with the Budget, or upon
Completion, the continued operation of the
Property as an independent and assisted living
facility;
6.8 Immediately upon the Borrower's
abandonment of all or any part of the Collateral
or the cessation, upon Completion, of operation of
the Property as an independent and assisted living
facility;
6.9 Immediately upon the insolvency of
Borrower or the execution by Borrower of an
assignment for the benefit of its creditors; or
the convening by Borrower of a meeting of its
creditors, or any class thereof, for purposes of
effecting a moratorium upon or extension or
composition of its debts;
6.10 Immediately upon the admission in
writing by Borrower that it is unable to pay its
debts as they mature or that it is generally not
paying its debts as they mature;
6.11 Immediately upon the existence or the
filing of any lien or encumbrance against any and
all of the Collateral, other than those permitted
hereunder, unless Borrower shall immediately
record and serve a surety bond pursuant to
applicable law or otherwise fully protect Lender
from any loss or liability arising therefrom;
6.12 Immediately upon the occurrence or any
default under, or breach or any provision or,
covenants, conditions and restrictions or
easements now or hereafter recorded against the
Real Property or any part thereof. which default
materially affects the value, use or operation of
the Property;
6.13 Immediately upon Borrower's failure to
(i) pay any taxes due on the Collateral prior to
such taxes being delinquent, or (ii) maintain
insurance on the Collateral of the types and in
the amounts required under this Agreement;
6.14 Any of the events enumerated in
paragraphs 6.3 6 9 and/or 6.10 occurs with respect
to any Guarantor;
6.15 An order or decree has been entered by
any court of competent jurisdiction enjoining the
intended use of the Property as an independent and
assisted living facility and judgment is not
vacated within ninety (90) days after Borrower has
obtained knowledge or notice thereof;
6.16 Unless otherwise covered in this Article
6, upon fifteen ( 15 ) days following written
notice, upon a default in the performance of the
obligations of Borrower set forth in paragraphs
5.1 through 5.11;
6.17 Immediately upon (a) Failure to cause
Completion to occur on or before the Required
Completion Date, or (b) at any time prior to
Completion of the Work, (i) Borrower abandons the
Work or (ii) Borrower delays construction of the
Improvements for any period of time, for any
reason whatsoever not covered by item (i) above
which in the reasonable judgment of Lender will
prevent Completion of the Work in the ordinary
course of construction on or before the Required
Completion Date subject to Force
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Majeure Events not to exceed sixty (60) days in
the aggregate; or
6.18 Immediately, if whether voluntarily,
involuntarily, by operation of law or otherwise,
Borrower sells, leases (other than leases approved
by Lender), exchanges, assigns, transfers, conveys
or otherwise disposes of the Property or any
interest therein, including the Leases, rents or
income thereof, or enters into a written agreement
to do so, or grants or permits to exist any other
mortgage, deed of trust or other lien, charge or
encumbrance against the Property, whether superior
or inferior to this Deed of Trust unless Borrower
immediately records and serves a surety bond
pursuant to applicable law or otherwise fully
protects Lender from any loss or liability arising
therefrom; or
6.19 Immediately, if Borrower is in default
under the terms of any document evidencing or
securing payment of a Debt secured by any lien or
security
interest on the Property (without implying
Lender's consent to the existence, placing,
creating or permitting of any lien or security
interest); or
6.20 Immediately upon the dissolution of
Borrower or any of the Guarantors; or
6.21 Immediately if without the prior written
consent of Lender, (A) any of the Guarantors cease
to be a general partner of Borrower, (B) the
Guarantors cease to control Borrower, or (C) the
Guarantors cease to own at least fifty percent
(50%) of the beneficial ownership interest and
partnership interest in Borrower. As used herein
the term "control" as used with respect to
Borrower shall mean the possession of the power to
direct the management and policies of Borrower.
ARTICLE 7
LENDER'S REMEDIES
7. 1 Upon the occurrence of any Event of
Default hereunder, Lender may at its option either
simultaneously or in any order whatsoever, take
the following actions:
7.1.1 Decline and refuse and be relieved of
any obligation to make any Advance hereunder or
under the Note.
7.1.2 Declare to be immediately due and
payable, with interest, all funds advanced by or
owed to Lender under the Note and any of the other
Loan Documents.
7.1.3 Foreclose its lien and/or exercise its
right to cause the Collateral to be sold under the
Mortgage and exercise any other rights and
remedies given to Lender in all other Loan
Documents.
7.1.4 Take such other action as Lender may
deem necessary to protect its interest.
7.1.5 File suit against Borrower for any sums
owing and/or for damages.
7.1.6 Enter into possession of the Property
in accordance with and for the purposes set forth
in the Mortgage (all funds disbursed by Lender in
exercising such rights shall be deemed to have
been disbursed to Borrower, shal1 become
additional obligations under the Loan Documents
and shall be secured by the Loan Documents).
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<PAGE>
7.1.7 Exercise any and all remedies of a
secured party under the Uniform Commercial Code
with respect to the Collateral;
7.1. 8 Take such other actions or remedies as
may be available to Lender under the Loan
Documents and/or at law or in equity.
7.1.9 Take one or more of the following
actions in connection with the construction of the
Improvements: (a) use any funds of Borrower,
including the Required Completion Assurance
Deposit(s) (if any) and any sums which may remain
unadvanced hereunder, to continue and/or cause
Completion of the Work; (b) demand and receive
performances due under the Principal Work-Related
Items and the other Contracts, Intangibles,
Permits and Licenses; (c) make such changes to the
scope of the Work and to the Principal Work-
Related Items and other Contracts, Intangibles,
Permits and Licenses as Lender may deem necessary
or desirable in its sole and absolute judgment;
(d) file claims, institute enforcement actions and
otherwise prosecute and defend all actions or
proceedings relating to the Work, the Principal
Work-Related Items and the other Contracts,
Intangibles, Permits and Licenses as Lender may
deem necessary or desirable in its sole and
absolute judgment; (e) pay, settle or compromise
all existing bills and claims which are or may be
liens against the Property or any Contracts,
Intangibles, Permits and Licenses, or may be
necessary or desirable for the continuance or
Completion of the Work related thereto or the
clearance of title, all without notice to
Borrower; (f) execute in Borrower's name all
applications, certificates, notices and other
instruments and give all instructions and
communications which may be required or permitted
by the Principal Work Related Principal Items,
other Contracts, Intangibles, Permits and
Licenses, as determined by Lender in its sole and
absolute judgment; (g) do any and every act with
respect to the Completion of the Work, the
Principal Work-Related Items and the other
Contracts, Intangibles, Permits and Licenses which
Borrower may do in its behalf; (h) employ such
contractors, subcontractors, suppliers, agents,
attorneys, architects, accountants, appraisers,
security guards and inspectors as Lender may in
its sole and absolute judgment deem necessary or
desirable to accomplish any of the above purposes;
and (i) receive, collect, open and read all mail
of Borrower for the sole purpose of obtaining all
items pertaining to the Work, the Principal Work-
Related Items and the other Contracts,
Intangibles, Permits and Licenses.
7.1.10 Charge and collect interest on the
outstanding principal
balance of the Loan at a Default Rate equal to the
lesser of (i) the Maximum Rate, or (ii) the Basic
Rate plus 500 basis points (the "Default Rate").
7.2 If Borrower shall fail to comply with or
fully perform any of its obligations under the
Loan Documents, regardless of whether an Event of
Default shall then exist, Lender may (but shall
not be obligated to), without further demand upon
Borrower and without waiving or releasing Borrower
from any such obligation or remedying any Event of
Default or Incipient Default pay or perform any of
such obligations. Lender shall give Borrower at
least ten (10) Business Days' notice before making
any payment required to be made by Borrower,
except that if such payment is required, as
determined by Lender in its sole discretion, to be
made immediately to protect the Collateral, no
prior notice of payment to Borrower shall be
required. Unless an Event of Default exists and
the Note is then due in full (whether by
acceleration or otherwise), Lender shall notify
Borrower within a reasonable period of time after
it takes any action without notice pursuant to the
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<PAGE>
preceding sentence, but failure to do so shall not
excuse Borrower from its obligation to
reimburse Lender in accordance with the terms of
the following sentence or otherwise prevent the
exercise by Lender of its rights and remedies on
account of any default by Borrower. Borrower shall
immediately pay to Lender upon demand all expenses
incurred by Lender in taking any action permitted
by this paragraph, together with interest from the
date of expenditure by Lender at the rate at which
interest is then accruing under the Note or, at
the option of Lender, if not paid within five (5)
Business Days after demand, at the Default Rate
from and after such fifth (5th) Business Day. All
such sums, together with interest as aforesaid,
shall become additional indebtedness secured by
the Collateral. No such payment by Lender shall be
deemed to relieve Borrower from any default or
Event of Default under any of the Loan Documents.
7.3 For the purpose set forth under paragraph
7.1.6 7.1.9 and 7.2, Borrower hereby irrevocably
appoints Lender as Borrower's true and lawful
attorney-in-fact with full power of substitution
(and such power of attorney shall be deemed to be
a power coupled with an interest that cannot be
revoked for any reason) from and after the
occurrence of an Event of Default, to operate the
Property and to take such action and require such
performance as it deems necessary. Without
limiting the generality of the powers granted to
Lender, Borrower hereby specifically empowers
Lender, as such attorney-in-fact:
7.3.1 To take all actions reasonably
necessary in connection therewith for the purpose
of operating the Property;
7.3.2 To employ such management companies as
shall be convenient to operate the Property; and
7.3.3 To pay, settle, or compromise all
existing or future bills and claims which are or
may be liens against the Property or may be
reasonably necessary or desirable for the
operation of the Property.
ARTICLE 8
LEGAL FEES AND COSTS
8.1 Except as otherwise expressly provided
herein, Borrower shall pay all actual closing and
pre-closing costs for the Loan and all expenses of
Lender with respect thereto, including, without
limitation, all of Lender's outside attorneys'
fees, Lenders Consultant fees and costs (Borrower
hereby acknowledging that the fees and costs of
Lender's Consultant as described in that certain
Letter Agreement between Borrower and Lender's
Consultant dated __________ are reasonable),
travel expenses, escrow fees, recording fees,
title search and title insurance fees, UCC lien,
litigation and tax lien searches, mortgage taxes
and appraisal and survey fees and all other legal
fees incurred by Lender in conjunction with the
Loan, including all fees incurred subsequent to
the closing of the Loan in connection with the
disbursement, administration (including, without
limitation, Lender's Consultant fees), collection
(regardless of whether litigation is commenced),
or satisfaction of the Loan, advances, recording
expenses, survey, taxes, expenses of collection or
foreclosure (including attorneys fees) and similar
items. Lender may, at its option, withhold funds
from the Advances for application against Lender's
expenses and Borrower shall pay any excess within
ten (10) days after its receipt of a written
request therefor.
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8.2 In addition to any rights Borrower and
Lender may have under applicable law, Borrower
shall pay Lender's attorneys' fees and costs
(including expert witness fees) incurred in the
collection of any indebtedness hereunder, or in
enforcing this Agreement, whether or not suit is
brought, including any reasonable attorneys' fees
and costs (including expert witness fees) incurred
by Lender in any proceeding under the Federal
Bankruptcy Code in order to collect any
indebtedness hereunder or to preserve, protect or
realize upon any security for such indebtedness.
ARTICLE 9
LENDER'S CONSULTANT
9.1 Lender may retain an architectural,
engineering or consulting firm or firms acceptable
to Lender ("Lender's Consultant") to review the
Plans and Specifications, the Construction
Contract(s) and the Budget; perform an analysis of
the anticipated cost of the Work; make periodic
inspections of the Property and Work so that
Lender may monitor whether Borrower is in
compliance with the terms and conditions of this
Agreement with respect to completion of the Work;
certify that each
Work-Related Advance Request is not in excess of
the Work completed and the
amount to which Borrower is entitled under the
terms and conditions of this
Agreement; and provide evidence satisfactory to
Lender prior to the funding of any
Work-Related Advance that (subject to completion
thereof as part of the Work as contemplated by
this Agreement), all necessary streets, easements
and utilities are available to the boundary of the
Real Property and that the respective lines and
treatment or generator plants are of adequate
capacity and size for the intended use of the
Property. Furthermore, Lender may require an
inspection of the Work by Lender's Consultant (a)
prior to each Work-Related Advance; (b) monthly or
more frequently if deemed necessary by Lender
during the course of construction of the Work; (c)
upon Completion of the Work; and (d) at such other
time as Lender may deem necessary due to actual or
suspected non-compliance with the Plans and
Specifications, Construction Contract(s), the Loan
Documents, any law, regulation or private
restriction, sound architectural, engineering or
construction principles or commonly accepted
safety standards or Borrower's failure to satisfy
the requirements of the Loan Documents.
9.2 Lender shall have no duty to supervise or
to review and inspect the Plans and
Specifications, the Construction Contract(s), any
budget proposed to be the Budget, the construction
of the Work, or any books and records pertaining
thereto. Any inspection made by Lender shall be
for the sole purpose of determining whether
Borrower's obligations under the Loan Documents
are being performed and preserving Lender s rights
under these documents. If Lender, or Lender's
Consultant acting on behalf of Lender, should
review or inspect the Plans and Specifications,
the Construction Contract(s), the Budget, the
construction of the Work or any books and records
pertaining thereto, Lender and Lender's Consultant
shall have no liability or obligation to Borrower
or any third person arising out of such
inspection; and neither Borrower nor any third
person shall be entitled to rely upon any such
inspection or review. Inspection not followed by
notice of default shall not constitute (a) a
waiver of any default then existing; (b) an
acknowledgment or representation by Lender or
Lenders Consultant that there has been or will be
compliance with the Plans and Specifications, the
Construction Contract(s), the Budget, the Loan
Documents, applicable laws, regulations and
private restrictions, sound construction,
engineering or architectural principles or
commonly accepted safety standards, or that the
construction is free from defective materials or
39
<PAGE>
workmanship or (c) a waiver of Lender's right to
insist that Completion of the Work occur in
accordance with the Plans and Specifications,
Construction Contract(s), the Budget, Loan
Documents, applicable laws, regulations and
restrictions of record, sound construction,
engineering or architectural principles or
commonly safety standards and free from defective
materials and workmanship. Lender and Lender's
Consultant owe no duty of care to Borrower or any
third person to protect against, or inform
Borrower or any third person of, the existence of
negligence, faulty, inadequate or defective design
or construction of the Work.
ARTICLE 10
MISCELLANEOCJS
10.1 Any waiver of any of the terms of this
Agreement by Lender shall not be construed as a
waiver of any other terms of this Agreement, and
no waiver shall be effective unless made in
writing. The failure of Lender to exercise any
right with respect to the declaration of any
default shall not be deemed or construed to
constitute a waiver of, or to preclude Lender from
exercising, any right with respect to such default
at a later date or with respect to any subsequent
default by Borrower.
10.2 Borrower shall execute and deliver any
and all documents which may reasonably be
requested by Lender in order to effectuate the
purposes of this Agreement.
10.3 This Agreement is made solely between
Borrower and Lender. No other person shall have
any right of action hereunder. The parties
expressly agree that no person shall be a third-
party beneficiary to this Agreement.
10.4 Borrower shall indemnify, defend and
hold Lender harmless from and against all claims,
costs, expenses, actions, suits, proceedings,
losses, damages, and liabilities of any kind
whatsoever, including but not limited to,
attorneys' fees and expenses (including, without
limitation, expert witness fees), arising out of
any matter relating to the Loan or to the
ownership, development, construction, sale, rental
or financing of the Property and whether resulting
from internal disputes of Borrower, disputes
between Borrower and any Affiliate of Borrower or
whether involving other third persons or entities,
or out of any other matter whatsoever related to
this Agreement, any of the Loan Documents or any
property encumbered thereby; excluding, however,
claims, costs, expenses, actions, suits,
proceedings, losses, damages and liabilities of
any kind whatsoever which result from Lender's
gross negligence or willful misconduct. This
indemnity provision shall continue in full force
and effect and shall survive not only the making
of the Loan and all Advances thereof but shall
also survive the repayment of the Loan and the
performance of all of Borrower's other obligations
under this Agreement.
10.5 This Agreement shall inure to the
benefit of, and be binding upon, the parties
hereto, their respective executors,
administrators, heirs, successors, and assigns
(including without limitation any other lender
participating with Lender in the Loan), provided,
however, that neither this Agreement nor any
rights or obligations hereunder shall be
assignable by Borrower without the prior express
written consent of Lender, and any purported
assignment made in contravention
here0f shall be void. No standard of
reasonableness shall attach to Lender's discretion
in consenting or not consenting to any assignment.
40
<PAGE>
10.6 The Recitals and all of the exhibits
attached hereto are an integral part hereof and
are fully incorporated herein by this reference.
10.7 Time is of the essence of each and every
provision of this Agreement and the other Loan
Documents.
10.8 This Agreement embodies the entire
agreement of the parties in relation to the
subject matter hereof, and supersedes all terms,
conditions and provisions embodied in the
commitment letter between Lender and Borrower
dated November 21, 1996, and any and all other
previous writings between Borrower and Lender.
There are no representations, promises,
warranties, understandings or agreements,
expressed or implied, oral or otherwise, in
relation thereto, except those expressly referred
to or set forth herein. Borrower acknowledges that
the execution and delivery of this Agreement is
its free and voluntary act and deed, and that said
execution and delivery have not been induced by,
nor done in reliance upon, any representations,
promises, warranties, understandings, or
agreements made by Lender, its agents, officers,
employees, or representatives, other than those
expressly set forth herein. No promise,
representation, warranty or agreement made
subsequent to the execution and delivery hereof by
either party hereto, and no revocation, partial or
otherwise, or change, amendment, addition,
alteration or modification of this Agreement shall
be valid unless the same be in writing signed by
all the parties hereto.
10.9 Unless otherwise specifically stipulated
elsewhere in this Agreement, all approvals,
consents and other matters requiring acceptance or
satisfaction on Lender's part contained in the
Loan Documents shall be deemed exercisable by
Lender in its sole and absolute discretion.
However, whenever the Loan Documents contain the
terms "reasonably satisfactory to Lender",
"reasonably determined by Lender", "reasonably
acceptable to Lender", "reasonable consent of
Lender", "Lender shall reasonably elect", "Lender
shall reasonably request" or similar terms wherein
the word reasonable or a derivative thereof is
used with regard to an action of Lender, such
terms shall mean satisfactory to, at the election
of, determined by, acceptable to or requested by,
as applicable, Lender in its sole (but reasonably
exercised) discretion. It is the intention of the
parties to permit Lender a broad latitude in which
to exercise its discretion, within the range of
reasonableness, acknowledging that, while such
discretion may not be exercised arbitrarily or
capriciously, it may be exercised conservatively
for Lender's protection and benefit. By way of
illustration, and not of limitation, it shall not
be unreasonable for Lender, in exercising its
discretion, to make conservative assumptions
regarding the possible outcome of future events.
10.10 NOTICES. Any notice required or
permitted to be given hereunder shall be in
writing and shall be (i) personally delivered to
the party being notified if an individual or to an
officer, general partner or member if a
corporation, partnership or limited liability
company, (ii) transmitted by postage prepaid,
certified or registered mail (return receipt
requested), or (iii) transmitted by a nationally
recognized overnight courier service such as
Federal Express, to such party at its address set
forth below or such other address as the party
being notified may have otherwise designated in a
notice given as provided in this paragraph- Such
notice shall be deemed to have been given and be
effective, unless actual receipt is expressly
specified herein, upon the date of receipt or the
date delivery is first attempted and refused if
transmitted by registered or certified mail, or by
overnight courier service, whichever shall occur
first.
41
<PAGE>
If to Borrower: TDC/Emeritus Paso
Robles Associates
8219 Santa Juanita Avenue
Orangeville, California 95662
With Copy to: Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
TDC Convalescent, Inc.
3017 Douglas Boulevard, Suite
300
Roseville, California 85661
Randi Nathanson, Esq.
The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, Washington 9810 I
Bill Jones, Esq.
Argue Pearson Harbison &
Myers, CLP
801 South Flower Street
Los Angeles, California 90017-
4699
If to Lender: FINOVA Capital
Corporation
3200 Park Center Drive, Fifth
Floor
Costa Mesa, California 92626
with copy to: FINOVA Capital
Corporation
7272 East Indian School Road,
Suite 410
Scottsdale, Arizona 85251
Attn.: Vice President - Group
Counsel
I0.11 THIS LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE DEEMED TO HAVE BEEN, DELIVERED
AND ACCEPTED IN, AND THIS LOAN AGREEMENT, AND THE
OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS
AND DECISIONS OF, THE STATE OF ARIZONA (WITHOUT
REGARD FOR ITS CONFLICTS OF LAW PRINCIPLES), THE
STATE IN WHICH LENDER'S PRINCIPAL PLACE OF
BUSINESS IS LOCATED, AND BY EXECUTION HEREOF
BORROWER AND BY ACCEPTANCE HEREOF, LENDER, EACH
AGREES THAT SUCH LAWS AND DECISIONS OF THE STATE
OF ARIZONA SHALL GOVERN THIS LOAN AGREEMENT AND
THE OTHER LOAN DOCUMENTS, NOTWITHSTANDING THE FACT
THAT THERE MAY BE OTHER JURISDICTIONS WHICH MAY
BEAR A REASONABLE RELATIONSHIP TO THE TRANSACTIONS
CONTEMPLATED HEREBY; PROVIDED, HOWEVER, THAT WITH
RESPECT TO THE PROCEDURAL AND SUBSTANTIVE MATTERS
RELATING ONLY TO THE CREATION, VALIDITY,
PERFECTION AND ENFORCEMENT BY LENDER OF ITS RIGHTS
AND REMEDIES AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL LOCATED IN ANY STATE OTHER THAN
ARIZONA, SUCH MATTERS SHALL BE GOVERNED BY THE
LAWS OF THE STATE IN WHICH SUCH PROPERTY IS
LOCATED.
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<PAGE>
10. 12 BORROWER HEREBY AGREES THAT ALL
ACTIONS OR PROCEEDINGS INITIATED BY BORROWER AND
ARISING DIRECTLY OR INDIRECTLY OUT OF THIS LOAN
AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE
LITIGATED IN THE SUPERIOR COURT OF ARIZONA,
MARICOPA COUNTY DIVISION, OR THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF ARIZONA OR, IF
LENDER INITIATES SUCH ACTION, IN ADDITION TO THE
FOREGOING COURTS ANY COURT IN WHICH LENDER SHALL
INITIATE SUCH ACTION, TO THE EXTENT SUCH COURT HAS
JURISDICTION. BORROWER HEREBY EXPRESSLY SUBMITS
AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN
ANY OF SUCH COURTS AND HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER
PROCESS OR PAPERS ISSUED THEREIN, AND AGREES THAT
SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER
PROCESS OR PAPERS MAY BE MADE BY ACTUAL DELIVERY
OR REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, ADDRESSED TO THE BORROWER AT THE
ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT
TO THE MORTGAGE. BORROWER WAIVES ANY CLAIM THAT
PHOENIX, ARIZONA OR THE DISTRICT OF ARIZONA IS AN
INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON
LACK OF VENUE. SHOULD BORROWER, AFTER BEING SO
SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS,
COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE
NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING
THEREOF, BORROWER SHALL BE DEEMED IN DEFAULT AND
AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY LENDER
AGAINST BORROWER AS DEMANDED OR PRAYED FOR IN SUCH
SUMMONS, COMPLAINT, PROCESS OR PAPERS; PROVIDED,
HOWEVER, LENDER MAY NOT SEEK SUCH A DEFAULT
JUDGMENT FOR AT LEAST THIRTY (30) DAYS AFTER THE
DATE OF PROOF OF SERVICE. THE EXCLUSIVE CHOICE OF
FORUM FOR BORROWER SET FORTH HEREIN SHALL NOT BE
DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF
ANY ACTION TO ENFORCE THE SAME IN ANY OTHER
APPROPRIATE JURISDICTION, AND BORROWER HEREBY
WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY SUCH
JUDGMENT OR ACTION.
10.13 FOR AND IN CONSIDERATION OF LENDER'S
ADVANCEMENT OF THE PRINCIPAL SUMS HEREUNDER IN THE
AMOUNT OF UP TO SIX MILLION AND NO/100 DOLLARS
($6,000,000.00), BORROWER, BEING AN EXPERIENCED
OWNER AND OPERATOR OF REAL ESTATE AND PARTICIPANT
IN SOPHISTICATED REAL ESTATE VENTURES, AND HAVING
CONSULTED WITH COUNSEL OF ITS CHOOSING, HEREBY
WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO
ANY ACTION OR PROCEEDING ( 1 ) BROUGHT BY
BORROWER, LENDER OR ANY OTHER PERSONS RELATING TO
(A) THIS LOAN AGREEMENT, OR (B) THE OTHER LOAN
DOCUMENTS OR (2) TO WHICH LENDER IS A PARTY.
BORROWER HEREBY AGREES THAT THIS LOAN AGREEMENT
CONSTITUTES A WRITTEN CONSENT TO WAIVER OF TRIAL
BY JURY, AND BORROWER DOES HEREBY CONSTITUTE AND
APPOINT LENDER ITS TRUE AND LAWFUL ATTORNEY IN
FACT, WHICH APPOINTMENT IS COUPLED WITH AN
INTEREST AND IRREVOCABLE, AND BORROWER DOES HEREBY
AUTHORIZE AND EMPOWER LENDER, IN THE NAME, PLACE,
AND STEAD OF BORROWER, TO FILE THIS LOAN AGREEMENT
WITH THE CLERK OR JUDGE OF ANY COURT OF COMPETENT
43
<PAGE>
JURISDICTION AS A WRITTEN CONSENT TO WAIVER OF
TRIAL BY JURY. BORROWER ACKNOWLEDGES THAT ITS
WAIVER OF TRIAL BY JURY HAS BEEN MADE KNOWINGLY,
INTENTIONALLY AND WILLINGLY BY BORROWER AS A PART
OF A BARGAINED FOR LOAN TRANSACTION.
IN WITNESS WHEREOF, the parties hereto have
duly executed this Agreement as of the day and
year first above written.
BORROWER:
TDC/EMERITUS PASO ROBLES
ASSOCIATES, a Washington general
partnership
By: Emeritus Corporation,
a Washington corporation,
Its General Partner
By: /s/ Raymond R. Brandstrom
----------------------------------
----------
Name: Raymond R. Brandstrom
Title: President
By: TDC Convalescent, Inc.
a California corporation,
Its General Partner
By: /s/ Thomas D. Clark
----------------------------------
----------
Name: Thomas D. Clark
Title: President
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: /s/ Anne M. McNeil
---------------------------------
-----------
Name: Anne M. McNeil
Title: Assistant Vice President
44
<PAGE>
PROMISSORY NOTE
$6,000,000.00
February 28, l 997
For value received, the undersigned,
TDC/Emeritus Paso Robles Associates. a Washington
general partnership, hereinafter referred to as
"Borrower," promises to pay to the order of FINOVA
Capital Corporation, hereinafter referred to as
"Lender" at its offices at 3200 Park Center Drive.
Fifth Floor, Costa Mesa, California 92626, in
lawful money of the United States of America, the
principal sum of SIX MILLION AND NO/100 DOLLARS
($6,000,000.00) or so much thereof as may be
advanced and outstanding hereunder pursuant to
that certain Loan Agreement of even date herewith
between Borrower and Lender (the "Loan
Agreement"), with interest on the principal
balance from time to time remaining unpaid at the
rate and upon the terms provided in this Note,
without deduction or setoff whatsoever.
INTEREST RATE. The principle balance of this
Note (as same may be increased as set forth
herein) shall accrue interest as of Lender's
wiring of funds through Lender's receipt of
repayment of this Note in full at the lesser of
(i) the Maximum Rate or (ii) a floating rate per
annum equal to seventy-five (75) basis points
above the Base Rate as defined herein ("Basic
Rate"); which shall be initially determined using
the Base Rate in effect on the first Business Day
of the month in which the Loan Closing occurs, and
thereafter shall automatically change on each
Interest Rate Change Date, As used herein, "Base
Rate" shall mean; (a) the Citibank prime rate; or
(b) such per annum rate which has been selected by
Lender as the Base Rate pursuant to the terms of
the following sentences. If the Base Rate then
being utilized ceases to be published, then Lender
shall choose as the Base Rate a reference rate
which Lender deems comparable in its sole and
absolute discretion. As used above, the Citibank
prime rate shall mean the rate per annum publicly
announced from time to time by Citibank, N.A., New
York, New York (together with any successor,
"Citibank"), as its base rate or equivalent rate
of interest charged by Citibank to its largest and
most creditworthy commercial borrowers,
notwithstanding the fact that some borrowers of
Citibank may borrow from Citibank at rates less
than such announced prime rate.
At any time during the first one-year period
following the Permanent Term Commencement Date,
Borrower shall have the one time right upon seven
(7) days' prior written notice to Lender to
convert the floating Basic Rate to a fixed rate
for the remaining term of the Loan (the
"Conversion Option") at a rate equal to the sum of
the Treasury Constant Maturity Rate as published
by the Federal Reserve Bank for Treasury Notes
having a maturity closest to the remaining term of
the Note plus three hundred (300) basis points,
provided that no Event of Default or Incipient
Default of which Lender has notified Borrower has
occurred and that 8orrower has paid to Lender a
conversion fee equal to one-quarter of one percent
(0.25%) of the then outstanding principal balance
of this Note us of the date of Borrower's notice
of Borrower's exercise of the Conversion Option.
In the event that Borrower does not exercise the
Conversion Option and convert the floating Basic
Race to a fixed Basic Rate during the first year
after commencement of the Permanent Term, Borrower
shall be conclusively deemed to have elected co
retain the variable Basic Rate set forth in the
preceding paragraph for the
Initial term of the Loan until the Maturity Date.
Notwithstanding the foregoing to the contrary, in
the event Borrower is unable to exercise the
Conversion Option on the date one year after the
commencement of the Permanent Term because at such
time there
1
<PAGE>
exists an Incipient Default of which Gender has
notified Borrower, and such Incipient Default is
subsequently cured by Borrower, then Borrower may
exercise the Conversion Option at any time within
thirty (30) days after the date the Incipient
Default is cured.
Basic Interest shall begin to accrue on each
Advance as of the date disbursed by Lender by
check or wire transfer to the Title Agent or
Borrower, and such Advance shall be added to the
outstanding principal balance of the Loan on such
date. An Advance shall be deemed to have been
disbursed by Lender to Borrower and deemed to be
part of the outstanding principal balance of the
Loan if disbursed to a third party on Borrower's
behalf or disbursed to the Title Agent to hold for
disbursement to Borrower subject to the
fulfillment of certain conditions to which
Borrower has agreed. Interest shall accrue on
Advances only to the extent of the outstanding
principal balance of the Note. Interest shall be
calculated on the basis of actual number of days
elapsed during the period for which interest is
being charged predicated on the year consisting of
360 days.
DEFINITIONS. As used in this Note, all
capitalized terns not defined h2tein shall have
the meaning given such terns in the Loan
Agreement.
PAYMENT TERMS.
(a) INITIAL PAYMENT. On the date of this
Note, Borrower shall pay to Lender interest at the
Basic Rate from the date of this Note through and
including the last calendar day of the month in
which this Note is dated.
(b) CONSTRUCTION INTEREST PAYMENTS.
Commencing on the first day of the second calendar
month to[lowing the Loan Closing and on the first
day of each calendar month thereafter during the
Construction Term, Borrower shall remit monthly
payments consisting of accrued Basic Interest (ac
the Basic Rate) on the outstanding principal
balance of the Loan (in arrears).
(c) PERMANENT TERM INTEREST PAYMENTS.
Commencing on the first day of the first full
calendar month after the Permanent Term
Commencement Date, and on the first day of each
calendar month thereafter, Borrower shall remit
monthly payments consisting of accrued Basic
Interest (at the Basic Rate) on the outstanding
principal balance of the Loan (in arrears).
(d) PERMANENT TERM PRINCIAPL AND INTEREST
PAYMENTS. Commencing on the Principal Commencement
Date through Lender's receipt of repayment of the
Loan in full, Borrower shall remit monthly
payments consisting of the amounts specified in
subparagraph (c) preceding plus principal in an
amount which would be amortized monthly if the
outstanding principal balance of the Loan Amount
on the Principal Commencement Date was being fully
amortized in consecutive level monthly
installments of principal and interest calculated
over 240 months assuming a fixed interest rate for
purposes of calculating such amortization equal to
the Basic Rate in effect on the Principal
Commencement Date.
(e) PAYMENT OF REMAINING AMOUNTS. The
remaining principal balance of this Note together
with all accrued but unpaid Basic Interest and all
other amounts payable hereunder shall be due and
payable in full upon the Due Date.
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<PAGE>
(f) APPLICATION OF PAYMENTS. All payments
received by Lender in respect to this Note shall
be applied first to any late charges and other
fees and expenses due under the Loan Documents,
then to any accrued and unpaid interest, and then
to outstanding principal.
PREPAYMENT. Borrower shall have the right at
any time upon giving Lender(i) thirty (30) days
advance written notice thereof (which notice shall
be irrevocable) if Borrower has exercised the
Conversion Option, or (ii) ninety (90) days
advance written notice thereof (which notice shall
be irrevocable) if Borrower has not exercised the
Conversion Option, to prepay all, but not a
portion of, the amount of principal and interest
due on this Note provided that (A) on the date of
such prepayment Borrower shall also pay to the
order of Lender on the date of prepayment a fee
equal to the ;Prepayment Fee set forth below; (B)
No Event of Default then exists and (C) Borrower
pays, in addition to the full principal amount of
this Note, all accrued but unpaid interest at the
applicable interest rate and all fees and other
charges then outstanding. The Prepayment Fee shall
be equal to the appropriate amount set forth
below:
(a)Borrower shall pay to Lender a prepayment
premium equal to six percent (6%) of the amount
prepaid if such prepayment occurs during the first
Loan Year; an amount equal to five percent (5%) of
the amount prepaid if such prepayment occurs
during the second Loan Year; an amount equal to
four percent (4%) if such prepayment occurs during
the third Loan Year; an amount equal to three
percent (3%) if such prepayment occurs during the
fourth Loan Year; and an amount equal to $50,000
if the prepayment occurs after the fourth Loan
Year.
(b) In addition to the amount set forth in
subparagraph (a) above, if Borrower has exercised
the Conversion Option, if there is a decline
between the yield to maturity (expressed as a
percentage) on the date the Basic Rate was fixed
pursuant to the Conversion Option on United States
Treasury Notes with a maturity closest to and
prior to the scheduled Maturity Date of this Note
(the "Existing Treasury Note Rate") and the yield
on United States Treasury Notes with a maturity
closest to and prior to the scheduled Maturity
Date as reported in THE WALL STREET JOURNAL or
similar publication reasonably acceptable to
Lender on the Fifth business day preceding the
prepayment date (the "Future Treasury Note Rate"),
an amount equal to the product of (i) the
difference between the Existing Treasury Note Rate
and the Future Treasury Note Rate (expressed as a
percentage) multiplied by (ii) the outstanding
balance of this Note inclusive of all accrued and
unpaid interest as of the date of prepayment and
further multiplied by (iii) the number of whole
and fractional years remaining until the scheduled
Maturity Date.
Upon the occurrence of an Event of Default
under any of the Loan Documents at any time during
the term of the Loan which results in Lender's
acceleration of all amounts due under the Note,
Borrower shall pay, in addition to all other
amounts to which Lender is entitled upon such an
acceleration, the prepayment Fee described above,
and such Prepayment Fee shall be fully due and
payable upon such acceleration unless the Event of
Default is cured and Lender reinstates the Loan.
The foregoing Prepayment Fee represents the
reasonable estimate of Lender and Borrower of a
fair average compensation for the loss that may be
sustained by Lender due to the payment of any of
3
<PAGE>
the indebtedness evidenced by this Note prior to
the due date thereof stated herein. Such
Prepayment Fee shall be paid without prejudice to
the right of Lender to collect any other amounts
provided to be paid hereunder.
In the event Borrower makes any partial
prepayment(s) of principal not permitted
hereunder, such prepayment(s) shall be deemed a
payment(s) of principal as of the scheduled
Maturity Date, and interest shall continue to
accrue on the full Loan amount as if such
prepayment(s) has not been made until the
scheduled Maturity Date.
BORROWER AND LENDER HAVE CHOSEN TO HAVE THE
LAWS OF THE STATE OF ARIZONA APPLY TO THIS NOTE AS
SET FORTH HEREIN; HOWEVER, IN THE EVENT THE LAWS
OF THE STATE OF CALIFORNIA ARE HELD BY ANY COURT
WITH JURISDICTION TO APPLY TO THIS TRANSACTION,
THEN THE PROVlSlONS OF THIS PARAGRAPH SHALL APPLY,
BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY
HAVE UNDER CALIFORNlA CIVlL CODE 2954.10 OR
OTHERWISE TO PREPAY THIS NOTE, IN WHOLE OR IN
PART, WITHOUT PREPAYMENT CHARGE, UPON ACCELERATION
OF THE MATURITY DATE OF THIS NOTE, AND AGREES
THAT, EXCEPT AS OTHERWISE PROVIDED IN THIS NOTE,
IF, FOR ANY REASON, A PREPAYMENT OF ANY OR ALL OF
THIS NOTE IS MADE, WHETHER VOLUNTARILY OR UPON OR
FOLLOWING ANY ACCELERATION OF THE MATURITY DATE OF
THIS NOTE BY THE LENDER ON ACCOUNT OF THE
OCCURRENCE OF ANY EVENT OF DEFAULT ARISING FOR ANY
REASON, INCLUDING, WITHOUT LIMITATION, ON ACCOUNT
OF ANY PROHIHITED OR RESTRICTED TRANSFER OR
DISPOSITION OF THE MORTGAGED PROPERTY (AS DEFINED
IN THE MORTGAGE), THEN BORROWER SHALL BE OBLIGATED
TO PAY, CONCURRENTLY THEREWITH, AS A PREPAYMENT
FEE, THE APPLICABLE SUMS SPECIFIED ABOVE BY
INITIALING THIS PROVISION IN THE SPACE PROVIDED
BELOW, BORROWER HEREBY DECLARES THAT THE LENDER'S
AGREEMENT TO MAKE THE LOAN AT THE INTEREST RATES
AND FOR THE TERM SET FORTH IN THIS NOTE
CONSTITUTES ADEQUATE CONSIDERATION, GIVEN
INDIVIDUAL WEIGHT BY BORROWER, FOR THIS WAIVER AND
AGREEMENT.
PAST DUE INTEREST. All past due principal
and interest shall bear interest commencing on the
due date thereof until paid at the Default Rate.
WAIVER.
(a) Except as specifically set forth in the
Mortgage, Borrower and any and all co-makers,
endorsers, guarantors and sureties severally (i)
waive notice, notice of intent to accelerate,
notice of acceleration, demand, grace, presentment
for payment, and protest, (ii) agree this Note and
the liens securing its payment may be extended and
re-extended from time to time without notice to
them or any of them, (iii) agree that their
liability on or with respect to this Note shall
not be affected by any release or change in any
security at any time existing or by any failure to
perfect or maintain perfection of any security
interest in such security and (iv) agree that
Lender shall not be required to first institute
suit or exhaust its remedies hereon against
Borrower or others liable or to become liable for
the payment of this Note. No single or partial
exercise of any power hereunder shall preclude
ocher or further exercise thereof or the exercise
of any ocher
4
<PAGE>
power. Lender shall ac all times have the right to
proceed against any portions of security held
herefor in such order and in such manner as Lender
may deem fit. without waiving any rights with
respect to any other security. No delay or
omission on the part of Lender in exercising any
right or remedy hereunder or the acceptance of one
or more installments from any person after an
Event of Default shall operate as a waiver of such
right or remedy or of any other right or remedy
under this Note nor as a waiver of such right or
remedy in connection with any future default. .
(b) In addition to the waivers set forth in
subparagraph (a) above, Borrower and any and all
co-makers, endorsers, guarantors and sureties
severally waive all rights end defenses that each
may have because this Note is secured by real
property, This means, among other things: (i)
Lender may collect from each liable party without
first foreclosing on any teal or personal property
collateral pledged by Borrower; (ii) if Lender
forecloses on any teal property collateral pledged
by Borrower: (A) the amount of the debt may be
reduced only by the price for which that
collateral is sold at the foreclosure sale, even
if the collateral is worth more than the sale
price; and (B) Lender may collect from each liable
party even if Lender, by foreclosing on the real
property collateral, has destroyed any right any
liable party may have to collect from Borrower.
This is an unconditional and irrevocable waiver of
any rights and defenses any liable party may have
because this Note is secured by real properly.
These rights and defenses include, but are not
limited to, any rights or defenses based upon
Section 580a, 580b, 580d, or 726 of the California
Code of Civil Procedure, Furthermore, each liable
party waives all rights and defenses arising out
of an election of remedies by the Lender, even
though that election of remedies, such as
nonjudicial foreclosure with respect to security
for a guaranteed obligation has destroyed that
party's rights of subrogation and reimbursement
against the principal by the operation of Section
580d of the California Code of Civil Procedure or
otherwise.
DEFAULT. It is especially agreed that time is
of the essence respecting this Note. Event of
Default as used herein, means an Event of Default
under and as defined in the Loan Agreement.
ACCELERATION AND WAIVER OF NOTICE. At the
option of Lender, upon the occurrence of an Event
of Default the entire unpaid principal balance
plus the Prepayment Fee and all accrued and unpaid
interest due and owing on this Note and any and
al1 other indebtedness of Borrower to Lender
pursuant to the Mortgage or other Loan Documents
shall become and be due and payable forthwith
without demand, notice of default, notice of
intent to accelerate the maturity hereof, notice
of acceleration of the maturity hereof, notice of
nonpayment, presentment, protest or notice of
dishonor, all of which are hereby expressly waived
to the full extent permitted by law by Borrower
and each other liable party. Failure to exercise
this option upon the occurrence of any such Event
of Default shall not constitute a waiver of the
right to exercise such option in the event of any
subsequent Event of Default.
COLLECTION COSTS AND JOINT AND SEVERAL
LIABILITY. If the entire unpaid principal balance
plus al1 accrued and unpaid interest due and owing
on this Note is not paid at maturity whether by
acceleration or otherwise and is placed in the
hands of an attorney for collection, or suit is
filed hereon, or proceedings are had in probate,
bankruptcy, receivership, reorganization,
arrangement or other legal proceedings for
collection hereof, Borrower and each other liable
party agree to pay Lender its
5
<PAGE>
collection costs, including a reasonable amount
for attorneys' fees, but in no event to exceed the
maximum amount permitted by law. Borrower and each
other liable party ace and shall be directly and
primarily, jointly and severally, liable for the
payment of all sums called for hereunder, and
Borrower and each other liable party hereby
expressly waive bringing of suit and diligence in
taking any action to collect any sums owing hereon
and in the handling of any security, and Borrower
and each other liable parry hereby consent to and
agree to remain liable hereon regardless of any
renewals, extensions for any period or
rearrangements hereof, or any release or
substitution of security herefor, in whole or in
part, with or without notice, from time to time,
before or after maturity.
APPLICABLE LAW. THIS NOTE, THE LOAN AGREEMENT THE
OTHER LOAN DOCUMENTS SHALL BE DEEMED TO HAVE BEEN,
DELIVERED AND ACCEPTED IN, AND THIS NOTE, THE LOAN
AGREEMENT, AND THE OTHER LOAN DOCUMENTS SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
INTERNAL LAWS AND DECISIONS OF, THE STATE OF
ARIZONA (WITHOUT REGARD FOR ITS CONFLICTS OF LAW
PRINCIPLES), THE STATE IN WHICH LENDERES PRINCIPAL
PLACE OF BUSINESS IS LOCATED, AND BY EXECUTION
HEREOF BORROWER AND BY ACCEPTANCE HEREOF, LENDER,
EACH AGREES THAT SUCH LAWS AND DECISIONS OF THE
STATE OF ARIZONA SHALL GOVERN THIS NOTE, THE LOAN
AGREEMENT AND THE OTHER LOAN DOCUMENTS,
NOTWITHSTANDING THE FACT THAT THERE MAY HE OTHER
JURISDICTIONS WHICH MAY HEAR A REASONABLE
RELATIONSHIP TO THE TRANSACTIONS CONTEMPLATED
HEREBY; PROVIDED, HOWEVER, THAT WITH RESPECT TO
THE PROCEDURAL AND SUBSTANTIVE MATTERS RELATING
ONLY TO THE CREATION, VALIDITY, PERFECTION AND
ENFORCEMENT BY LENDER OF ITS RIGHTS AND REMEDIES
AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL
LOCATED IN ANY STATE OTHER THAN ARIZONA, SUCH
MATTERS SHALL BE GOVERNED BY THE LAWS OF THE STATE
IN WHICH SUCH PROPERTY IS LOCATED,
JURISDICTION AND VENUE. BORROWER HEREBY
AGREES THAT ALL ACTIONS OR PROCEEDINGS INITIATED
BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT
OF THIS NOTE, THE LOAN AGREEMENT OR THE OTHER LOAN
DOCUMENTS SHALL HE LITIGATED IN THE SUPERIOR COURT
OF ARIZONA, MARICOPA COUNTY DIVISION, OR THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
ARIZONA OR, IF LENDER INITIATES SUCH ACTION, IN
ADDITION TO THE FOREGOING COURTS ANY COURT IN
WHICH LENDER SHALL INITIATE SUCH ACTION, TO THE
EXTENT SUCH COURT HAS JURISDICTION. BORROWER
HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING
COMMENCED BY LENDER IN ANY OF SUCH COURTS AND
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND
COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED
THEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS
AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE
MADE BY ACTUAL DELIVERY OR REGISTERED OR CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO THE
BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE
SENT PURSUANT TO THE LOAN AGREEMENT. BORROWER
6
<PAGE>
WAIVES ANY CLAIM THAT PHOENIX, ARIZONA OR THE
DISTRICT OF ARIZONA IS AN INCONVENIENT FORUM OR AN
IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD
BORROWER, AFTER BEING SO SERVED, FAIL TO APPEAR OR
ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR
PAPERS SO SERVED WITHIN THE NUMHER OF DAYS
PRESCRIBED BY LAW AFTER THE MAILING THEREOF,
BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER
AND/OR JUDGMENT MAY BE ENTERED BY LENDER AGAINST
BORROWER AS DEMANDED OR PRAYED FOR IN SUCH
SUMMONS, COMPLAINT, PROCESS OR PAPERS; PROVIDED,
HOWEVER, LENDER MAY NOT SEEK SUCH A DEFAULT
JUDGMENT FOR AT LEAST THIRTY (30) DAYS AFTER THE
DATE OE PROOF OF SERVICE. THE EXCLUSIVE CHOICE OF
FORUM FOR BORROWER SET FORTH HEREIN SHALL NOT HE
DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF
ANY ACTION TO ENFORCE THE SAME IN ANY OTHER
APPROPRIATE JURISDICTION, AND BORROWER HEREBY
WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY SUCH
JUDGMENT OR ACTION.
SECURITY. This Note is secured by, among
other things, the Mortgage, the Loan Agreement and
the other Loan Documents.
LEGAL INTEREST LIMITATION. The contracted for
rate of interest of the loan contemplated hereby,
without limitation, shall consist of the
following:
(a) The interest, calculated and applied to
the principal balance of this Note in accordance
with the provisions of this Note;
(b) The past due interest calculated and
applied to past due principal and interest on this
Note in accordance with the provisions of this
Note;
(c) The one-time Loan fee, in the amount of
$120,000.00 described in the Loan Agreement;
(d) The Prepayment Fee calculated in
accordance with this Note; and
(e) All Additional Sums (as hereinafter
defined), if any.
Borrower agrees to pay an effective
contracted for rate of interest which is the sum
of subparagraphs (a) through (e), inclusive,
above. All fees, charges, goods, things in action
or any other sums or things of value (other than
those described in subparagraphs (a) through (e),
inclusive, above), paid or payable by Borrower
(collectively, the "Additional Sums"), whether
pursuant to this Note, the Loan Agreement, the
other Loan Documents or any other document or
instrument in any way pertaining to this lending
transaction; or otherwise with respect to this
lending transaction, that under the laws of the
State of Arizona may be deemed to be interest with
respect to this lending transaction, for the
purpose of any laws of the State of Arizona that
may limit the maximum amount of interest to be
charged with respect to this lending transaction,
shall be payable by Borrower as and shall be
deemed to be, additional interest, and for such
purposes only, the agreed upon end "contracted for
rate of interest" of this lending transaction
shall be deemed to be increased by the rate of
interest resulting
7
<PAGE>
from the Additional Sums. If any interest or other
charges in connection with this lending
transaction are ever determined to be usurious or
exceed the maximum amount permitted by law, then
Borrower agrees that (a) the amount of interest or
charges payable pursuant to this lending
transaction shall be reduced to the maximum amount
permitted by law and (b) any excess amount
previously collected from Borrower in connection
with this lending transaction that exceeded the
maximum amount permitted by law, shall be credited
against the principal balance of this Note then
outstanding. If the outstanding principal balance
hereunder has been paid in full, the excess amount
paid shall be refunded to Borrower and Borrower
agrees to accept such refund.
CONFLICTS. This Note has been executed and
delivered pursuant to the terms of the Mortgage
and the other Loan Documents, and Lender is
entitled to the benefits of and security provided
for in the Mortgage and the other Loan Documents.
Any Event of Default under the terms of the Loan
Agreement or under the terms of any of the other
Loan Documents will automatically be an Event of
Default hereunder. The terms of this Note will
govern in the event of any conflict with the terms
of this Note and the other Loan Documents.
REMEDIES OF LENDER. Lender shall have all
rights, remedies and resources granted in this
Note, the Mortgage and the other Loan Documents
and available at law or in equity and the same (a)
shall be cumulative and concurrent; (b) may be
pursued separately, successively or concurrently
against Borrower, or any other liable party or
against any one or more of them at the sole
discretion of Lender and in such order as Lender,
in its sole discretion, shall determine; (c) may
be exercised as often as occasion therefor shall
arise, it being agreed by Borrower that the
exercise or failure to exercise any of the same
shall in no event be construed a5 a waiver or
release thereof or of any other right, remedy or
recourse; and (d) are intended to be, and shall
be, nonexclusive.
CONSENT. FOR AND IN CONSIDERATlON OF LENDER'S
ADVANCEMENT OF THE PRINCIPAL SUMS HEREUNDER IN THE
AMOUNT OF UP TO SIX MILLION AND NO/100 DOLLARS
($6,000,000.00), BORROWER, BEING AN EXPERIENCED
OWNER AND OPERATOR OF REAL ESTATE AND A
PARTICIPANT IN SOPHISTICATED REAL ESTATE VENTURES,
AND HAVING CONSULTED WITH COUNSEL OF ITS CHOOSING,
HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY WITH
RESPECT TO ANY ACTION OR PROCEEDING (1) BROUGHT BY
BORROWER, LENDER OR ANY OTHER PERSONS RELATING TO
(A) THIS NOTE, OR (B) THE LOAN AGREEMENT OR THE
OTHER LOAN DOCUMENTS OR (2) TO WHICH LENDER IS A
PARTY. BORROWER HEREBY AGREES THAT THIS NOTE
CONSTITUTES A WRIT'TEN CONSENT, TO WAIVER OF TRIAL
BY JURY, AND BORROWER DOES HEREBY CONSTITUTE AND
APPOINT LENDER ITS TRUE AND LAWFUL ATTORNEY IN
FACT, WHICH APPOINTMENT IS COUPLED WITH AN
INTEREST AND IRREVOCABLE, AND BORROWER DOES HEREBY
AUTHORIZE AND EMPOWER LENDER, IN THE NAME, PLACE,
AND STEAD OF BORROWER, TO FILE THIS NOTE WITH THE
CLERK OR JUDGE OF ANY COURT OF COMPETENT
JURISDICTION AS A WRITTEN CONSENT TO WAIVER OF
TRIAL BY JURY. BORROWER ACKNOWLEDGES THAT ITS
WAIVER OF TRIAL BY JURY HAS BEEN MADE KNOWINGLY,
INTENTIONALLY AND WILLINGLY BY BORROWER AS A PART
OF A BARGAINED FOR LOAN TRANSACTION.
8
<PAGE>
MAKER:
TDC/EMERITUS PASO ROBLES
ASSOCIATES,
a Washington general
partnership
By: Emeritus Corporation, a
Washington
corporation, Its
General Partner
WITNESS:
/s/ Jennifer A. Valenta By: /s/ Raymond R.
Brandstrom
- ------------------------------- ----
- --------------------------------------
Jennifer A. Valenta Name:
Raymond R. Brandstrom
Title President
By: TDC Convalescent, Inc., a
California
corporation, Its
General Partner
WITNESS:
By: /s/ Thomas D. Clark
------------------------------
----------------
Name: Thomas D. Clark
Title : President
THE STATE OF WASHINGTON )
)
COUNTY OF KING )
On this 18th day of February, 1997, before
me, Catherine L. Pasquan, the undersigned notary
public, duly commissioned and sworn, personally
appeared Raymond R. Brandstrom, personally known
to me (or proved to me on the basis of
satisfactory evidence) to be the person that
executed the within instrument and acknowledged to
me that he or she executed the same in his or her
authorized capacity and that by his or her
signature in the instrument the person, or the
entity upon behalf of which the person acted,
executed the instrument.
In witness whereof, I have hereunto set my
hand and affixed my official seal the day and year
in this certificate first above written
/s/ Catherine L. Pasquan
--------------------------------
NOTARY PUBLIC
[SEAL]
9
<PAGE>
THE STATE OF CALIFORNIA )
)
COUNTY OF PLACER )
On this 19th day of February, 1997, before
me, Jerilyn Carlin-Mobley, the undersigned notary
public, duly commissioned and sworn, personally
appeared Thomas D. Clark, personally known to me
(or proved to me on the basis of satisfactory
evidence) to be the person that executed the
within instrument and acknowledged to me that he
or she executed the same in his or her authorized
capacity and that by his or her signature in the
instrument the person, or the entity upon behalf
of which the person acted, executed the
instrument.
In witness whereof, I have hereunto set my
hand and affixed my official seal the day and year
in this certificate first above written
/s/ Jerilyn Carlin-Mobley
--------------------------------
NOTARY PUBLIC
[SEAL]
10
<PAGE>
RECORDING REQUESTED BY
CHICAGO TITLE
and when recorded mail to:
Kevin R. Merritt, Esq.
Michelle C. Lombino, Esq.
Gammage & Burnham P.L.C.
Two North Central Avenue,18th Floor
Phoenix, Arizona 85004
DEED OF TRUST, SECURITY AGREEMENT,
ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING
The Promissory Note secured by this Deed
of Trust contains provisions for a variable
interest rate.
This Deed of Trust, Security Agreement,
Assignment of Leases and Rents and Fixture Filing
(hereinafter referred to as "Deed of Trust") made
and entered into as of this 18th day of February,
1997, by TDC/Emeritus Paso Robles Associates, a
Washington general partnership ("Trustor"), whose
address is 8219 Santa Juanita Avenue, Orangeville,
California 95662, to Chicago Title Company, a
California corporation ("Trustee"), whose address
is 1212 Marsh Street, P.O. Box 810, San Luis
Obispo, California, 93206, for the benefit of
FINOVA Capital Corporation, a Delaware corporation
("Beneficiary"), whose address is 3200 Park Center
Drive, Fifth Floor, Costa Mesa, California 92626.
WITNESSETH:
ARTICLE I
DEFINITIONS
1.1 As used herein, the following terms
shall have the following meanings:
(a) BENEFICIARY: FINOVA Capital
Corporation and the subsequent holder or holders,
from time to time, of the Note.
(b) COLLATERAL: The meaning given such
term in Article IX below.
(c) DEBTOR RELIEF LAWS: Any applicable
state, federal or other liquidation,
conservatorship, bankruptcy, moratorium,
rearrangement, insolvency, reorganization, or
similar laws affecting the rights or remedies of
creditors generally, as in effect from time to
time.
(d) ESCROWED SUMS: The amounts paid
by Trustor to Beneficiary pursuant to
paragraph 11.14 hereof to be held by
Beneficiary in a fund for the payment of
Impositions and insurance premiums.
(e) ENVIRONMENTAL CERTIFICATE. That
certain Environmental Certificate with
Representations, Covenants and Warranties of
even date herewith, as amended, renewed,
replaced or restated.
<PAGE>
(f)Event of Default: Any happening or
occurrence described in Article VI herein.
(g) FINANCIAL STATEMENTS: The
balance sheets, profit and loss statements,
reconciliations of capital and surplus,
changes in financial condition, schedules of
sources and applications of funds, and other
financial information of Trustor heretofore
furnished to Beneficiary or required to be
furnished to Beneficiary under the terms of
the Security Documents from time to time,
which statements shall be prepared in such
scope, detail and form as shall be reasonably
acceptable to Beneficiary and shall be
certified by Trustor.
(h) FIXTURES: All of Trustor's
materials, supplies, equipment, apparatus and
other items now or hereafter attached to,
installed on or in the Land or the
Improvements, or which in some fashion are
deemed to be fixtures to the Land or
Improvements under the laws of the State of
California, including the California Uniform
Commercial Code, as it may be amended from
time to time (the "UCC"), other than those
owned by tenants under any lease. The term
"Fixture" shall include, without limitation,
all items of Trustor's Personalty to the
extent that the same may be deemed fixtures
under applicable law.
(i) GOVERNMENTAL AUTHORITY: Any and
all courts, boards, agencies, commissions,
offices or authorities of any nature
whatsoever for any governmental unit (federal,
state, county, district, municipal, city or
otherwise) whether now or hereafter in
existence.
(j) GOVERNMENTAL REQUIREMENTS: The
term Governmental Requirements shall mean all
statutes, laws, ordinances, orders, writs,
injunctions, decrees, rules and regulations of
any Governmental Authority applicable to
Trustor, the Mortgaged Property or the
Improvements.
(k) GUARANTORS: Emeritus Corporation, a
Washington corporation, and TDC Convalescent,
Inc., a California corporation.
(1) GUARANTY: Any instrument of Guaranty
executed by any of the Guarantors and delivered to
Beneficiary guaranteeing the repayment of all or
any portion of the Indebtedness and the
performance of the Obligations.
(m) IMPOSITIONS: All real estate and
personal property taxes; water, gas, sewer,
electricity and other utility rates and charges;
charges imposed pursuant to any subdivision,
planned unit development or condominium
declaration or restrictions; charges for any
easement, license or agreement maintained for the
benefit of the Mortgaged Property, and all other
taxes, charges and assessments and any interest,
costs or penalties with respect thereto of any
kind and nature whatsoever which at any time prior
to or after the execution hereof may be assessed,
levied or imposed upon the Mortgaged Property or
the ownership, use, occupancy or enjoyment
thereof.
(n) IMPROVEMENTS: Any and all buildings,
structures, open parking areas and other
improvements, and any and all accessions,
additions, replacements, substitutions or
alterations thereof or appurtenances thereto, now
or at any time hereafter situated, placed or
constructed upon the Land or any part thereof.
2
<PAGE>
(o) INDEBTEDNESS: (i) The principal of,
interest on and all other amounts and payments now
or hereafter due under or secured by the Note and
the other Security Documents, together with all
funds hereafter advanced by Beneficiary to or for
the benefit of Trustor as contemplated by any
covenant or provision herein contained or
contained in the Note or any other Security
Document, all such advances to have the same
priority as the funds initially advanced under the
Note, (ii) payment and performance of all
obligations of Trustor under this Deed of Trust,
including payment of all sums expended or advanced
by Beneficiary hereunder to protect or preserve
the Mortgaged Property, or the lien hereof on the
Mortgaged Property, or for taxes, assessments or
insurance premiums as hereinafter provided,
together with interest thereon as provided herein,
(iii) payment and performance of all future
advances and other obligations that Trustor may
agree to pay or perform (whether as principal,
surety or guarantor) for the benefit of
Beneficiary, when such obligation is evidenced by
a writing which states that it is secured by this
Deed of Trust, and (iv) all modifications,
extensions and renewals (if any) of one or more of
the obligations secured hereby, including without
limitation (a) modifications of the required
principal payment dates or interest payment dates,
deferring or accelerating payment dates wholly or
partly, and (b) modifications, extensions or
renewals at a different rate of interest whether
or not, in the case of a note or other contract,
the modification, extension or renewal is
evidenced by a new or additional promissory note
or other contract.
(p) LAND: The real estate or any
interest therein described in Exhibit "A"
attached hereto and made a part hereof,
together with all Improvements and Fixtures
and all rights, titles and interests
appurtenant thereto.
(q) LEASES: All of the lessor's
right, title and interest in and to any and
all leases, subleases, licenses, concessions
or other agreements (written or verbal, now or
hereafter in effect) which grant a possessory
interest in and to, or the right to extract,
mine, reside in, sell or use the Mortgaged
Property, and all other agreements, including,
but not limited to, utility contracts,
maintenance agreements and service contracts,
which in any way relate to the use, occupancy,
operations, maintenance, enjoyment or
ownership of the Mortgaged Property, save and
except any and all leases, subleases or other
agreements pursuant to which Trustor is
granted a possessory interest in the Land.
(r) LEGAL REQUIREMENTS: (i) Any and
all present and future judicial decisions,
statutes, rulings, rules, regulations,
permits, certificates or ordinances of any
Governmental Authority in any way applicable
to Trustor or the Mortgaged Property,
including but not limited to those respecting
the ownership, use, occupancy, possession,
operation, maintenance, alteration, repair or
reconstruction thereof, (ii) Trustor's
presently or subsequently effective by-laws
and articles of incorporation, or any
instruments establishing any partnership,
limited partnership, joint venture, trust or
other form of business association (if either,
both or all by any of same), (iii) any and all
Leases and other contracts (written or oral)
of any nature to which Trustor may be bound
and (iv) any and all restrictions,
reservations, conditions, easements or other
covenants or agreements of record affecting
the Mortgaged Property.
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(s) LOAN AGREEMENT: That certain
Loan Agreement between Trustor and Beneficiary
of even date herewith.
(t) MORTGAGED PROPERTY: The Land,
Improvements, Fixtures, Personalty, Leases and
Rents, together with:
(i) all rights, privileges, tenements,
hereditaments, rights-of way, easements,
appendages and appurtenances in anywise
appertaining thereto, and all right, title and
interest of Trustor in and to any streets, ways,
alleys, strips or gores of land adjoining the Land
or any part therein or thereof;
(ii) all betterments, accessions,
additions, appurtenances, substitutions,
replacements and revisions thereof and thereto and
all reversions and remainders therein;
(iii) all other interest of every kind
and character which Trustor now has or at anytime
hereafter acquires in and to the above-described
real and personal 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 Trustor with respect to such property. To the
extent permitted by law, all of the Personalty and
Fixtures are to be deemed and held to be a part of
and affixed to the Land. In the event the estate
of Trustor in and to any of the Land and
Improvements is a leasehold estate, this
conveyance shall include and the lien, security
interest and assignment created hereby shall
encumber and extend to all other, further or
additional title, estates, interest or rights
which may exist now or at any time be acquired by
Trustor in or to the property demised under the
lease creating such leasehold estate and including
Trustor's rights, if any, to purchase the property
demised under such lease and, if fee simple title
to any of such property shall ever become vested
in Trustor, such fee simple interest shall be
encumbered by this Mortgage in the same manner as
if Trustor had fee simple title to such property
as of the date of execution hereof; and
(iv) any and all other security and
collateral of any nature whatsoever, now or
hereafter given for the repayment of the
Indebtedness or the performance and discharge of
the Obligations, including the Escrowed Sums,
hereinafter defined.
As used in this Mortgage, the term
"Mortgaged Property" is expressly defined as
meaning all or, where the context permits or
requires, any portion of the above and all or,
where the context permits or requires, any
interest therein.
(u) NOTE: One certain promissory note of
even date herewith, executed by Trustor, payable
to the order of Beneficiary in the principal
amount of $6,000,000.00 as same may be amended,
renewed or extended from time to time.
(v) OBLIGATIONS: Any and all of the
covenants, warranties, representations and other
obligations, including the obligation to repay the
Indebtedness, made or undertaken by Trustor or
others to Beneficiary, Trustee or others as set
forth in the Security Documents, and any other
documents or instruments executed in connection
with the Indebtedness.
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(w) PERMITTED ENCUMBRANCES: The
outstanding liens, easements, building lines,
restrictions, security interests and other matters
(if any) as set forth on Schedule B of the title
policy delivered to Beneficiary by Trustor in
connection with the recording of this Deed of
Trust.
(x) PERSONALTY: All of the right, title
and interest of Trustor in and to all tangible and
intangible personal property which is now or
becomes attached to, installed on or placed on or
used on or in connection with or which is acquired
for such attachment, installation, placement or
use, or which arises out of the development,
improvement, financing, leasing, sale, operation
or use of the Land, Improvements, Fixtures or
other goods located on the Land or Improvements,
whether now owned or hereafter acquired,
including, but not limited to:
(i) all furnishings, building materials,
supplies, machines, engines, boilers, stokers,
pumps, fans, vents, blowers, dynamos, furnaces,
elevators, ducts, shafts, pipes, furniture
cabinets, shades, blinds, screens; plumbing,
heating, air conditioning, lighting, lifting,
ventilating, refrigerating, cooking, medical,
laundry and incinerating equipment; partitions,
drapes, carpets, rugs and other floor coverings,
awnings; call and sprinkler systems, fire
prevention and extinguishing apparatus and
equipment, water tanks, swimming pools,
compressors, vacuum cleaning systems; disposals,
dishwashers, ranges, ovens, kitchen equipment,
cafeteria equipment and recreational equipment;
(ii) all equipment, inventory,
attachments, partitions, goods, instruments,
appliances, furnishings, machinery, tools, raw
materials, component parts, work in progress and
materials, and all other tangible personal
property of whatsoever kind, used or consumed in
the improvement, use or enjoyment of the Land, the
Improvements or the Fixtures, now or any time
hereafter owned or acquired by Trustor, wherever
located and all products thereof whether in
possession of Trustor or whether located on the
Land or elsewhere;
(iii) all general intangibles relating
to the design, development, operation, management
and use of the Land, the Improvements and the
Fixtures, including, but not limited to: (a) all
names under which or by which the Land, the
Improvements and the Fixtures, may at any time be
owned and operated under, any such names or any
variant thereof and all goodwill in any way
relating to the Land, the Improvements and the
Fixtures; (b) all permits, licenses,
authorizations, variances, trademarks, service
marks, trade names, symbols, land use
entitlements, approvals, consents, clearances, and
rights obtained from governmental agencies issued
or obtained in connection with the Land, the
Improvements and the Fixtures; (c) all permits,
licenses, approvals, consents, authorizations,
franchises and agreements issued or obtained in
connection with the use, occupation or operation
of the Land, the Improvements and the Fixtures;
and (d) all materials prepared for filing or filed
with any governmental agency;
(iv) all evidence of ownership of any
part of the Land, the Improvements, and the
Fixtures that is owned by Trustor in common with
others, including all water stock relating to the
Land, if any, and all documents or rights of
membership in any owners' or members' association
or similar group having responsibility for
managing or operating any part of the Land;
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(v) all accounts, deposit accounts,
security deposits, accounts receivable,
instruments, documents, chattel paper, bank
deposits, books and records, documents of title,
general intangibles, rights to payment of every
kind, all of Trustor's rights, direct or indirect,
under or pursuant to any and all construction,
development, financing, guaranty, indemnity,
maintenance, management, service, supply and
warranty agreements, commitments, contracts,
subcontracts, insurance policies and the proceeds
therefrom, licenses and bonds now or anytime
hereafter arising from construction on the Land or
the use or enjoyment of the Land and the
Improvements including, without limitation,
maintenance agreements, service contracts and all
contracts and agreements for the operation,
management and leasing of the Land and/or the
Improvements;
(vi) all water, water stock, water
capacity or other water rights, licenses, permits,
warranties, irrigation rights, oil and gas rights,
minerals, crops and timber, and wastewater and
storm drainage discharge capacity attributable or
allowable to all or any portion of the
Land, the Improvements and any other property,
both real and personal, hereinabove described;
(vii) all rights, titles and interests
in and to all of the plans, specifications,
drawings, surveys, maps and plats, including, but
not limited to, plot plans, foundation plans,
floor plans, elevations, framing plans, cross-
sections of walls, mechanical plans, electrical
plans and architectural and engineering studies
and analyses heretofore or hereafter prepared by
any architect or engineer in respect to the Land,
Improvements or Fixtures;
(viii) all of Trustor's right, title and
interest in and to any award, remuneration,
settlement of compensation heretofore made or
hereafter to be made by any Governmental Authority
to Trustor, including those for any vacation of,
change of grade in, any streets affecting the Land
or the Improvements;
(ix) all of Trustor's right, title and
interest in and to all proceeds. arising from or
by virtue of the sale, lease or other disposal of
all or any part of the Mortgaged Property (consent
to same not granted or to be implied hereby); and,
all proceeds (including premium refunds) payable
or to be payable under each policy of insurance
relating to the Mortgaged Property; and
(x) all additions, accessions,
accessories, amendments, modifications,
extensions, renewals and enlargements, and
additions to, substitutions for the products
thereof, and all proceeds, whether cash proceeds
or noncash proceeds, and including insurance and
condemnation proceeds, received when any of the
foregoing property described in (i) through (ix)
above (or the proceeds thereof is sold, exchanged,
leased, licensed, or otherwise disposed of,
whether voluntarily or involuntarily or when
earlier received; such proceeds shall include any
of the foregoing specifically described property
of Trustor acquired with cash proceeds, together
with, and without limiting the above items, all
Goods, Accounts, Documents, Instruments, Money,
Chattel Paper and General Intangibles located on
or related to the Land, as those terms are defined
in the California Uniform Commercial Code.
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(y) RENTS: All of the rents, revenues,
income, proceeds, royalties, profits and other
benefits paid or payable for using, leasing,
licensing, possessing, operating from or in,
residing in, selling, mining,
extracting or otherwise enjoying or using the
Land, Fixtures, Personalty or
payable pursuant to the Leases.
(z) SECURITY DOCUMENTS: The Note, this
Deed of Trust, the Loan Agreement and any other
documents now or hereafter evidencing, securing
otherwise ancillary to the Note or the loan made
pursuant to the Loan Agreement, as they may be
hereafter amended, renewed, replaced or restated.
(aa) TRUSTEE: Chicago Title Company.
(bb) TRUSTOR: The above defined Trustor
and any and all subsequent record or equitable
owners of the Mortgaged Property.
ARTICLE II
GRANT
2.1 For purposes of securing the payment
and performance of the Obligations (other than
those arising out of the Environmental
Certificate) (i) Trustor irrevocably grants,
transfers and assigns to Trustee in trust, with
power of sale and right of entry and possession,
the Mortgaged Property and (ii) Trustor absolutely
and irrevocably assigns to Beneficiary all right,
title and interest of Trustor in, to and under the
Leases, together with all Rents. Provided there
does not exist an Event of Default, Trustor shall
have a license to collect the Rents and exercise
the rights of Lessor under the Leases as more
fully set forth in that certain Assignment of
Leases and Rents of even date herewith from
Trustor in favor of Beneficiary. For the purposes
of securing the payment and performance of-the
Obligations (other than those arising out of the
Environmental Certificate) and to protect the
security of this Deed of Trust, Trustor has
executed and delivered this Deed of Trust and
makes the representations, warranties and
covenants set forth herein.
ARTICLE III
WARRANTIES AND REPRESENTATIONS
Trustor hereby unconditionally warrants
and represents to Beneficiary
as follows:
3.1 ORGANIZATION AND POWER: (a) That
Trustor is a duly organized, and validly existing
general partnership under the laws of the State of
Washington, all in accordance with applicable
Legal Requirements, and the Partnership Agreement
of Trustor is in ful1 force and effect and has not
been amended or changed
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except as disclosed in writing to Beneficiary; (b)
no proceeding is pending, planned or threatened
for the dissolution or annulment of Trustor or any
of its partners; (c) all licenses, filing fees,
income and other taxes due and payable by Trustor
have been paid in full; (d) all conditions
prerequisite to Trustor doing business in
California have been done; and (e) Trustor has all
requisite power and authority to own, lease,
operate and encumber the Mortgaged Property.
3.2 VALIDITY OF DOCUMENTS: The
execution, delivery and performance by Trustor of
the Security Documents and the borrowing evidenced
by the Note (a) are within Trustor's powers and
have been duly authorized by the general partners
of Trustor and all other requisite action; (b)
have received all (if any) requisite prior
governmental approval in order to be legally
binding and enforceable in accordance with the
terms thereof; and (c) will not violate, be in
conflict with, result in a breach of or constitute
(with due notice or lapse of time, or both) a
default under, any Legal Requirement or result in
the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon
Trustor's property or assets, except as
contemplated by the provisions of the Security
Documents. The Security Documents constitute
legal, valid and binding obligations of Trustor
obligated under the terms of the Security
Documents in accordance with their respective
terms (other than as such enforceability may be
subject to or limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium, similar
laws relating or affecting rights of creditors
generally or general principles of equity), and
Trustor has full and lawful authority to bargain,
grant, sell, mortgage, assign, transfer and convey
all of the Mortgaged Property as set forth herein.
3.3 INFORMATION: All information,
reports, papers and data given to Beneficiary with
respect to Trustor or the Mortgaged Property are
accurate, complete and correct in all material
respects and do not omit any fact the inclusion of
which is necessary to prevent the facts contained
therein from being materially misleading.
3.4 TITLE TO MORTGAGED PROPERTY AND LIEN
OF THIS INSTRUMENT: Trustor has good and
indefeasible title in fee simple to the Land
described on Exhibit "A" attached hereto, and good
and indefeasible title to the Improvements, the
Fixtures and Personalty, Leases and Rents, free
and clear of any liens, charges, encumbrances,
security interests and adverse claims whatsoever
except the Permitted Encumbrances. This Deed of
Trust constitutes a valid, subsisting, first lien
deed of trust on the Land, the Improvements, the
Fixtures and a valid, subsisting first security
interest in and to the Personalty, Leases and
Rents, all in accordance with the terms hereof.
3.5 TAXES AND OTHER PAYMENTS: Trustor
has filed all federal, state, county, municipal
and city income and other tax returns required to
have been filed by it and has paid all taxes which
have become due pursuant to such returns or
pursuant to any assessments received by Trustor,
and Trustor does not know of any basis for any
additional assessment in respect of any such
taxes. Trustor has paid or will pay in full all
sums owing or claimed for labor, material,
supplies, personal property (whether or not
constituting a Fixture hereunder) and services of
every kind and character used, furnished or
installed in the Mortgaged Property which Trustor
is obligated to pay (subject to Trustor's right to
contest such amount owing on the condition that
Trustor immediately records and serves a surety
bond pursuant to applicable law or otherwise fully
protects
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Beneficiary from any loss or liability arising
therefrom) and no claim for same currently exists,
to the best of Trustor's knowledge, or will be
permitted to become past due.
3.6 LITIGATION: There are no actions,
suits or proceedings pending or, to the knowledge
of Trustor, threatened against or affecting the
Mortgaged Property (except as disclosed in writing
to Beneficiary) or involving the validity or
enforceability of this Deed of Trust or the
priority of the lien and security interest hereof,
and no event has occurred (including specifically
Trustor's execution of the Security Documents and
its consummation of the loan represented thereby)
which will violate, be in conflict with, result in
the breach of or constitute (with due notice or
lapse of time, or both) a default under, any Legal
Requirement or result in the creation or
imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of Trustor's
property other than the lien and security interest
created by the Security Documents.
3.7 UTILITIES: All utility services in
such capacities as are necessary for the Mortgaged
Property and the operation thereof for their
intended purpose are available to the Mortgaged
Property and the operation thereof for their
intended purpose, including water supply, storm
and sanitary sewer facilities, gas, electric and
telephone facilities.
3.8 STREETS AND PARKING: All parking
areas, streets, roads, and/or highways necessary
for the full utilization of the Improvements for
their intended purposes have been completed or the
necessary rights-of way therefor have either been
acquired by the appropriate Governmental Authority
or have been dedicated to the public use and
accepted by such Governmental Authority.
3.9 PERMITS: All zoning, utility,
building, health and operating permits (if any)
required for the operation of the Improvements
have been obtained or will be obtained as
contemplated by and pursuant to the Loan
Agreement.
ARTICLE IV
AFFIRMATIVE COVENANTS
Trustor hereby unconditionally covenants and
agrees with Beneficiary
as follows:
4.1 PAYMENT AND PERFORMANCE: Trustor
will pay the Indebtedness as and when called for
in the Security Documents and will perform all of
the Obligations in full and on or before the dates
they are to be performed.
4.2 EXISTENCE: Trustor will preserve and
keep in full force and effect its existence,
rights, franchises and trade names.
4.3 COMPLIANCE WITH LEGAL REQUIREMENTS:
Trustor will promptly and faithfully comply or
cause compliance with, conform to and obey all
present and future Legal Requirements whether or
not same shall necessitate structural changes in,
improvements to, or interfere with the use or
enjoyment of, the Mortgaged
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Property. Without limiting the generality of the
foregoing covenant, Trustor will comply or cause
compliance with the Americans with Disabilities
Act of 1990 (42 U.S.C. Section 12101 et seq.) as
applicable to the Mortgaged Property.
4.4 PAYMENT OF IMPOSITIONS: Subject to
the provisions of paragraph 11.14 herein, Trustor
will pay and discharge, the Impositions not later
than the earlier of the date same becomes
delinquent, the day any fine, penalty, interest or
cost may be added thereto or imposed or the day
any lien may be filed for the nonpayment thereof
(if such day is used to determine the due date of
the respective item); provided, however, that
Trustor may, if permitted by law and if
installment payments would not create or permit
the filing of a lien against the Mortgaged
Property, pay the Impositions in installments
whether or not interest shall accrue on the unpaid
balance of such Impositions. Trustor may in good
faith, in lieu of paying such Impositions as they
become due and payable, by appropriate
proceedings, contest the validity thereof. During
such contest Trustor shall not be deemed in
default hereunder because of such nonpayment if,
prior to delinquency of the asserted tax or
assessment, Trustor furnishes Beneficiary an
indemnity bond, conditioned that such tax or
assessment with interest, cost and penalties be
paid as herein stipulated, secured by a deposit in
cash or security acceptable to Beneficiary or with
surety acceptable to Beneficiary, in the amount of
the tax or assessment being contested by Trustor
and a reasonable additional sum to pay all
possible costs, interest and penalties imposed or
incurred in connection therewith. Upon conclusion
of such contest Trustor shall promptly pay any
amount adjudged by a court of competent
jurisdiction to be due, with all costs, penalties
and interest thereon prior to the date such
judgment becomes final or any writ or order is
issued under which the Mortgaged Property may be
sold pursuant to such judgment.
4.5 REPAIR: Following completion of the
improvements being constructed with the proceeds
of the Note, Trustor will keep or cause the
Mortgaged Property to be kept in a good condition
and presenting a good appearance and will make or
cause tenants of the Mortgaged Property to make
all repairs, replacements, renewals, additions,
betterments, improvements and alterations thereof
and thereto, interior and exterior, structural and
nonstructural, ordinary and extraordinary,
foreseen and unforeseen, which are necessary or
reasonably appropriate to keep same in such order
and condition, reasonable wear and tear excepted.
Trustor will also use all reasonable efforts to
prevent any act or occurrence which might impair
the value or usefulness of the Mortgaged Property
for its intended usages as set forth in any plans
and specifications for the Improvements submitted
to Beneficiary or in the Security Documents. In
instances where repairs, replacements, renewals,
additions, betterments, improvements or
alterations are required in and to the Mortgaged
Property on an emergency basis to prevent loss,
damage, waste or destruction thereof, Trustor
shall proceed to construct same, or cause same to
be constructed, notwithstanding anything to the
contrary contained in paragraph 5.2 hereinbelow;
provided, however, that in instances where such
emergency measures are to be taken, Trustor will
promptly notify Beneficiary in writing of the
commencement of such emergency measures and, when
same are completed, the completion date and the
measures actually taken.
4.6 INSURANCE: Trustor shall obtain and
maintain, or cause to be obtained and maintained,
insurance upon and relating to the Mortgaged
Property as provided in the Loan Agreement.
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4.7 RESTORATION FOLLOWING CASUALTY: If
any act or occurrence of any kind or nature
(including any casualty for which insurance was
not obtained or obtainable) shall result in damage
to or loss or destruction of the Mortgaged
Property, Trustor will give notice thereof to
Beneficiary.
(a) CASUALTY DURING CONSTRUCTION TERM.
In case any act or occurrence of any kind or
nature shall result in damage to or loss or
destruction of the Mortgaged Property during the
"Construction Term" as defined on the Loan
Agreement, (i) Beneficiary, at its option, shall
be entitled to receive and retain the proceeds of
all insurance policies related to such damage or
loss and apply same to the Indebtedness, and (ii)
if Beneficiary makes the proceeds of insurance
available to Trustor for purposes of restoring the
Mortgaged Property, Trustor wil1 promptly and at
Trustor's sole cost and expense commence and
continue diligently to completion to restore,
repair, replace and rebuild the Mortgaged Property
as nearly as possible to its value, condition, and
character immediately prior to such damage, loss
or destruction. In such a circumstance, such
insurance proceeds shall be disbursed in the same
manner and subject to the same condition and
requirement as contained in the Loan Agreement
with respect to advances of the proceeds of the
Note.
(b) CASUALTY DURING PERMANENT TERM. In
case of any act or occurrence of any kind or
nature shall result in damage or loss or
destruction of the Mortgaged Property during the
"Permanent Term" as defined in the Loan Agreement,
the terms of this subparagraph (b) shall apply. In
case of loss in which the cost of the restoration,
repair or replacement (hereinafter referred to as
the "Work") of the Mortgaged Property estimated by
Beneficiary shall not exceed the proceeds paid to
Beneficiary, then such proceeds may be used for
the prosecution of the Work in the manner
hereinafter provided. If the cost of the Work
estimated by Beneficiary shall exceed the proceeds
paid to Beneficiary, then unless Trustor deposits
with Beneficiary the difference between the
estimated cost of the Work and the amount of such
proceeds paid to Beneficiary within thirty (30)
days after written demand therefor, Beneficiary,
at its option, shall be entitled to receive and
retain the proceeds of the insurance policies,
applying the same upon the Indebtedness.
Notwithstanding anything herein to the contrary if
any loss shall occur (i) within one ( 1 ) year
prior to the scheduled maturity date of the Note,
or (ii) at anytime when there shall exist an Event
of Default hereunder, Beneficiary shall be
entitled to the benefit of all insurance policies
held by or for any Trustor, to the extent as if
same had been made payable to Beneficiary to the
extent of the Indebtedness; and upon foreclosure
hereunder, Beneficiary shall become the owner of
any insurance proceeds paid or to be paid under
said policies to the extent of the Indebtedness.
Subject to the foregoing, Beneficiary shall make
such insurance proceeds available to Trustor to
rebuild the Mortgaged Property. Unless Beneficiary
is entitled to retain the insurance proceeds,
Trustor will promptly and at Trustor's sole cost
and expense and regardless of whether the
insurance proceeds (if any) shall be sufficient
for the purpose, commence and continue diligently
to completion to restore, repair, replace and
rebuild the Mortgaged Property as nearly as
possible to its value, condition and character
immediately prior to such damage, loss or
destruction.
(c) DISBURSEMENT OF INSURANCE PROCEEDS.
Notwithstanding the foregoing to the contrary, if
the proceeds of the insurance described in
paragraph 4.6 hereinabove are to be used for the
prosecution of the Work, such proceeds shall be
paid out by Beneficiary from time to time to
Trustor (or, at
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the option of Beneficiary, jointly to Trustor and
the persons furnishing labor and/or material
incident to such restoration, repair or
replacement or directly to such persons) as the
Work progresses, subject to the following
conditions: (a) an architect or engineer, approved
by Beneficiary, shall be retained by Trustor (at
Trustor's expense) and charged with the
supervision of the Work and Trustor shall have
prepared, submitted to Beneficiary and secured
Beneficiary's written approval of the plans and
specifications for such Work which shall not be
unreasonably withheld or delayed; (b) each request
for payment by Trustor shall be made on ten ( I 0)
days prior written notice to Beneficiary and shall
be accompanied by a certificate executed by the
architect or engineer supervising the Work
stating, among such other matters as may be
reasonably required by Beneficiary that: (i) all
of the Work completed has been done in compliance
with the approved plans and specifications; (ii)
the sum requested is justly required to reimburse
Trustor for payments by Trustor to, or is justly
due to, the contractor, subcontractors,
materialmen, laborers, engineers, architects or
other persons rendering services or materials for
the Work (giving a brief description of such
services and materials); (iii) when added to all
sums previously paid out by Trustor, the sum
requested does not exceed the value of the Work
done to the date- of such certificate; and (iv)
the amount of insurance proceeds remaining in the
hands of Beneficiary will be sufficient on
completion of the Work to pay for the same in full
(giving in such reasonable detail as the
Beneficiary may require an estimate of the cost of
such completion); (c) each request shall be
accompanied by waivers of lien satisfactory in
form and substance to Beneficiary covering all
parts of the Work completed prior to that part of
the Work for which payment or reimbursement is
being requested, and by a search prepared by a
title company or licensed abstracter or by other
evidence satisfactory to Beneficiary that there
has not been filed with respect to the Mortgaged
Property any mechanic's lien or other lien,
affidavit or instrument asserting any lien or any
lien rights with respect to the Mortgaged
Property; (d) there has not occurred any Event of
Default (as herein defined) since the hazard,
casualty or contingency giving rise to payment of
the insurance proceeds occurred; (e) in the case
of the request for the final disbursement, such
request is accompanied by a copy of any
certificate of occupancy or other certificate
required by any Legal Requirement to render
occupancy of the damaged portion of the Mortgaged
Property lawful; and (f) if, in Beneficiary's
reasonable judgment, the amount of such insurance
proceeds will not be sufficient to complete the
Work (which determination may be made prior to or
during the performance of the Work), Trustor shall
deposit with Beneficiary, within thirty (30) days
after written request therefor, an amount of money
which when added to such insurance proceeds will
be sufficient, in Beneficiary's reasonable
judgment, to complete the Work. If, upon
completion of the Work, any portion of the
insurance proceeds has not been disbursed to
Trustor (or one or more of the other aforesaid
persons) incident thereto, Beneficiary may at
Beneficiary's option, disburse such balance to
Trustor or apply such balance toward the payment
of the Indebtedness. Nothing herein shall be
interpreted to prohibit Beneficiary from (y)
withholding from each such disbursement ten
percent (10%) (or such
4.11 FUTURE IMPOSITIONS: At any time any
law shall be enacted imposing or authorizing the
imposition of any tax upon this Deed of Trust or
upon any rights, titles, liens or security
interests created hereby or upon the Note, or any
part thereof, Trustor shall immediately pay all
such taxes; provided that, in the alternative,
Trustor may, in the event of the enactment of such
a law, and must if it is unlawful for Trustor to
pay such taxes, prepay the Note together with the
applicable ;`Prepayment
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Fee" as defined in the Note, in full within sixty
(60) days after demand therefor by Beneficiary.
4.12 ESTOPPEL CERTIFICATES. Trustor
shall, upon request, promptly furnish, at any time
and from time to time a written statement or
affidavit, in such form as may be reasonably
required by Beneficiary, stating the amount of the
unpaid balance of the Note and that there are no
offsets or defenses against full payment of the
Note and performance of the terms hereof or, if
there are any such offsets and defenses,
specifying them in detail.
4.13 ENVIRONMENTAL MATTERS :
(a) REPRESENTATIONS COVENANTS AND
WARRANTIES. Except as may be otherwise expressly
stated in the Disclosure Schedule attached as
Exhibit "B" to the Environmental Certificate (the
"Disclosure Schedule"), Trustor hereby represents,
covenants and warrants to Beneficiary and its
successors and assigns, as follows, and as to such
representations and warranties, the same are made
based upon contents of the Phase I report
described in the Disclosure Schedule and to the
best of Trustor's knowledge:
(i) The location and construction,
occupancy, operation and use of all Improvements
do not and will not violate any applicable laws,
statute, ordinance, rule, regulation, policy,
order or determination of any Governmental
Authority or any board of fire underwriters- (or
other body exercising similar functions), or any
restrictive covenant or deed restriction affecting
any portion of the Mortgaged Property, including
without limitation, any applicable zoning
ordinances and building codes, flood disaster laws
and health and environmental laws, rules and
regulations (hereinafter collectively called the
"Applicable Laws").
(ii) Without in any way limiting the
generality of (a) above, neither the Mortgaged
Property nor the Trustor are the subject of
pending or, to the best of Trustor's knowledge,
threatened investigation or inquiry by any
Governmental Authority, or are subject to any
remedial obligations under any Applicable Laws
pertaining to health or the environment
("Applicable Environmental Laws"), including,
without limitation, the Comprehensive
Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA"), the
Resource Conservation and Recovery Act of 1976, as
amended ("RCRA"), and the Toxic Substances Control
Act, The Clean Air Act, and The Clean Water Act,
and applicable state laws, and this representation
and warranty would continue to be true and correct
following disclosure to any applicable
Governmental Authority of all relevant facts,
conditions and circumstances pertaining to the
Mortgaged Property and/or the Trustor.
(iii) Trustor is not required to obtain
any permits, licenses or authorizations to
construct, occupy, operate or use any portion of
the Mortgaged Property by reason of any Applicable
Environmental Laws, or if any such permits,
licenses or authorizations are required by any
Applicable Environmental Laws, such permits,
licenses or authorizations have, as of the date
hereof, been obtained or will be obtained in the
manner required by any Applicable Environmental
Laws in a timely manner.
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(iv) Trustor has determined, to the best
of its knowledge, that no hazardous substances,
solid wastes, or other substances known or
suspected to pose a threat to health or the
environment ("Hazards") have been disposed of or
otherwise released on or to the Mortgaged Property
or exist on or within any portion of the Mortgaged
Property except as described on the Disclosure
Schedule. No prior use, either by Trustor or the
prior owners of the Mortgaged Property, has
occurred which violates any Applicable
Environmental Laws. The use which Trustor makes
and intends to make of the Mortgaged Property will
not result in the disposal or release of any
hazardous substance, solid waste or Hazards on, in
or to the Mortgaged Property except as described
on the Disclosure Schedule. The terms "hazardous
substance" and "release" shall each have the
meanings specified in CERCLA, including, without
limitation, petroleum products and petroleum
wastes of any kind, and the terms "solid waste"
and "disposal" (or "disposed") shall each have the
meanings specified in RCRA; provided, however,
that in the event either that CERCLA or RCRA is
amended so as to broaden the meaning of any term
defined thereby, such broader meaning shall apply
subsequent to the effective date of such
amendment; and provided further that, to the
extent that the laws of the State of California
establish a meaning for "hazardous substance; '
"release; ' "solid waste; ' or "disposal" which is
broader than that specified in either CERCLA or
RCRA, such broader definition shall apply.
(v) To the best of Trustor's knowledge
and belief, there are no on-site or off site
locations where hazardous substances generated
from the Mortgaged Property, including such
substances as asbestos and Polychlorinated
Biphenyls, solid wastes, or Hazards, have been
stored, treated, recycled, or disposed of except
as described on the Disclosure Schedule.
(vi) To the best of Trustor's knowledge
and belief, there has been no litigation brought
or threatened nor any settlement reached by or
with any parties alleging the presence, disposal,
release, or threatened release, of any hazardous
substance, solid wastes or Hazards from the use or
operation of the Mortgaged Property.
(vii) To the best of Trustor's knowledge
and belief, the Mortgaged Property is not on any
federal or state "Superfund" list, and not on
EPA's Comprehensive Response, Compensation &
Liability System (CERCLIS) list or on any state
environmental agency list of sites under
consideration for CERCLIS, nor subject to any
environmentally related liens.
(viii) Neither Trustor nor, to the best
of Trustor's knowledge and belief, any tenant of
any portion of the Mortgaged Property, has
received any notice from any Governmental
Authority with respect to any violation of any
Applicable Laws.
(ix) Trustor shall not cause any
violation of any Applicable Environmental Laws, or
permit any tenant of any portion of the Mortgaged
Property to cause such a violation, nor permit any
environmental liens to be placed on any portion of
the Mortgaged Property.
All of the foregoing representations and
warranties shall be continuing and shall be true
and correct for the period from the date hereof
through and as of the date of the final payment of
all indebtedness owed by Trustor to Beneficiary
and the final
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performance of all obligations under all
instruments evidencing, governing, securing or
relating to such indebtedness, with the same force
and effect as if made each day throughout such
period, and all of such representations and
warranties shall
survive such payment and performance.
(b) COVENANT TO CLEAN UP AND NOTIFY.
Trustor shall conduct and complete, or cause to be
conducted and completed, all investigations,
studies, sampling, and testing and all remedial,
removal, and other actions necessary to clean up
and remove hazardous substances, solid wastes, or
Hazards on, in, from or affecting any portion of
the Mortgaged Property (a) in accordance with all
Applicable Laws, (b) to the satisfaction of
Beneficiary, and (c) in accordance with the orders
and directives of all Governmental Authorities.
Trustor shall (a) give notice to Beneficiary
immediately upon (i) Trustor's receipt of any
notice from any Governmental Authority of a
violation of any Applicable Laws or acquiring
knowledge of the receipt of any such notice by any
tenant of any portion of the Mortgaged Property
and (ii) acquiring knowledge of the presence of
any hazardous substances, solid wastes or Hazards
(other than those described in the Disclosure
Schedule) on the Mortgaged Property in a condition
that is resulting or could reasonably be expected
to result in any adverse environmental impact,
with a full description thereof; (b) promptly
comply with all Applicable Environmental Laws
requiring the notice, removal, treatment, or
disposal of such hazardous substances, solid
wastes or Hazards and provide Beneficiary with
satisfactory evidence of such compliance; and (c)
provide Beneficiary, within thirty (30) days after
demand by Beneficiary, with a bond, letter of
credit, or similar financial assurance evidencing
to Beneficiary's satisfaction that sufficient
funds are available to pay the cost of removing,
treating, and disposing of such hazardous
substances, solid wastes or Hazards and
discharging any assessments that may be
established on the Mortgaged Property as a result
thereof.
(c) SITE ASSESSMENT. If Beneficiary
shall ever have reason to believe that there are
hazardous substances, solid wastes or Hazards
(other than those described in the Disclosure
Schedule) affecting any of the Mortgaged Property,
Beneficiary (by its officers, employees and
agents) at any time and from time to time, either
prior to or after the occurrence of an Event of
Default, may contract for the services of persons
(the "Site Reviewers") to perform environmental
site assessments ("Site Assessments") on the
Mortgaged Property for the purpose of determining
whether there exists on the Mortgaged Property any
environmental condition that could result in any
liability, cost, or expense to the owner,
occupier, or operator of such Mortgaged Property
arising under any Applicable Environmental Laws.
The Site Assessments may be performed at any time
or times, upon reasonable notice, and under
reasonable conditions established by Trustor that
do not impede the performance of the Site
Assessments. The Site Reviewers are hereby
authorized to enter upon the Mortgaged Property
for such purposes. The Site Reviewers are further
authorized to perform both above and below the
ground testing for environmental damage or the
presence of hazardous substances, solid wastes and
hazards on the Mortgaged Property and such other
tests on the Mortgaged Property as may be
necessary to conduct the Site Assessments in the
reasonable opinion of the Site Reviewers. Trustor
will supply to the Site Reviewers such historical
and operational information regarding the
Mortgaged Property as may be reasonably requested
by the Site Reviewers to facilitate the Site
Assessment and will make available for meetings
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with the Site Reviewers appropriate personnel
having knowledge of such matters. On request,
Beneficiary shall make the results of such Site
Assessments fully available to Trustor, which
(prior to an Event of Default) may, at its
election, participate under reasonable procedures
in the direction of such Site Assessments and the
description of tasks of the Site Reviewers. The
cost of performing such Site Assessments shall be
paid by Trustor upon demand of Beneficiary.
(d) INDEMNITY AND HOLD HARMLESS. Trustor
hereby defends, indemnifies and holds harmless
Beneficiary, its employees, agents, shareholders,
officers and directors (collectively, the
"Indemnified Parties"), from and against any
claims, demands, obligations, penalties, fines,
suits, liabilities, settlements, damages, losses,
costs or expenses (including, without limitation,
attorney and consultant fees and expenses,
investigation and laboratory fees and expenses,
cleanup costs, and court costs and other
litigation expenses) of whatever kind or nature,
known or unknown, contingent or otherwise, arising
out of or in any way related to (i) the presence,
disposal, release, threatened release, removal or
production of any hazardous substances, solid
wastes or Hazards which are on, in, from or
affecting any portion of the Mortgaged Property;
(ii) any personal injury (including wrongful
death) or property damage (real or personal)
arising out of or related to such hazardous
substances, solid wastes or Hazards; (iii) any
lawsuit brought or threatened, settlement reached,
or order by Governmental Authority relating to
such hazardous substances, solid wastes or
Hazards; and/or (iv) any violation of any
Applicable Laws, or demands of Governmental
Authorities, or violation of any policies or
requirements of Beneficiary, which are based upon
or in any way related to such hazardous
substances, solid wastes or Hazards, regardless of
whether or not any of the conditions described
under any of the foregoing subsections (i) through
iv, inclusive, was or is caused by or within the
control of Trustor. Trustor agrees, upon notice
and request by an Indemnified Party, to contest
and defend any demand, claim, suit, proceeding or
action with respect to which Trustor has
hereinabove indemnified and held the Indemnified
Parties harmless and to bear all costs and
expenses of such contest and defense. Trustor
further agrees to reimburse any Indemnified Party
upon demand for any costs or expenses incurred by
any Indemnified Party in connection with any
matters with respect to which Trustor has
hereinabove indemnified and held the Indemnified
Parties harmless. The provisions of this paragraph
shall be in addition to any other obligations and
liabilities Trustor may have to Beneficiary at
common law, in equity or under documentation
executed in connection with the Note, and shall
survive the closing, funding and payment in full
of the Note, as well as any foreclosure or
granting of any deed in lieu of foreclosure and
the recordation of any release of the lien of this
Deed of Trust.
(e) BENEFICIARY RIGHT TO REMOVE
HAZARDOUS MATERIALS. Beneficiary shall have the
right, but not the obligation, without in any way
limiting Beneficiary's other rights and remedies
under the Mortgage, to enter onto the Mortgaged
Property or to take such other actions as it deems
necessary or advisable to clean up, remove,
resolve, or minimize the impact of, or otherwise
deal with, any hazardous substances, solid wastes
or Hazards on or affecting the Mortgaged Property
following receipt of any notice from any person or
entity asserting the existence of any hazardous
substances, solid wastes or Hazards pertaining to
the Mortgaged Property or any part thereof that,
if true, could result in an order, notice, suit,
imposition of a lien on the Mortgaged Property, or
other action or that, in Beneficiary's sole
opinion, could jeopardize Beneficiary's security
under this Deed of Trust. All reasonable costs and
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expenses paid or incurred by Beneficiary in the
exercise of any such rights shall be Indebtedness
secured by this Deed of Trust and shall be payable
by Trustor upon demand.
(f) RELIANCE AND BINDING NATURE. Trustor
acknowledges that Beneficiary has and will rely
upon the representations, covenants, warranties
and agreements set forth in closing and funding
the loan evidenced by the Note and that the
execution and delivery of this Deed of Trust is an
essential condition but for which Beneficiary
would not close or fund the Note. The
representations, covenants, warranties and
agreements herein contained shall be binding upon
Trustor, its successors, assigns and legal
representatives and shall inure to the benefit of
Beneficiary, its successors, assigns and legal
representatives.
ARTICLE V
NEGATIVE COVENANTS
Trustor hereby covenants and agrees with
Beneficiary that, until the
entire Indebtedness shall have been paid in full
and all of the Obligations which are then subject
to performance and discharge shall have been fully
performed and
discharged:
5.1 USE VIOLATIONS: Trustor will not
use, maintain, operate or occupy, or allow the
use, maintenance, operation or occupancy of the
Mortgaged Property in any manner which (a)
violates any Legal Requirement, including, without
limitation, Legal Requirements with respect to the
disposal of medical waste products, (b) may be
dangerous unless safeguarded as required by law,
or (c) constitutes a public or private nuisance.
5.2 ALTERATIONS: Trustor (i) will not
commit or permit any waste of the Mortgaged
Property and (ii) will not (subject to the
provisions of paragraph 4.5 and 4.7 herein), after
completion of the construction of the Improvements
as contemplated by the Loan Agreement, without the
prior written consent of Beneficiary, make or
permit to be made any alterations or additions to
the Mortgaged Property which affect the structural
portions of any Improvements, the exterior side or
common areas of any Improvements, or any areas
visible from the exterior or common areas of the
Improvements.
5.3 REPLACEMENT OF FIXTURES AND
PERSONALTY: Trustor will not, without the prior
written consent of Beneficiary, permit any of. the
Fixtures or Personalty to be removed at any time
from the Land or Improvements unless the removed
item is removed temporarily for maintenance and
repair or, if removed permanently, is replaced by
a new article of equal suitability and value,
owned by Trustor, free and clear of any lien or
security interest except such as may be first
approved in writing by Beneficiary. The foregoing
shall not limit the right of tenants under Leases
to install removable fixtures subject to security
interests on the Mortgaged Property which can be
removed without damage to the Mortgaged Property
and which pursuant to the Leases and the written
consent of Trustor obtained prior to installation
shall remain the property of such tenants and
shall not be considered part of the Mortgaged
Property.
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5.4 ZONING; TITLE MATTERS: Trustor will
not, without Beneficiary's express prior written
consent, (A) initiate or support any zoning
reclassification of the Mortgaged Property or seek
any variance under existing zoning ordinances
applicable thereto; (B) modify, amend or
supplement any Permitted Encumbrances; (C) impose
any restrictive covenants or any other encumbrance
upon the Mortgaged Property, execute or file any
subdivision plat affecting the Mortgaged Property
or consent to the annexation of the Mortgaged
Property to any municipality; or (D) permit or
offer the Mortgaged Property to be used by the
public or any person in such manner as might make
possible a claim of adverse usage or possession or
of any implied dedication or easement by
prescription.
5.5 NO FURTHER ENCUMBRANCES. Trustor
will not, without the prior written consent of
Beneficiary, create, place, suffer or permit to be
created or placed or, through any act or failure
to act, acquiesce in the placing of or allow to
remain, any mortgage, pledge, lien (statutory,
constitutional or contractual), security interest,
encumbrance or charge on, or conditional sale or
other title retention agreement, regardless of
whether same are expressly subordinate to the
liens of the Security Documents, with respect to
the Mortgaged Property, other (i) than the
Permitted Encumbrances, and (ii) leases or
financing agreements for furniture, fixtures,
equipment and other personal property used on the
Mortgaged Property provided that (A) the amount of
all such financing does not exceed $250,000
outstanding at any one time, and (B) Trustor has
first offered to permit Beneficiary to enter into
any such lease or financing agreement on the same
terms and conditions offered by a third party
lender and Beneficiary has refused such offer.
ARTICLE VI
EVENTS OF DEFAULT
6.1 DEFAULT. Any "Event of Default" as
described in the Loan Agreement or under any of
the other Security Documents shall constitute an
"Event of Default" hereunder and under the
Security Documents.
ARTICLE VII
DEFAULT AND FORECLOSURE
7.1 REMEDIES: Upon the occurrence of an
Event of Default, Beneficiary may at any time, at
its option and in its sole discretion, declare the
entire Indebtedness to be due and payable and the
same shall thereupon become immediately due and
payable, including the Prepayment Fee payable
under the terms of the Note. Beneficiary may also
do any or all of the following although it shall
have no obligation to do any of the following:
(a) Either in person or by agent, with
or without bringing any action or proceeding, or
by a receiver appointed by a court and without
regard to the adequacy of Beneficiary's security,
enter upon and take possession of the Mortgaged
Property, or any part thereof, and do any acts
which Beneficiary deems necessary or desirable to
preserve the value, marketability or rentability
of the Mortgaged Property, or to increase the
income therefrom or to protect the security hereof
and, with or without taking possession of any of
the Mortgaged Property, sue for or otherwise
collect all rents and profits, and expenses of
operation and collection, including attorney's
fees and expenses, upon the
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indebtedness, al1 in such order as Beneficiary may
determine. The collection of rents and profits and
the application thereof shall not cure or waive
any Event of Default or notice thereof or
invalidate any act done in response thereto or
pursuant to such notice.
(b) Bring an action in any court of
competent jurisdiction to foreclose this Deed of
Trust or to enforce any of the covenants hereof.
(c) Exercise any or all of the remedies
available to a secured party under the UCC,
including, but not limited to:
(1) either personally or by means of a
court appointed receiver, take possession of all
or any of the Collateral and exclude therefrom
Trustor and all others claiming under Trustor and
thereafter hold, store, use, operate, manage,
maintain and control, make repairs, replacements,
alterations, additions and improvements to and
exercise all rights and powers of Trustor in
respect to the Collateral; and in the event
Beneficiary demands or attempts to take possession
of the Collateral in the exercise of any of its
rights hereunder, Trustor promises and agrees
promptly to turn over and deliver complete
possession thereof to Beneficiary;
(2) without notice to or demand upon
Trustor, make such payments and do such acts as
Beneficiary may deem necessary to protect its
security interest in the Collateral, including,
without limitation, paying, purchasing, contesting
or compromising any encumbrance, charge or lien
which is prior or superior to the security
interest granted hereunder, and in exercising any
such powers or authority, to pay all expenses
incurred in connection therewith;
(3) require Trustor to assemble the
Collateral on the Land and promptly to deliver
such Collateral to Beneficiary or an agent or
representative designated by it. Beneficiary, its
agents and representatives, shall have the right
to enter upon any or all of the Trustor's premises
and property to exercise the Beneficiary's rights
hereunder; and
(4) sell, lease or otherwise dispose of
the Collateral at public sale, with or without
having the Collateral at the place of sale, and
upon such terms and in such manner as Beneficiary
may determine; and Beneficiary may be a purchaser
at any such sale. Beneficiary shall not be deemed
to have accepted any property other than cash in
satisfaction of the Indebtedness or any portion
thereof unless Beneficiary shall make an express
written election of said remedy under UCC section
9505 or other applicable law.
(d) Elect to sell by power of sale the
portion of the Mortgaged Property which is real
property and such portion of the Mortgaged
Property which is personal property or fixtures
which Beneficiary shall elect to include in such
sale, and upon such election, such notice of Event
of Default and election to sell shall be given as
may then be required by law. Thereafter, upon the
expiration of such time and the giving of such
notice of sale as may then be required by law, at
the time and place specified in the notice of
sale, Trustee shall sell such property, or any
portion thereof specified by Beneficiary, at
public auction to the highest bidder for cash in
lawful money of the United States. Trustee may,
and upon request of Beneficiary shall, from time
to time, postpone the sale by public announcement
thereof at the time and place noticed therefor. If
the Mortgaged Property consists of several lots,
parcels or interests, Beneficiary may designate
the order in which the same shall be offered for
sale or sold. Trustor waives all
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rights to direct the order in which any of the
Mortgaged Property will be sold in the event of
any sale under this Deed of Trust, and also of any
right to have any of the Mortgaged Property
marshalled upon any sale. In the case of a sale
under this Deed of Trust, the said propriety,
real, personal and mixed, may be sold in one
parcel or more than one parcel. Should Beneficiary
desire that more than one such sale or other
disposition be conducted, Beneficiary may, at its
option, cause the same to be conducted
simultaneously, or successively on the same day,
or at such different days or times and in such
order as Beneficiary may deem to be in its best
interest. Any person, including Trustor, Trustee
or Beneficiary, may purchase at the sale. Upon any
sale, Trustee shall execute and deliver to the
purchaser or purchasers a deed or deeds conveying
the property so sold, but without any covenant or
warranty whatsoever, express or implied, whereupon
such purchaser or purchasers shall be let into
immediate possession. Beneficiary, from time to
time before the trustee's sale pursuant to this
section, may rescind any notice of breach or
default and of election to cause to be sold the
Mortgaged Property by executing and delivering to
Trustee a written notice of such rescission, which
notice, shall also constitute a cancellation of
any prior declaration of default and demand for
sale. The exercise by Beneficiary of such right of
rescission shall not constitute a waiver of any
breach or default then existing or subsequently
occurring or impair the right of Beneficiary to
execute and deliver to Trustee, as above provided,
other declarations of default and demands for
sale, and notices of breach or default of the
obligations hereof, nor otherwise affect any
provision, covenant or condition of the Note
and/or of this Deed of Trust or any of the rights,
obligations or remedies of the parties thereunder
or hereunder.
(e) Exercise each of its other rights
and remedies under this Deed of Trust and each of
the other Security Documents.
(f) Except as otherwise required by
law, apply the proceeds of any foreclosure or
disposition hereunder to payment of the following:
(i) the expenses of such foreclosure or
disposition, (ii) the cost of any search or other
evidence of title procured in connection therewith
and revenue stamps on any deed or conveyance,
(iii) all sums expended under the terms hereof,
not then repaid, with accrued interest in the
amount provided herein, (iv) all other sums
secured hereby and (v) the remainder, if any, to
the person or persons legally entitled thereto.
(g) Upon any sale or sales made under or
by virtue of this paragraph, whether made under
the power of sale or by virtue of judicial
proceedings or of a judgment or decree of
foreclosure and sale, Beneficiary may bid for and
acquire the Mortgaged Property or any part
thereof. In lieu of paying cash for the Mortgaged
Property, Beneficiary may make settlement for the
purchase price by crediting against the
Indebtedness the sale price of the Mortgaged
Property, as adjusted for the expenses of sale and
the costs of the action and any other sums for
which Trustor is obligated to reimburse Trustee or
Beneficiary under this Deed of Trust:
(h) In the event that Trustor has an
equity of redemption and the Mortgaged Property is
sold pursuant to the power of sale or otherwise
under or by virtue of this paragraph, the
purchaser may, during any redemption period
allowed, make such repairs or alterations on said
property as may be reasonably necessary for the
proper operation, care, preservation, protection
and insuring thereof. Any sums so paid together
with interest thereon from the time of such
expenditures at the Default Rate provided in
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the Loan Agreement shall be added to and become a
part of the amount required to be paid for
redemption from such sale.
7.2 WAIVERS: To the fullest extent
permitted by law; Trustor hereby waives the
benefit of all laws now existing or hereafter
enacted providing for the pleading of any statute
of limitation as a defense to any of the
Indebtedness or the Obligations or extending the
time for the enforcement of the collection of any
of the Indebtedness or the performance of the
Obligations; and Trustor agrees that Trustor shall
not at any time insist upon, plead, claim or take
the benefit or advantage of any law now or
hereafter in force providing for any stay of
execution, extension or marshalling in the event
of foreclosure of the liens and security interests
hereby created. In addition, Trustor expressly
waives and relinquishes any and all rights and
remedies which Trustor may have or be able to
assert by reason of any laws pertaining to the
rights and remedies of Sureties or any law
pertaining to the marshalling of assets, the
administration of estates of decedents and any
exemption from execution or sale of the Mortgaged
Property or any portion thereof. Further, Trustor
shall not at any time claim, take or insist upon
any benefit or advantage now or hereafter in force
providing for the valuation or appraisal of the
Mortgaged Property, or any part thereof, prior to
any sale or sales thereof, nor after any such sale
or sales, claim or exercise any right under any
statute to redeem the property so sold or any
property thereof.
7.3 PREPAYMENT: If Beneficiary shall
accelerate the Indebtedness following the
occurrence of an Event of Default, any payments
received by Beneficiary following such
acceleration (including voluntary payments made by
Trustor and payments received by Beneficiary as a
result of the sale of the Mortgaged Property at
foreclosure) shall be deemed voluntary prepayments
of the Note and accordingly, the Prepayment Fee
required under the Note shall also be payable by
Trustor; provided, however, that the obligation of
Trustor to pay any such Prepayment Fee is
expressly subject to paragraph 11.10 of this Deed
of Trust.
ARTICLE VIII
CONDEMNATION
8.1 APPLICATION OF PROCEEDS: If the
Mortgaged Property or any part thereof, shall be
condemned or otherwise taken for public or quasi-
public use under the power of eminent domain, or
be transferred in lieu thereof, all damages or
other amounts awarded Trustor for the taking, or
injury to, the Mortgaged Property (the
"Award") shall be paid to Beneficiary to be
applied towards the Indebtedness. To enforce its
rights hereunder, Beneficiary shall be entitled to
participate in and control any condemnation
proceedings and to be represented therein by
counsel of its own choice, and Trustor will
deliver, or cause to be delivered, to Beneficiary
such instruments as may be requested by it from
time to time to permit such participation. In the
event Beneficiary, as a result of any such
judgment, decree or award, believes that the
payment or performance of any obligation secured
by this Deed of Trust is impaired, Beneficiary may
declare all of the Indebtedness secured hereby
immediately due and payable.
In case of a taking during the
"Permanent Term" (as defined in the Loan
Agreement) in which the cost of the restoration,
repair or replacement (hereinafter referred to as
the "Restoration") of the Mortgaged Property
reasonably estimated by
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Beneficiary shall not exceed the proceeds paid to
Beneficiary then such Award may be used for the
prosecution of the Restoration in the manner
hereinafter provided. If the cost of the
Restoration reasonably estimated by Beneficiary
shall exceed the Award, then unless Trustor
deposits with Beneficiary or causes to be
depo5lted with Beneficiary the difference between
the estimated cost of the Restoration and the
amount of the Award within ninety (90) days after
written demand therefor, Beneficiary, at its
option, shall be entitled to receive and retain
the Award, applying the same upon the
Indebtedness. Notwithstanding anything herein to
the contrary, if any Award is made (i) within one
( 1 ) year prior to the original stated maturity
date of the Note, unless said maturity date has
been extended by Trustor by giving notice in
accordance with the Note or is extended by Trustor
in accordance with the Note within thirty (30)
days after said taking, (ii) within one ( 1 ) year
prior to the extended maturity date of the Note,
if Trustor has extended such maturity date in
accordance with the Note, or (iii) at any time
when there shall exist an Event of Default
hereunder, Beneficiary shall be entitled to
receive and retain the Award and apply same upon
the Indebtedness. In the event Beneficiary elects
to make such Award available to Trustor for such
purpose, Trustor will promptly or will promptly
cause and at the sole cost and expense of Trustor
and regardless of whether the Award (if any) shall
be sufficient for the purpose, commence and
continue diligently to completion to restore,
repair, replace and rebuild the Mortgaged Property
as nearly as possible to its value, condition and
character immediately prior to such taking subject
to the conditions and restrictions applicable to
Trustor's use of insurance proceeds contained in
the second paragraph of sub paragraph 4.7 (a)
above. Trustor hereby irrevocably and
unconditionally waives all rights of a property
owner under the provisions of California Code of
Civil Procedure section 1265.225(a), or any successor
statute, providing for the allocation of
condemnation proceeds between a property owner and
a lienholder.
ARTICLE IX
SECURITY AGREEMENT.
9.1 Security Agreement and Fixture
Filing:
(a) Insofar as (i) any of the Mortgaged
Property and, (ii) all other Personal Mortgaged
Property either referred to or described in this
Deed of Trust, or in any way connected with the
use or enjoyment of the Mortgaged Property
(hereinafter collectively referred to as
"Collateral"), this Deed of Trust, in compliance
with the provisions of Article 9 of the UCC, as if
may be amended from time to time, is hereby made
and declared to be a security agreement,
encumbering the Collateral. Trustor does hereby
grant to Beneficiary a continuing lien and
security interest in and to all of said Collateral
and all replacements, substitutions, additions and
proceeds thereof and all after-acquired property
relating thereto. A financing statement or
statements affecting all of the Collateral
aforementioned, shall be executed by Trustor and
appropriately filed. Trustor covenants and agrees
that, prior to changing its name, identity or
structure, it will so notify Beneficiary and wit1
promptly execute any financing statements or other
instruments deemed necessary by Beneficiary to
prevent any tiled financing statement from
becoming seriously misleading or losing its
perfected status, and, failing to do so,
authorizes Beneficiary to file such financing
statements and irrevocably constitutes and
appoints Beneficiary, or any officer of
Beneficiary, as its true and lawful attorney-in-
fact to execute the same on behalf of Trustor. The
remedies for any violation of the covenants, terms
and conditions of the security agreement herein
contained shall be (i) as prescribed herein, (ii)
as prescribed by general law, or (iii) as
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prescribed by the specific statutory consequences
now or hereafter enacted and specified in the UCC,
all at Beneficiary's sole election. Trustor and
Beneficiary agree that the filing of such
financing statement(s) in the records normally
having to do with personal property shall never be
construed in anywise derogating from or impairing
this declaration and hereby stated intention of
Trustor and Beneficiary that everything used in
connection with the production of income from the
Mortgaged Property, adapted for use therein,
and/or which is described 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 (a) any such item is physically
attached to the improvements, (b) serial numbers
are used for the better identification of certain
items capable of being thus identified in a
recital contained herein, or (c) any such item is
referred to or reflected in any such financing
statement(s) so filed at any time. Similarly, the
mention in any such financing statement(s) of the
rights in and to (aa) the proceeds of any
insurance policy relating to the Mortgaged
Property, or (bb) any award in eminent domain
proceedings for a taking or for loss of value, or
(cc) Trustor's interest as lessor in any present
or future Lease, sublease, or rights to income
growing out of the use and/or occupancy of the
Mortgaged Property, or any business or other
activity conducted thereon, whether pursuant to
Lease, sublease, or otherwise, shall never be
construed as in anywise altering any of the rights
of Beneficiary as determined by this Deed of Trust
or impugning the priority of Beneficiary's lien
granted hereby or by any other recorded documents,
but such mention in such financing statement(s) is
declared to be for the protection of Beneficiary
in the event any court shall at any time hold with
respect to the foregoing (aa), (bb) or (cc), that
notice of Beneficiary's priority of interest to be
effective against a particular class of persons,
must be filed in the UCC records. The information
contained herein is provided in order that this
Deed of Trust shall comply with the requirements
of the UCC for instruments to be filed as
financing statements or fixture filings. For such
purposes, the "Debtor" is Trustor; the "Secured
Party" is Beneficiary, the principal place of
business of the "Debtor" is set forth on Page 1 of
this Deed of Trust, the mailing addresses of the
"Debtor" and "Secured Party" are as set forth on
Page 1 of this Deed of Trust and the types or
items of
collateral are as described hereinabove in this
paragraph.
(b) This Deed of Trust constitutes a
financing statement filed as a fixture filing
under UCC section 9402(6) in the official records
of the county in which the Mortgaged Property is
located with respect to any and all fixtures
included within the term "Mortgaged Property" and
with respect to any goods or other personal
property that may now be or hereafter become such
a fixture. PARTS OF THE COLLATERAL ARE, OR ARE TO
BECOME, FIXTURES ON THE MORTGAGED PROPERTY.
(c) Beneficiary has no responsibility
for, and does not assume any of, Trustor's
obligations or duties under any agreement or
obligation which is part of the Collateral or any
obligation relating to the acquisition,
preparation, custody, use, enforcement or
operation of any of the Mortgaged Property.
(d) It is understood and agreed that, in
order to protect Beneficiary from the effect of
UCC section 9313, as amended from time to time, in
the event that (A) Trustor intends to purchase any
goods which may become fixtures to the Mortgaged
Property, or any part thereof, and (B) such goods
will be subject to a security interest held by a
seller or any other party, Trustor shall, before
executing any security agreement
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or other document evidencing such security
interest, obtain the prior written approval of
Beneficiary, and all requests for such written
approval shall be in writing and contain the
following information:
(1 ) A description of the Collateral to
be replaced, added to, installed or substituted;
(2) The address at which the Collateral
will be replaced, added to, installed or
substituted; and
(3) The name and address of the proposed
holder and proposed amount of the security
interest; and any failure of Trustor to obtain
such approval shall be a material breach of
Trustor's covenants under this Deed of Trust, and
shall, at the option of Beneficiary, entitle
Beneficiary to all rights and remedies provided
for herein upon an Event of Default. No consent by
Beneficiary pursuant to this section shall be
deemed to constitute an agreement to subordinate
any right of Beneficiary in fixtures or other
property covered by this Deed of Trust.
(e) Beneficiary shall have the right to
acquire by assignment
from the holder of such security interest any and
all contract rights, accounts receivable,
negotiable or non-negotiable instruments or other
evidence of Trustor's indebtedness for such
Collateral and, upon acquiring such interest b by
assignment, shall have the right to enforce the
security interest as assignee thereof, in
accordance with the terms and provisions of the
UCC then in effect and in accordance with any
other provisions of law.
ARTICLE X
CONCERNING THE TRUSTEE
I0.1 NO LIABILITY: Trustee shall not be
personally liable in case of entry by him or
anyone acting by virtue of the powers herein
granted him upon the Mortgaged Property for debts
contracted or liability or damages incurred in the
management or operation of the Mortgaged Property.
Trustee shall have the right to rely on any
instrument, document or signature authorizing or
supporting any action taken or proposed to be
taken by him hereunder or believed by him in good
faith to be genuine. Trustee shall be entitled to
reimbursement for expenses incurred by him in the
performance of his duties hereunder.
10.2 RETENTION OF MONIES: All monies
received by Trustee shall, until used or applied
as herein provided, be held in trust for the
purposes for which they were received, but need
not be segregated in any manner from any other
monies (except to the extent required by law), and
Trustee shall be under no liability for interest
on any monies received by him hereunder.
10.3 ACTIONS OF TRUSTEE: At any time
upon written request of Beneficiary, payment of
its fees and presentation of this Deed of Trust
and the Note for endorsement (in case of full
reconveyance, for cancellation and retention)
without affecting the liability of any person for
the payment of the Indebtedness, Trustee may (a)
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consent to the making of any map or plat of the
Mortgaged 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 the lien or charge
thereof, and (d) reconvey, without warranty, all
or any part of the Mortgaged Property. The grantee
in any reconveyance may be described as the
"person or persons legally entitled thereto," and
the recitals therein of any matters of facts shall
be conclusive proof of the truthfulness thereof.
Trustor agrees to pay a reasonable Trustee's fee
for full or partial reconveyance, together with a
recording fee if Trustee, at its option, elects to
record said reconveyance.
10.4 SUBSTITUTE TRUSTEE: Beneficiary may
substitute Trustee hereunder in any manner now or
hereafter provided by law or, in lieu thereof,
Beneficiary may from time to time, by an
instrument in writing, substitute a successor or
successors to any Trustee named herein or acting
hereunder, which instrument, executed and
acknowledged by Beneficiary and recorded in the
office of the recorder of the county or counties
in which the Land and Improvements are situated,
shall be conclusive proof of proper substitution
of such successor Trustee, who shall thereupon and
without conveyance from the predecessor Trustee,
succeed to all its title, estate, rights, powers
and duties.
10.5 SUCCESSION INSTRUMENTS: Any new
Trustee appointed pursuant to any of the
provisions hereof shall, without any further act,
deed or conveyance, become vested with all the
estates, properties, rights; powers and trusts of
its or his predecessor in the rights hereunder
with like effect as if originally named as Trustee
herein; but, nevertheless, upon the written
request of Beneficiary or his successor trustee,
Trustee ceasing to act shall execute and deliver
an instrument transferring to such successor
trustee, upon the trust herein expressed, all the
estates, properties, rights, powers and trusts of
Trustee so ceasing to act, and shall duly assign,
transfer and deliver any of the property and
monies held by Trustee to the successor trustee so
appointed in its or his place.
10.6 PERFORMANCE OF DUTIES BY AGENTS:
Trustee may authorize one or more parties to act
on his behalf to perform the ministerial functions
required of him hereunder, including, without
limitation, the transmittal and posting of any
notices.
ARTICLE XI
MISCELLANEOUS
11.1 SURVIVAL OF OBLIGATIONS: Each and
all of the Obligations shall survive the execution
and delivery of the Security Documents and the
consummation of the loan called for therein and
shall continue in full force and effect until the
Indebtedness shall have been paid in full.
11.2 FURTHER ASSURANCES: Trustor, upon
the request of Trustee or Beneficiary, will
execute, acknowledge, deliver and record and/or
file such further instruments and do such further
acts as may reasonably be necessary, desirable or
proper to carry out more effectively the purposes
of the Security Documents, to subject to the liens
and security interests thereof any property
intended by the terms thereof to be covered
thereby, including, specifically, without
limitation, any renewals, additions,
substitutions, replacements or appurtenances to
the Mortgaged Property, and to
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complete, execute, record and file any document or
instrument necessary to place third parties on
notice of the liens and security interests granted
under the Security Documents. Trustor hereby
irrevocably appoints Trustee and Beneficiary as
its agents to execute and deliver all such
instruments and additionally to record and file
any of the same as may be necessary.
11.3 RECORDING AND FILING: Trustor will
cause the Security Documents and all amendments
and supplements thereto and substitutions therefor
to be recorded, filed, re-recorded and refiled in
such manner and in such places as Trustee or
Beneficiary shall reasonably request and will pay
all such recording, filing, re-recording and
refiling taxes, fees and other charges.
11.4 NOTICES: Any notice, request or
other communication required or permitted to be
given hereunder may be given and shall
conclusively be deemed and considered to have been
given and received upon the deposit thereof, in
writing, in the U.S. Mail, certified mail, return
receipt requested, postage prepaid, and addressed
to the party to receive such notice at the address
set forth below or such address elected in writing
by the party to receive such notice; but actual
notice however given or received, shall always be
effective. The last preceding sentence shall not
be construed in anywise to effect or impair the
waiver of notice or demand to or upon Trustor in
any situation or for any reason (except as
otherwise specifically provided).
If to Trustor: TDC/Emeritus Paso
Robles Associates
8219 Santa Juanita Avenue
Orangeville, California
95662
With Copy to: Emeritus Corporation
3131 Elliott Avenue,
Suite 500
Seattle, Washington 98121
TDC Convalescent, Inc.
3017 Douglas Boulevard
Suite 300
Roseville, California
95661
Randi Nathanson, Esq.
The Nathanson Group
1411 Fourth Avenue, Suite
905
Seattle, Washington 98101
If to Beneficiary: FINOVA Capital
Corporation
3200 Park Center Drive,
Fifth Floor
Costa Mesa, California
92626
with copy to: FINOVA Capital
Corporation
7272 East Indian School
Road, Suite 410
Scottsdale, Arizona 85251
Attn.: Vice President -
Group Counsel
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11.5 NO WAIVER: Any failure by Trustee
or Beneficiary to insist, or any election by
Trustee or Beneficiary not to insist, upon strict
performance by Trustor of any of the terms,
provisions or conditions of the Security Documents
shall not be deemed to be a waiver of the same or
of any other term, provision or condition thereof,
and Trustee or Beneficiary shall have the right at
any time or times thereafter to insist upon strict
performance by Trustor of any and all of such
terms, provisions and conditions.
11.6 BENEFICIARY'S RIGHT TO PAY
INDEBTEDNESS AND PAY OBLIGATIONS: If Trustor shall
default under any of the Security Documents, then
at any time thereafter and without further notice
to or demand upon Trustor or any other party,
without waiving or releasing any other right,
remedy or recourse Beneficiary may have because of
the same, Beneficiary may (but shall not be
obligated to) make such payment or perform such
act for the account of and at the expense of
Trustor and shall have the right to enter upon the
Mortgaged Property for such purpose and to take
all such action thereon with respect to the
Mortgaged Property as it may deem necessary or
appropriate. Trustor shall be obligated to repay
Beneficiary for all sums advanced by it pursuant
to this paragraph 11.6 and shall indemnify and
hold Beneficiary harmless from and against any and
all loss, cost, expense, liability, damage and
claims and causes of action, including reasonable
attorney's fees, incurred or accruing by any acts
performed by Beneficiary pursuant to the
provisions of this paragraph 11.6 or by reason of
any other provision of the Security Documents. All
sums paid by Beneficiary pursuant to this
paragraph 11.6 and all other sums expended by
Beneficiary to which it shall be entitled to be
indemnified, together with interest thereon at the
"Default Rate" as defined in the Loan Agreement
from the date of such payment or expenditure,
shall constitute additions to the Indebtedness and
Obligations, shall be secured by the Security
Documents and shall be paid by Trustor to
Beneficiary upon demand.
11.7 COVENANTS RUNNING WITH THE LAND:
All obligations contained in the Security
Documents are intended by the parties to be and
shall be construed as covenants running with the
Mortgaged Property.
11.8 SUCCESSORS AND ASSIGNS: All of the
terms of the Security Documents shall apply to, be
binding upon and inure to the benefit of the
parties
thereto, their respective successors, assigns,
heirs and legal representatives and all Other
persons claiming by, through or under them.
11.9 SEVERABILITY: The Security
Documents are intended to be performed in
accordance with, and only to the extent permitted
by, all applicable Legal Requirements. If any
provision of any of the Security Documents or the
application thereof to any person or circumstance
shall, for any reason and to any extent, be
invalid or unenforceable, neither the remainder of
the instrument in which such provision is
contained nor the application of such provision to
other persons or circumstances or other
instruments referred to hereinabove shall be
affected thereby, but rather the same shall be
enforced to the greatest extent permitted by law.
11.10 USURY: It is the intention of
Trustor and Beneficiary to comply with the
applicable law governing the rate of interest or
maximum amount of interest payable on or in
connection with the Note and the loan transaction
evidenced thereby, therefore (i) in the event that
the Indebtedness is prepaid or the maturity of the
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Indebtedness and Obligations is accelerated by
reason of an election by Beneficiary, unearned
interest shall be canceled and, if theretofore
paid, shall either be refunded to Trustor or
credited on the Indebtedness, as Beneficiary may
elect; (ii) the aggregate of all interest and
other charges constituting interest under
applicable laws and contracted for, chargeable or
receivable under the Note, the Indebtedness (if
unpaid), the other Security Documents or otherwise
in connection with the loan transaction
contemplated thereby shall never exceed the
maximum amount of interest, nor produce a rate in
excess of the maximum contract rate of interest
that Beneficiary is authorized to charge Trustor
under applicable law; and (iii) if any excess
interest is provided for, it shall be deemed a
mistake, and the same shall, at the option of
Beneficiary, either be refunded to Trustor or
credited on the unpaid principal amount (if any),
and the Indebtedness shall be automatically
reformed as to permit only the collection of the
maximum legal contract rate.
11. 11 ENTIRE AGREEMENT AND
MODIFICATION: The Security Documents contain the
entire agreements between the parties relating to
the subject matter hereof and thereof, and all
prior agreements relative thereto which are not
contained herein or therein are terminated. The
Security Documents may be amended, revised,
waived, discharged, released or terminated only by
a written instrument or instruments executed by
the party against which enforcement of the
amendment, revision, waiver, discharge, release or
termination is asserted. Any alleged amendment,
revision, waiver, discharge, release or
termination which is not so documented shall not
be effective as to any party.
11.12 COUNTERPARTS: This Deed of Trust
may be executed in any number of counterparts,
each of which shall be an original, but all of
which together shall constitute but one
instrument.
11.13 UNIFORM COMMERCIAL CODE: All terms
used herein which are defined in the CICC shall be
used with the definition therefor in said Code.
11.14 IMPOSITIONS AND INSURANCE ESCROW:
To implement the provisions of paragraphs 4.4 and
4.6 hereof, upon the occurrence of an Event of
Default, Trustor, at Beneficiary's request, shall
pay to Beneficiary in advance, as and when
directed by Beneficiary and as escrowed sums, an
amount equal to the sums of: (a) the annual
Impositions (estimated wherever necessary) to
become due for the tax year during which such
payment is so directed; and (b) the insurance
premiums for the same year for those insurance
policies as are required hereunder. If Beneficiary
determines that any amounts theretofore paid by
Trustor are insufficient for the payment in full
of such Impositions and insurance premiums,
Beneficiary shall notify Trustor of the increased
amounts required to provide a sufficient fund,
whereupon Trustor shall pay to Beneficiary within
thirty (30) days thereafter the additional amount
so stated in Beneficiary's notice. The escrowed
sums may be held by Beneficiary in non-interest
bearing accounts and may be commingled with
Beneficiary's other funds. Upon assignment of this
Deed of Trust, Beneficiary shall have the right to
pay over the balance of the escrowed sums then in
its possession to its assignee, whereupon
Beneficiary and its Trustee shall then become
completely released from all liability with
respect thereto. Upon payment of the Indebtedness
and Obligations, or at such earlier time that
Beneficiary may elect, the balance of the escrowed
sums in its possession may be paid
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over to Trustor, and no other party shall have any
right or claim thereto. If no Event of Default
shall have occurred or be continuing hereunder,
the escrowed sums may, at the option of
Beneficiary, be repaid to Trustor in sufficient
time to allow Trustor to satisfy Trustor's
obligations under the Security Documents to pay
the Impositions and the required insurance
premiums or may be paid by Beneficiary directly to
the Governmental Authority and the insurance
company entitled thereto. If an Event of Default
shall have occurred or be continuing hereunder,
however, Beneficiary shall have the additional
option of crediting the full amount of the
escrowed sums against the Indebtedness.
Notwithstanding anything to the contrary contained
in this paragraph 11.14 or elsewhere in this Deed
of Trust, Beneficiary hereby reserves the right to
waive the payment by Trustor to Beneficiary of the
escrowed sums and, in the event Beneficiary does
so waive such payment, it shall be without
prejudice- to Beneficiary's right to insist, at
any subsequent time or times, that such payments
be made in accordance herewith.
11.15 HEADINGS AND GENERAL APPLICATION:
The article, paragraph and subparagraph
entitlements hereof are inserted for convenience
or reference only and shall in no way affect,
modify or define, or be used in construing, the
text of such article, paragraph or subparagraph.
If the context requires, words used in the
singular shall be read as including the plural,
and pronouns of any gender shall include all
genders.
11.16 SOLE BENEFIT: This instrument and
the other Security Documents have been executed
for the sole benefit of Trustor and Beneficiary
and the heirs, successors, assigns and legal
representatives of Beneficiary. No other party
shall have rights thereunder nor be entitled to
assume that the parities thereto will insist upon
strict performance of their mutual obligations
hereunder, any of which may be waived from time to
time. Trustor shall have no right to assign any of
its rights under the Security Documents to any
party whatsoever, including the right to receive
advances under the Note or otherwise.
11.17 SUBROGATION: If any or all of the
proceeds of the Indebtedness or the Obligations
have been used to extinguish, extend or renew any
indebtedness heretofore existing against the
Mortgaged Property or to satisfy any indebtedness
or obligation secured by a lien or encumbrance of
any kind (including liens securing the payment of
any Impositions), such proceeds have been advanced
by Beneficiary at Trustor's request, and, to the
extent of such funds so used, the Indebtedness and
Obligations in this Deed of Trust shall be
subrogated to and extend to all of the rights,
claims, liens, titles and interests heretofore
existing against the Mortgaged Property to secure
the indebtedness or obligation so extinguished,
paid, extended or renewed, and the former rights,
claims, liens, title and interest, if any, shall
not be waived, but rather shall be continued in
full force and effect and in favor of Beneficiary
and shall be merged with the lien and security for
the repayment of the Indebtedness and satisfaction
of the Obligations; but, in no event shall the
foregoing provision result in Beneficiary
recovering more than the full amount of the
Indebtedness.
11.18 BUSINESS OR COMMERCIAL PURPOSE:
Trustor warrants that the extension of credit
evidenced by the Note secured hereby is solely for
business or commercial purposes, other than
agricultural purposes. Trustor further warrants
that the credit transaction evidenced by the Note
is specifically exempted under Regulation Z
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issued by the Board of Governors of the Federal
Reserve System and Title I (Consumer Credit Cost
Disclosure) of the Consumer Credit Protection Act
and that no disclosures are required to be given
under such regulations and federal laws in
connection with the above transaction.
11.19 STATEMENT OF CONDITION:
Beneficiary shall furnish any statement required
by law regarding the Indebtedness and the
Obligations secured hereby or regarding the
amounts held in any trust or reserve fund
hereunder. For any such statement, Beneficiary may
charge a reasonable fee, not to exceed the maximum
amount permitted by law at the time of the request
therefor.
11.20 NO OFFSET: Under no circumstances
shall Trustor fail or delay to perform (or resist
the enforcement of) any of its obligations in
connection with any of
the Security Documents because of any alleged
offsetting claim or cause of action against
Beneficiary or any indebtedness or obligation of
Beneficiary) which has not been confirmed in a
final judgment of a court of competent
jurisdiction (sustained on appeal, if any) against
Beneficiary and Trustor hereby waives any such
rights of, setoff (or offset) which it might
otherwise have with respect to any such claims or
causes of action against Beneficiary (or any such
obligations or indebtedness of Beneficiary),
unless and until such right of setoff is confirmed
and liquidated by such final judgment.
11.21 NO PARTNERSHIP OR JOINT VENTURE:
Nothing contained herein or in the Note or any
Security Documents, nor the acts or omissions of
the parties hereto, shall be construed to create a
partnership or joint venture between Trustor and
Beneficiary. The relationship between Trustor and
Beneficiary is the relationship of
"debtor" and "creditor." Trustor shall indemnify
and hold Beneficiary harmless from and against any
and all suits, actions, claims, proceedings
(including third party proceedings), damages,
losses, liabilities and expenses (including,
without limitation, reasonable attorneys' fees)
which may be incurred by or asserted against
Beneficiary with respect to any claim or assertion
which, if true, would be inconsistent with or
contradict the statements made in the preceding
two sentences. The provisions of this paragraph
11.21 shall survive the repayment of the
Indebtedness.
1122 WAIVER OF JURY TRIAL: FOR AND IN
CONSIDERATION OF BENEFICIARY'S ADVANCEMENT TO
TRUSTOR OF THE PRINCIPAL SUMS IN THE AMOUNT OF UP
TO SIX MILLION AND NO/100 DOLLARS ($6,000,000.00),
TRUSTOR, BEING AN EXPERIENCED OWNER AND OPERATOR
OF REAL ESTATE AND PARTICIPANT IN SOPHISTICATED
REAL ESTATE VENTURES, AND HAVING CONSULTED WITH
COUNSEL OF ITS CHOOSING, HEREBY WAIVES ANY RIGHT
TO TRIAL BY JURY WITH RESPECT TO ANY ACTION OR
PROCEEDING (1) BROUGHT BY TRUSTOR, BENEFICIARY OR
ANY OTHER PERSONS RELATING TO (A) THE LOAN OR (B)
THE SECURITY DOCUMENTS OR (2) TO WHICH BENEFICIARY
IS A PARTY. TRUSTOR HERBBY AGR.EES THAT THIS DEED
OF TRUST CONSTITUTES A WRITTEN CONSENT TO WAIVER
OF TRIAL BY JURY, AND TRUSTOR DOES HEREBY
CONSTITUTE AND APPOINT BENEFICIARY ITS TRUE AND
LAWFUL ATTORNEY IN FACT, WHICH APPOINTMENT IS
COUPLED WITH AN INTEREST AND IRREVOCABLE, AND
TRUSTOR DOES HEREBY AUTHORIZE AND EMPOWER
BENEFICIARY, IN THE NAME, PLACE, AND STEAD OF
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TRUSTOR, TO FILE THIS DEED OF TRUST WITH THE CLERK
OR JUDGE OF ANY COURT OF COMPETENT JURISDICTION AS
A WRITTEN CONSENT TO WAIVER OF TRIAL BY JURY.
TRUSTOR ACKNOWLEDGES THAT ITS WAIVER OF TRIAL BY
JURY HAS BEEN MADE KNOWINGLY, INTENTIONALLY AND
WILLINGLY BY TRUSTOR AS PART OF A BARGAINED FOR
LOAN TRANSACTION. TRUSTOR WILL NOT SEEK TO
CONSOLIDATE ANY SUCH ACTION, IN WHICH A JURY TRIAL
HAS BEEN WAIVED, WITH ANY OTHER ACTlON IN WHICH A
JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED.
11.23 JURISDICTION AND VENUE: TRUSTOR
HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS
INlTIATED BY TRUSTOR AND ARISING DIRECTLY OR
INDIRECTLY OUT OF THIS DEED OF TRUST OR THE OTHER
SECURITY DOCUMENTS SHALL BE LITIGATED IN THE
SUPERIOR COURT OF ARIZONA, MARICOPA COUNTY
DIVISION, OR THE UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF ARIZONA OR, IF BENEFICIARY
INITIATES SUCH ACTION, IN ADDITION TO THE
FOREGOING COURTS ANY COURT IN WHICH BENEFICIARY
SHALL INITIATE SUCH ACTION, TO THE EXTENT SUCH
COURT HAS JURISDICTION; PROVIDED, HOWEVER, THAT
THE EXTENT THAT THE FOREGOING ARIZONA COURTS DO
NOT HAVE JURISDICTION OVER THE LAND FOR PURPOSES
OF A JUDICIAL FORECLOSURE OF THE LAND, SUCH
FORECLOSURE SHALL BE LITIGATED IN THE APPROPRIATE
COURT FOR THE COUNTY OF SAN LUIS OBISPO,
CALIFORNIA. TRUSTOR HEREBY EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR PROCEEDING COMMENCED BY BENEFICIARY IN
ANY OF SUCH COURTS AND HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER
PROCESS OR PAPERS ISSUED THEREIN, AND AGREES THAT
SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER
PROCESS OR PAPERS MAY BE MADE BY ACTUAL DELIVERY
OR REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, ADDRESSED TO TRUSTOR AT THE ADDRESS TO
WHICH NOTICES ARE TO BE SENT HEREIN. TRUSTOR
WAIVES ANY CLAIM THAT PHOENIX, ARIZONA OR THE
DISTRICT OF ARIZONA IS AN INCONVENIENT FORUM OR AN
IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD
TRUSTOR, AFTER BEING SO SERVED, FAIL TO APPEAR OR
ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR
PAPERS SO SERVED WITHIN THE NUMBER OF DAYS
PRESCRIBED BY LAW AFTER THE MAILING THEREOF,
TRUSTOR SHALL BE DEEMED IN DEFAULT AND AN ORDER
AND/OR JUDGMENT MAY BE ENTERED BY BENEFICIARY
AGAINST TRUSTOR AS DEMANDED OR PRAYED FOR IN SUCH
SUNWIONS, COMPLAINT, PROCESS OR PAPERS, PROVIDED,
HOWEVER, BENEFICIARY MAY NOT SEEK A DEFAULT
JUDGMENT FOR AT LEAST THIRTY (30) DAYS AFTER THE
DATE OF PROOF OF SERVICE. THE EXCLUSIVE CHOICE OF
FORUM FOR TRUSTOR SET FORTH HEREIN SHALL NOT BE
DEEMED TO PRECLUDE THE ENFORCEMENT, BY
BENEFICIARY, OF ANY JUDGMENT OBTAINED IN ANY OTHER
FORUM OR THE TAKING, BY BENEFICIARY, OF ANY ACTION
TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE
JURISDICTION, AND TRUSTOR HEREBY WAIVES THE RIGHT
TO COLLATERALLY ATTACK ANY SUCH IUDGMENT OR
ACTION.
31
<PAGE>
11.24 APPLICABLE LAW. THIS DEED OF TRUST
AND THE OTHER SECURITY DOCUMENTS SHALL BE DEEMED
TO HAVE BEEN DELIVERED AND ACCEPTED IN, AND THIS
DEED OF TRUST, AND THE OTHER SECURITY DOCUMENTS
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE INTERNAL LAWS AND DECISIONS OF, THE STATE
OF ARIZONA (WITHOUT REGARD FOR ITS CONFLICTS OF
LAW PRINCIPLES), THE STATE IN WHICH BENEFICIARY'S
PRINCIPAL PLACE OF BUSINESS IS LOCATED, AND BY
EXECUTION HEREOF TRUSTOR AND BY ACCEPTANCE HEREOF,
BENEFICIARY, EACH AGREE THAT SUCH LAWS AND
DECISIONS OF THE STATE OF ARIZONA SHALL GOVERN
THIS DEED OF TRUST AND THE OTHER SECURITY
DOCUMENTS, NOTWITHSTANDING THE FACT THAT THERE MAY
BE OTHER JURISDICTIONS WHICH MAY BEAR A REASONABLE
RELATIONSHIP TO THE TRANSACTIONS CONTEMPLATED
HEREBY; PROVIDED, HOWEVER, THAT WITH RESPECT TO
THE PROCEDURAL AND SUBSTANTIVE MATTERS RELATING
ONLY TO THE CREATION, VALIDITY, PERFECTION AND
ENFORCEMENT BY BENEFICIARY OF ITS RIGHTS AND
REMEDIES AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL LOCATED IN ANY STATE OTHER THAN
ARIZONA, SUCH MATTERS SHALL BE GOVERNED BY THE
LAWS OF THE STATE IN WHICH SUCH PROPERTY IS
LOCATED.
IN WITNESS WHEREOF, this Deed of Trust
has been duly executed and acknowledged by Trustor
as of the day and year first above written.
TRUSTOR PLEASE NOTE: UPON THE OCCURRENCE OF AN
EVENT OF DEFAULT (AS DEFINED IN ARTICLE VI
HEREIN), CALIFORNIA PROCEDURE PERMITS THE TRUSTEE
TO SELL THE MORTGAGED PROPERTY AT A SALE HELD
WITHOUT SUPERVISION BY ANY COURT AFTER EXPIRATION
OF A PERIOD PRESCRIBED BY LAW. UNLESS YOU PROVIDE
AN ADDRESS FOR THE GIVING OF NOTICE, YOU MAY NOT
BE ENTITLED TO NOTICE OF THE COMMENCEMENT OF SALE
PROCEEDINGS. BY EXECUTION OF THIS DEED OF TRUST,
YOU CONSENT TO SUCH PROCEDURE. BENEFICIARY URGES
YOU TO GIVE PROMPT NOTICE OF ANY CHANGE IN YOUR
ADDRESS SO THAT YOU MAY RECEIVE PROMPTLY ANY
NOTICE GIVEN PURSUANT TO THIS DEED OF TRUST.
TDC/EMERITUS PASO ROBLES
ASSOCIATES,
a Washington general partnership
WITNESS:
/s/ Jennifer A. Valenta By: /s/ Raymond R.
Brandstrom
- ---------------------------- -------------
- ----------------------------
Name: Raymond R. Brandstrom
Title: President
By: TDC Convalescent, Inc., a
California
corporation, Its General
Partner
32
<PAGE>
WITNESS :
/s/ Kari Veliquette By: /s/
Thomas D. Clark
- ----------------------------- -----
- -------------------------------------
Name: Thomas D. Clark
Title: President
THE STATE OF WASHINGTON )
)
COUNTY OF KING )
On this 18th day of February, 1997, before
me, Catherine L. Pasquan, the undersigned notary
public, duly commissioned and sworn, personally
appeared Raymond R. Brandstrom, personally known
to me (or proved to me on the basis of
satisfactory evidence) to be the person that
executed the within instrument and acknowledged to
me that he or she executed the same in his or her
authorized capacity and that by his or her
signature in the instrument.
In witness whereof, I have hereunto set my
hand and affixed my official seal the day and year
in this certificate first above written.
[SEAL] /s/ Catherine L. Pasquan
- --------------------------------------
NOTARY
PUBLIC
THE STATE OF CALIFORNIA )
)
COUNTY OF PLACER )
On this 19th day of February , 1997,
before me, Jerilyn Carlin-Mobley, the undersigned
notary public, duly commissioned and sworn,
personally appeared Thomas D. Clark , personally
known to me (or proved to me on the basis of
satisfactory evidence) to be the person that
executed the within instrument and acknowledged to
me that he or she executed the same in his or her
authorized capacity and that by his or her
signature in the instrument the person, or the
entity upon behalf of which the person acted,
executed the instrument.
In witness whereof, I have hereunto set
my hand and affixed my official seal the day and
year in this certificate first above written.
/s/ Jerilyn Carlin-Mobley
------------
- ------------------------
NOTARY
PUBLIC
[SEAL]
33
<PAGE>
GUARANTY
(TDC Convalescent, Inc.)
WHEREAS, TDC/Emeritus Paso Robles Associates,
a Washington
general partnership ("Borrower"), is or will
become indebted to FINOVA Capital Corporation
("Lender").
NOW, THEREFORE, for valuable consideration,
the receipt and adequacy of which are hereby
acknowledged, the undersigned (whether one or
more, Guarantor ) hereby guarantees to Lender the
prompt payment at maturity (by acceleration or
otherwise), and at all times thereafter, of the
Guaranteed Indebtedness (hereinafter defined),
this Guaranty being upon the following terms and
conditions:
l. As used throughout this Guaranty, the term
"Borrower" shall include, without limitation,
Borrower, Borrower as a debtor-in-possession, and
any receiver, trustee, liquidator, conservator,
custodian, or similar party hereafter appointed
for Borrower or all or substantially all of its
assets pursuant to any liquidation,
conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency,
reorganization, or similar Debtor Relief Law
(hereinafter defined) from time to time in effect
affecting the rights of creditors generally.
2. The term "Guaranteed Indebtedness," as
used herein means the (a) "Indebtedness" as that
term is defined in the Deed of Trust, Security
Agreement, Assignment of Leases and Rents and
Fixture Filing (herein called the "Deed of Trust")
dated of even date herewith, executed by Borrower
in favor of Chicago Title Company, as trustee for
the benefit of Lender including without limiting
the generality of the foregoing, the obligation to
pay when due all sums due under that certain
Promissory Note of even date therewith in the
original principal amount of $6,000,000.00,
executed by Borrower and payable to the order of
Lender (the "Note"); (b) interest on any of the
indebtedness described in clause (a) preceding,
whether accruing prior to or after maturity of
such indebtedness; (c) any and all costs,
reasonable attorneys' fees, and expenses incurred
by Lender by reason of Borrower's default in
payment of any of the foregoing indebtedness; and
(d) any renewal or extension of the indebtedness,
costs, or expenses described in clauses (a)
through (c) preceding, or any part thereof.
3. This instrument shall be an absolute and
continuing Guaranty,
and the circumstance that at any time or from time
to time the Guaranteed Indebtedness may be paid in
full shall not affect the obligation of Guarantor
with respect to the indebtedness of Borrower to
Lender thereafter incurred.
4. If Guarantor becomes liable for any
indebtedness owing by Borrower to Lender, by
endorsement or otherwise, other 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. Guarantor covenants and agrees
that it will not assert any rights arising from
payment or other performance hereunder until all
of Guarantor's liability hereunder shall have been
discharged in full and all of the Guaranteed
Indebtedness existing at the time of such
discharge shall have been paid and performed in
full.
<PAGE>
5. Upon the occurrence of an "Event of
Default," as defined in the Loan Agreement of even
date herewith between Borrower and Lender as
amended, ("Loan Agreement"), Guarantor shall, on
demand and without further notice of dishonor,
without any notice having been given to Guarantor
previous to such demand of the acceptance by
Lender of this Guaranty, and without any notice
having been given to Guarantor previous to such
demand of the creating or incurring of such
indebtedness, pay the amount due thereon to
Lender, and it shall not be necessary for Lender,
in order to enforce such payment by Guarantor,
first or contemporaneously to institute suit or
exhaust remedies against Borrower or others liable
on such indebtedness, or to enforce rights against
any security which shall ever have been given to
secure such indebtedness.
6. All principal of and interest on all
indebtedness, liabilities and obligations to
Guarantor of Borrower, any partner of Borrower or
any other party guaranteeing all or any portion of
the Guaranteed Indebtedness (the "Subordinated
Debt"), whether direct, indirect, fixed,
contingent, liquidated, unliquidated, joint,
several, or joint and several, now or hereafter
existing, due or to become due to Guarantor, or
held or to be held by Guarantor, whether created
directly or acquired by assignment or otherwise,
and whether evidenced by written instrument or
not, shall be expressly subordinated to the
Guaranteed Indebtedness pursuant to that certain
Subordination Agreement between Guarantor and
Lender of even date herewith.
7. Guarantor hereby agrees that its
obligations under the terms of this Guaranty shall
not be released, diminished, impaired, reduced, or
affected by the occurrence of any one or more of
the following events: (a) the taking or accepting
of any other security or Guaranty for any or all
of the Guaranteed Indebtedness; (b) any release,
surrender, exchange, subordination, or toss of any
security at any time existing in connection with
any or all of the Guaranteed Indebtedness; (c) any
partial release of the liability of Guarantor
hereunder, or, if there is more than one person or
entity signing this Guaranty, the release of any
one or more of them hereunder, or the partial
release of any party at any time liable for the
payment of any or all of the Guaranteed
Indebtedness; (d) the death, insolvency,
bankruptcy, disability, or lack of partnership or
corporate power of Borrower, any of the
undersigned, or any party at any time liable for
the payment of any or all of the Guaranteed
Indebtedness, whether now existing or hereafter
occurring; (e) any renewal, extension, or
rearrangement of the payment of any or all of the
Guaranteed Indebtedness, either with or without
notice to or consent of Guarantor, or any
adjustment, indulgence, forbearance, or compromise
that may be granted or given by Lender to Borrower
or Guarantor; (f) any neglect, delay, omission,
failure, or refusal of Lender to take or prosecute
any action for the collection of any of the
Guaranteed Indebtedness or to foreclose or take or
prosecute any action in connection with any
instrument or agreement evidencing or securing all
or any part of the Guaranteed Indebtedness; (g)
any failure of Lender to notify Guarantor of any
renewal, extension, or assignment of the
Guaranteed Indebtedness or any part thereof, or
the release of any security or of any other action
taken or refrained from being taken by Lender
against Borrower or any new agreement between
Lender and Borrower, it being understood that
Lender shall not be required to give Guarantor any
notice of any kind under any circumstances
whatsoever with respect to or in connection with
the Guaranteed Indebtedness; (h) the
unenforceability of all or any part of the
Guaranteed Indebtedness against Borrower by reason
of the fact that the Guaranteed Indebtedness
exceeds the amount permitted by law, the act of
creating the Guaranteed Indebtedness, or any part
thereof, is ultra vires, or the partners creating
same acted in excess of their authority or
violated any fiduciary duties
2
<PAGE>
in connection therewith; or (i) any payment by
Borrower to Lender is held to constitute a
preference under the bankruptcy laws or if for any
other reason Lender is required to refund such
payment or pay the amount thereof to someone else.
Without limiting the generality of the foregoing
or any other provisions hereof, the Guarantor
expressly waives any and all benefits which might
otherwise be available to Guarantor under
California Civil Code Sections 2809, 2810, 2839,
2845, 2849, 2850, 2899 and 3433, in each instance
to the extent such laws, or any one of them, are
applicable to the Guaranty, any of the Loan
Documents, any of the Obligations or any of the
Indebtedness.
8. Guarantor hereby waives all rights by
which it might be entitled to require suit on an
accrued right of action in respect of any of the
Guaranteed Indebtedness or require suit against
Borrower or others.
9. The Guarantor shall not assert, enforce or
otherwise exercise any right of subrogation to any
of the rights or interests of the Lender against
the Borrower or any other obligor on the
Guaranteed Indebtedness or any collateral or other
security, any right of recourse, reimbursement,
contribution, indemnification or similar right
against the Borrower or any other obligor on all
or any part of the Guaranteed Indebtedness or any
guarantor thereof, and the Guarantor hereby
irrevocably waives any and all of the foregoing
rights. The Guarantor irrevocably waives the
benefit of and any right to participate in any
collateral or other security given to the Lender
to secure payment of the Guaranteed Indebtedness.
10. Should Guarantor become insolvent, or
fail to pay such Guarantor's debts generally as
they become due, or voluntarily seek, consent to,
or acquiesce in the benefit or benefits of any
Debtor Relief Law (as used herein, "Debtor Relief
Law" means the Bankruptcy Code [as amended, herein
so called) of the United States of America and the
Bankruptcy Act [as amended, herein so called) of
Canada and any other applicable liquidation,
conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency,
reorganization, suspension of payments, or similar
debtor relief law from time to time in effect
affecting the rights of creditors generally), or
become a party to (or be made the subject of any
proceeding provided for by any Debtor Relief Law
(other than as a creditor or claimant) that could
suspend or otherwise adversely affect the rights
of Lender granted hereunder, then, in any such
event, the Guaranteed Indebtedness shall be, as
between Guarantor and Lender, a fully matured,
due, and payable obligation of Guarantor to Lender
(without regard to whether there exists an Event
of Default or whether the Indebtedness, or any
part thereof is then due and owing by Borrower to
Lender), payable in full by Guarantor to Lender
upon demand, which shall be the estimated amount
owing in respect of the contingent claim created
hereunder.
11. Guarantor represents and warrants that
the value of the consideration received and to be
received by Guarantor is reasonably worth at least
as much as the liability and obligation of
Guarantor hereunder, and such liability and
obligation may reasonably be expected to benefit
Guarantor directly or indirectly.
12. By execution hereof, Guarantor covenants
and agrees to provide to Lender copies of those
financial statements and income tax returns of
Guarantor as required under the Loan Agreement.
3
<PAGE>
13. This Guaranty is for the benefit of
Lender and Lender's successors and assigns, and in
the event of an assignment 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. This Guaranty is binding
not only on Guarantor, but on Guarantor's
successors and assigns and, if this Guaranty is
signed by more than one person or entity, then all
of the obligations of Guarantor arising hereunder
shall be jointly and severally binding on each of
the undersigned and their respective successors
and assigns. Lender shall have no recourse under
this Guaranty against the natural person who
executed this Guaranty or against any other
officer, director or shareholder of Guarantor;
however, the foregoing shall not affect or limit
Lender's remedies available by operation of law in
the event Guarantor dissolves, is liquidated or
otherwise ceases to exist.
14. THIS GUARANTY SHALL BE DEEMED TO HAVE
BEEN EXECUTED, DELIVERED AND ACCEPTED IN AND THIS
GUARANTY SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE INTERNAL LAWS AND DECISIONS OF THE
STATE OF ARIZONA (WITHOUT REGARD FOR ITS CONFLICTS
OF LAW PRINCIPLES), THE STATE IN WHICH LENDER'S
PRINCIPAL PLACE OF BUSINESS IS LOCATED, AND BY
EXECUTION HEREOF GUARANTOR AGREES THAT SUCH LAWS
AND DECISIONS OF THE STATE OF ARIZONA SHALL GOVERN
THIS GUARANTY NOTWITHSTANDING THE FACT THAT THERE
MAY BE OTHER JURISDICTIONS WHICH MAY BEAR A
REASONABLE RELATIONSHIP TO THE TRANSACTIONS
CONTEMPLATED HEREBY.
15. GUARANTOR HEREBY AGREES THAT ALL ACTIONS
OR PROCEEDINGS INITIATED BY GUARANTOR AND ARISING
DIRECTLY OR INDIRECTLY OUT OF THIS GUARANTY OR THE
OTHER LOAN DOCUMENTS SHAI.L BE LITIGATED IN THE
SUPERIOR COURT OF ARIZONA, MARICOPA COUNTY
DIVISION, OR THE UNITED STATES COURT FOR THE
DISTRICT OF ARIZONA OR, IF LENDER INITIATES SUCH
ACTION, IN ADDITION TO THE FOREGOING COURTS ANY
COURT IN WHICH ANY PROPERTY DESCRIBED IN THE LOAN
DOCUMENTS IS LOCATED, TO THE EXTENT SUCH COURT HAS
JURISDICTION. GUARANTOR HEREBY EXPRESSLY SUBMITS
AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
ANY. ACTION OR PROCEEDING COMMENCED BY LENDER IN
ANY OF SUCH COURTS, AND AGREES THAT SERVICE OF ANY
REQUIRED SUMMONS AND COMPLAINT OR OTHER PROCEEDS
OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO THE GUARANTOR AS SET FORTH
BELOW. GUARANTOR WAIVES ANY CLAIM THAT PHOENIX,
ARIZONA OR THE DISTRICT OF ARIZONA IS AN
INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON
LACK OF VENUE. SHOULD GUARANTOR, AFTER BEING SO
SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUNINIONS,
COMPLAINT PROCESS OR PAPERS PROPERLY SERVED WITHIN
THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE
MAILING THEREOF, GUARANTOR SHALL BE DEEMED IN
DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE
ENTERED BY A COURT IN ACCORDANCE WITH APPLICABLE
LAW AND PROCEDURE AGAINST GUARANTOR AS DEMANDED OR
PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR
PAPERS TO THE EXTENT PERMITTED BY LAW. THE
EXCLUSIVE CHOICE OF FORUM FOR GUARANTOR SET FORTH
4
<PAGE>
HEREIN SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT, BY LENDER, OF ANY JUDGMENT OBTAINED
IN ANY OTHER FORUM OR THE TAKING, BY LENDER OF ANY
ACTION TO ENFORCE THE SAME IN ANY OTHER
APPROPRIATE JURISDICTION AND GUARANTOR HEREBY
WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY SUCH
JUDGMENT OR ACTION.
16. FOR AND IN CONSIDERATION OF LENDER'S
ADVANCEMENT TO BORROWER OF THE PRINCIPAL SUMS IN
THE AMOUNT OF UP TO SIX MILLION AND NO/100 DOLLARS
($6,000,000.00), GUARANTOR, BEING A PARTNER OF
BORROWER AND AN EXPERIENCED OWNER AND OPERATOR OF
REAL ESTATE AND A PARTICIPANT IN SOPHISTICATED
REAL ESTATE VENTURES, AND HAVING CONSULTED WITH
COUNSEL OF ITS CHOOSING, HEREBY WAIVES ANY RIGHT
TO TRIAL BY JURY WITH RESPECT TO ANY ACTION OR
PROCEEDING ( 1 ) BROUGHT BY GUARANTOR, LENDER OR
ANY OTHER PERSONS RELATING TO (A) THE LOAN
EVIDENCED BY THE NOTE OR (B) THIS GUARANTY OR (2)
TO WHICH LENDER IS A PARTY. GUARANTOR HEREBY
AGREES THAT THIS GUARANTY CONSTITUTES A WRITTEN
CONSENT TO WAIVER OF TRIAL BY JURY, AND GUARANTOR
DOES HEREBY CONSTITUTE AND APPOINT LENDER ITS TRUE
AND LAWFUL ATTORNEY IN FACT, WHICH APPOINTMENT IS
COUPLED WITH AN INTEREST AND IRREVOCABLE, AND
GUARANTOR DOES HEREBY AUTHORIZE AND EMPOWER
LENDER, IN THE NAME, PLACE, AND STEAD OF
GUARANTOR, TO FILE THIS GUARANTY WITH THE CLERK OR
JUDGE OF ANY COURT OF COMPETENT JURISDICTION AS A
WRITTEN CONSENT TO WAIVER OF TRIAL BY JURY.
GUARANTOR ACKNOWLEDGES THAT ITS WAIVER OF TRIAL BY
JURY HAS BEEN MADE KNOWINGLY, INTENTIONALLY AND
WILLINGLY BY GUARANTOR AS PART OF A BARGAINED FOR
LOAN TRANSACTION. GUARANTOR WILL NOT SEEK TO
CONSOLIDATE ANY SUCH ACTION, IN WHICH A JURY TRIAL
HAS BEEN WAIVED, WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED.
17. THIS GUARANTY SHALL TERMINATE AND BE OF
NO FURTHER FORCE OR EFFECT UPON THE PAYMENT IN
FULL OF THE GUARANTEED INDEBTEDNESS AND NO FURTHER
WRITING SHALL BE REQUIRED TO EFFECTUATE SUCH
TERMINATION HEREOF IN SUCH EVENT.
18. Provided there is no Event of Default or
Incipient Default of which Borrower has received
notice from Lender at such time, on the fifth
anniversary of the Loan Closing, Lender will
consider a reduction in the amount of the
Guaranteed Indebtedness, such reduction, if any,
to be in such amounts and upon such terms as
Lender, in its sole and absolute discretion, may
determine.
19. It is the intent of Guarantor and Lender
that the laws of the State of Arizona apply to
this Guaranty as set forth in paragraph 14 above;
however, in the event a court with jurisdiction
rules that the laws of the State of California
apply to and govern this Guaranty, then Guarantor
hereby waives (i) any and all benefits available
to sureties and creditors which might otherwise be
available to Guarantor under the California Civil
Code, including, without limitation, Sections
2809, 2810, 2819, 2839, 2845, 2849, 2850, 2899 and
3433; and (ii) all rights and defenses that
Guarantor may have because the
5
<PAGE>
Obligations (as defined in the Loan Agreement) are
secured by real property. This means, among other
things: ( 1 ) Lender may collect from Guarantor
without first foreclosing on any real or personal
property collateral pledged by Borrower, (2) if
Lender forecloses on any real property collateral
pledged by Borrower: (A) The amount of the debt
may be reduced only by the price for which that
collateral is sold at the foreclosure sale, even
if the collateral is worth more than the sale
price, (B) Lender may collect from Guarantor even
if Lender, by foreclosing on the real property
collateral, has destroyed any right Guarantor may
have to collect from Borrower. This is an
unconditional and irrevocable waiver of any rights
and defenses Guarantor may have because the
Obligations are secured by real property. These
rights and defenses include, but are not limited
to, any rights or defenses based upon Section
580a, 580b, 580d, or 726 of the California Code of
Civil Procedure. Furthermore, Guarantor waives all
rights and defenses arising out of an election of
remedies, even though that election of remedies,
such as a nonjudicial foreclosure with respect to
security for the Guaranteed Indebtedness, has
destroyed Guarantor's rights of subrogation and
reimbursement against the principal by the
operation of Section 580d of the California Code
of Civil Procedure or otherwise.
20. Any notice, request or other
communication required or permitted to be given
hereunder may be given and shall conclusively be
deemed and considered to have been given and
received upon the deposit thereof, in writing, in
the U.S. Mail, certified mail, return receipt
requested, postage prepaid, and addressed to the
party to receive such notice at the address set
forth below or such address elected in writing by
the party to receive such notice; but actual
notice however given or received, shall always be
effective. The last preceding sentence shall not
be construed in anywise to effect or impair the
waiver of notice or demand to or upon Guarantor in
any situation or for any reason (except as
otherwise specifically provided).
If to Guarantor: TDC Convalescent,
Inc.
3017 Douglas Boulevard, Suite
300
Roseville, California 95661
with copy to: Randi Nathanson, Esq.
The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, Washington 98101
If to Lender: FINOVA Capital
Corporation
3200 Park Center Drive, Fifth
Floor
Costa Mesa, California 92626
with copy to: FINOVA Capital
Corporation
7272 East Indian School Road,
Suite 410
Scottsdale, Arizona 85251
Attn.: Vice President - Group
Counsel
6
<PAGE>
21. Unless otherwise defined herein, all
capitalized terms used herein shall have the same
meaning as set forth in the Loan Agreement.
EXECUTED effective as of February 18,1997.
TDC Convalescent, Inc., a
California corporation
By: /s/ Thomas D. Clark
- -------------------------------------------
Name: Thomas D. Clark
Title: President
THE STATE OF CALIFORNIA )
) ss
COUNTY OF PLACER )
On this 19th day of February, 1997, before
me, Jerilyn Carlin-Mobley, the undersigned notary
public, duly commissioned and sworn, personally
appeared Thomas D. Clark, personally known to me
(or proved to me the basis of satisfactory
evidence) to be the person that executed the
within instrument and acknowledged to me that the
or she executed the same in his or her authorized
capacity and that by his or her signature in the
instrument the person, or the entity upon behalf
of which the person acted, executed the
instrument.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed my official seal the day and year
in this certificate first above written.
/s/ Jerilyn Carlin-Mobley
---------------
- ---------------------
Notary Public
My Commission Expires:
10-9-99
- ------------------------------
[SEAL]
7
<PAGE>
GUARANTY
(Emeritus)
WHEREAS, TDC/Emeritus Paso Robles Associates,
a Washington
general partnership ("Borrower"), is or will
become indebted to FINOVA Capital Corporation
("Lender").
NOW, THEREFORE, for valuable consideration,
the receipt and adequacy of which are hereby
acknowledged, the undersigned (whether one or
more, Guarantor ) hereby guarantees to Lender the
prompt payment at maturity (by acceleration or
otherwise), and at all times thereafter, of the
Guaranteed Indebtedness (hereinafter defined),
this Guaranty being upon the following terms and
conditions:
l. As used throughout this Guaranty, the term
"Borrower" shall include, without limitation,
Borrower, Borrower as a debtor-in-possession, and
any receiver, trustee, liquidator, conservator,
custodian, or similar party hereafter appointed
for Borrower or all or substantially all of its
assets pursuant to any liquidation,
conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency,
reorganization, or similar Debtor Relief Law
(hereinafter defined) from time to time in effect
affecting the rights of creditors generally.
2. The term "Guaranteed Indebtedness," as
used herein means the (a) "Indebtedness" as that
term is defined in the Deed of Trust, Security
Agreement, Assignment of Leases and Rents and
Fixture Filing (herein called the "Deed of Trust")
dated of even date herewith, executed by Borrower
in favor of Chicago Title Company, as trustee for
the benefit of Lender including without limiting
the generality of the foregoing, the obligation to
pay when due all sums due under that certain
Promissory Note of even date therewith in the
original principal amount of $6,000,000.00,
executed by Borrower and payable to the order of
Lender (the "Note"); (b) interest on any of the
indebtedness described in clause (a) preceding,
whether accruing prior to or after maturity of
such indebtedness; (c) any and all costs,
reasonable attorneys' fees, and expenses incurred
by Lender by reason of Borrower's default in
payment of any of the foregoing indebtedness; and
(d) any renewal or extension of the indebtedness,
costs, or expenses described in clauses (a)
through (c) preceding, or any part thereof.
3. This instrument shall be an absolute and
continuing Guaranty,
and the circumstance that at any time or from time
to time the Guaranteed Indebtedness may be paid in
full shall not affect the obligation of Guarantor
with respect to the indebtedness of Borrower to
Lender thereafter incurred.
4. If Guarantor becomes liable for any
indebtedness owing by Borrower to Lender, by
endorsement or otherwise, other 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. Guarantor covenants and agrees
that it will not assert any rights arising from
payment or other performance hereunder until all
of Guarantor's liability hereunder shall have been
discharged in full and all of the Guaranteed
Indebtedness existing at the time of such
discharge shall have been paid and performed in
full.
<PAGE>
5. Upon the occurrence of an "Event of
Default," as defined in the Loan Agreement of even
date herewith between Borrower and Lender as
amended, ("Loan Agreement"), Guarantor shall, on
demand and without further notice of dishonor,
without any notice having been given to Guarantor
previous to such demand of the acceptance by
Lender of this Guaranty, and without any notice
having been given to Guarantor previous to such
demand of the creating or incurring of such
indebtedness, pay the amount due thereon to
Lender, and it shall not be necessary for Lender,
in order to enforce such payment by Guarantor,
first or contemporaneously to institute suit or
exhaust remedies against Borrower or others liable
on such indebtedness, or to enforce rights against
any security which shall ever have been given to
secure such indebtedness.
6. All principal of and interest on all
indebtedness, liabilities and obligations to
Guarantor of Borrower, any partner of Borrower or
any other party guaranteeing all or any portion of
the Guaranteed Indebtedness (the "Subordinated
Debt"), whether direct, indirect, fixed,
contingent, liquidated, unliquidated, joint,
several, or joint and several, now or hereafter
existing, due or to become due to Guarantor, or
held or to be held by Guarantor, whether created
directly or acquired by assignment or otherwise,
and whether evidenced by written instrument or
not, shall be expressly subordinated to the
Guaranteed Indebtedness pursuant to that certain
Subordination Agreement between Guarantor and
Lender of even date herewith.
7. Guarantor hereby agrees that its
obligations under the terms of this Guaranty shall
not be released, diminished, impaired, reduced, or
affected by the occurrence of any one or more of
the following events: (a) the taking or accepting
of any other security or Guaranty for any or all
of the Guaranteed Indebtedness; (b) any release,
surrender, exchange, subordination, or toss of any
security at any time existing in connection with
any or all of the Guaranteed Indebtedness; (c) any
partial release of the liability of Guarantor
hereunder, or, if there is more than one person or
entity signing this Guaranty, the release of any
one or more of them hereunder, or the partial
release of any party at any time liable for the
payment of any or all of the Guaranteed
Indebtedness; (d) the death, insolvency,
bankruptcy, disability, or lack of partnership or
corporate power of Borrower, any of the
undersigned, or any party at any time liable for
the payment of any or all of the Guaranteed
Indebtedness, whether now existing or hereafter
occurring; (e) any renewal, extension, or
rearrangement of the payment of any or all of the
Guaranteed Indebtedness, either with or without
notice to or consent of Guarantor, or any
adjustment, indulgence, forbearance, or compromise
that may be granted or given by Lender to Borrower
or Guarantor; (f) any neglect, delay, omission,
failure, or refusal of Lender to take or prosecute
any action for the collection of any of the
Guaranteed Indebtedness or to foreclose or take or
prosecute any action in connection with any
instrument or agreement evidencing or securing all
or any part of the Guaranteed Indebtedness; (g)
any failure of Lender to notify Guarantor of any
renewal, extension, or assignment of the
Guaranteed Indebtedness or any part thereof, or
the release of any security or of any other action
taken or refrained from being taken by Lender
against Borrower or any new agreement between
Lender and Borrower, it being understood that
Lender shall not be required to give Guarantor any
notice of any kind under any circumstances
whatsoever with respect to or in connection with
the Guaranteed Indebtedness; (h) the
unenforceability of all or any part of the
Guaranteed Indebtedness against Borrower by reason
of the fact that the Guaranteed Indebtedness
exceeds the amount permitted by law, the act of
creating the Guaranteed Indebtedness, or any part
thereof, is ultra vires, or the partners creating
same acted in excess of their authority or
violated any fiduciary duties
2
<PAGE>
in connection therewith; or (i) any payment by
Borrower to Lender is held to constitute a
preference under the bankruptcy laws or if for any
other reason Lender is required to refund such
payment or pay the amount thereof to someone else.
Without limiting the generality of the foregoing
or any other provisions hereof, the Guarantor
expressly waives any and all benefits which might
otherwise be available to Guarantor under
California Civil Code Sections 2809, 2810, 2839,
2845, 2849, 2850, 2899 and 3433, in each instance
to the extent such laws, or any one of them, are
applicable to the Guaranty, any of the Loan
Documents, any of the Obligations or any of the
Indebtedness.
8. Guarantor hereby waives all rights by
which it might be entitled to require suit on an
accrued right of action in respect of any of the
Guaranteed Indebtedness or require suit against
Borrower or others.
9. The Guarantor shall not assert, enforce or
otherwise exercise any right of subrogation to any
of the rights or interests of the Lender against
the Borrower or any other obligor on the
Guaranteed Indebtedness or any collateral or other
security, any right of recourse, reimbursement,
contribution, indemnification or similar right
against the Borrower or any other obligor on all
or any part of the Guaranteed Indebtedness or any
guarantor thereof, and the Guarantor hereby
irrevocably waives any and all of the foregoing
rights. The Guarantor irrevocably waives the
benefit of and any right to participate in any
collateral or other security given to the Lender
to secure payment of the Guaranteed Indebtedness.
10. Should Guarantor become insolvent, or
fail to pay such Guarantor's debts generally as
they become due, or voluntarily seek, consent to,
or acquiesce in the benefit or benefits of any
Debtor Relief Law (as used herein, "Debtor Relief
Law" means the Bankruptcy Code [as amended, herein
so called) of the United States of America and the
Bankruptcy Act [as amended, herein so called) of
Canada and any other applicable liquidation,
conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency,
reorganization, suspension of payments, or similar
debtor relief law from time to time in effect
affecting the rights of creditors generally), or
become a party to (or be made the subject or any
proceeding provided for by any Debtor Relief Law
(other than as a creditor or claimant) that could
suspend or otherwise adversely affect the rights
of Lender granted hereunder, then, in any such
event, the Guaranteed Indebtedness shall be, as
between Guarantor and Lender, a fully matured,
due, and payable obligation of Guarantor to Lender
(without regard to whether there exists an Event
of Default or whether the Indebtedness, or any
part thereof is then due and owing by Borrower to
Lender), payable in full by Guarantor to Lender
upon demand, which shall be the estimated amount
owing in respect of the contingent claim created
hereunder.
11. Guarantor represents and warrants that
the value of the consideration received and to be
received by Guarantor is reasonably worth at least
as much as the liability and obligation of
Guarantor hereunder, and such liability and
obligation may reasonably be expected to benefit
Guarantor directly or indirectly.
12. By execution hereof, Guarantor covenants
and agrees to provide to Lender copies of those
financial statements and income tax returns of
Guarantor as required under the Loan Agreement.
3
<PAGE>
13. This Guaranty is for the benefit of
Lender and Lender's successors and assigns, and in
the event of an assignment 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. This Guaranty is binding
not only on Guarantor, but on Guarantor's
successors and assigns and, if this Guaranty is
signed by more than one person or entity, then all
of the obligations of Guarantor arising hereunder
shall be jointly and severally binding on each of
the undersigned and their respective successors
and assigns. Lender shall have no recourse under
this Guaranty against the natural person who
executed this Guaranty or against any other
officer, director or shareholder of Guarantor;
however, the foregoing shall not affect or limit
Lender's remedies available by operation of law in
the event Guarantor dissolves, is liquidated or
otherwise ceases to exist.
14. THIS GUARANTY SHALL BE DEEMED TO HAVE
BEEN EXECUTED, DELIVERED AND ACCEPTED IN AND THIS
GUARANTY SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE INTERNAL LAWS AND DECISIONS OF THE
STATE OF ARIZONA (WITHOUT REGARD FOR ITS CONFLICTS
OF LAW PRINCIPLES), THE STATE IN WHICH LENDER'S
PRINCIPAL PLACE OF BUSINESS IS LOCATED, AND BY
EXECUTION HEREOF GUARANTOR AGREES THAT SUCH LAWS
AND DECISIONS OF THE STATE OF ARIZONA SHALL GOVERN
THIS GUARANTY NOTWITHSTANDING THE FACT THAT THERE
MAY BE OTHER JURISDICTIONS WHICH MAY BEAR A
REASONABLE RELATIONSHIP TO THE TRANSACTIONS
CONTEMPLATED HEREBY.
15. GUARANTOR HEREBY AGREES THAT ALL ACTIONS
OR PROCEEDINGS INITIATED BY GUARANTOR AND ARISING
DIRECTLY OR INDIRECTLY OUT OF THIS GUARANTY OR THE
OTHER LOAN DOCUMENTS SHAI.L BE LITIGATED IN THE
SUPERIOR COURT OF ARIZONA, MARICOPA COUNTY
DIVISION, OR THE UNITED STATES COURT FOR THE
DISTRICT OF ARIZONA OR, IF LENDER INITIATES SUCH
ACTION, IN ADDITION TO THE FOREGOING COURTS ANY
COURT IN WHICH ANY PROPERTY DESCRIBED IN THE LOAN
DOCUMENTS IS LOCATED, TO THE EXTENT SUCH COURT HAS
JURISDICTION. GUARANTOR HEREBY EXPRESSLY SUBMITS
AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
ANY. ACTION OR PROCEEDING COMMENCED BY LENDER IN
ANY OF SUCH COURTS, AND AGREES THAT SERVICE OF ANY
REQUIRED SUMMONS AND COMPLAINT OR OTHER PROCEEDS
OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO THE GUARANTOR AS SET FORTH
BELOW. GUARANTOR WAIVES ANY CLAIM THAT PHOENIX,
ARIZONA OR THE DISTRICT OF ARIZONA IS AN
INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON
LACK OF VENUE. SHOULD GUARANTOR, AFTER BEING SO
SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUNINIONS,
COMPLAINT PROCESS OR PAPERS PROPERLY SERVED WITHIN
THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE
MAILING THEREOF, GUARANTOR SHALL BE DEEMED IN
DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE
ENTERED BY A COURT IN ACCORDANCE WITH APPLICABLE
LAW AND PROCEDURE AGAINST GUARANTOR AS DEMANDED OR
PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR
PAPERS TO THE EXTENT PERMITTED BY LAW. THE
EXCLUSIVE CHOICE OF FORUM FOR GUARANTOR SET FORTH
4
<PAGE>
HEREIN SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT, BY LENDER, OF ANY JUDGMENT OBTAINED
IN ANY OTHER FORUM OR THE TAKING, BY LENDER OF ANY
ACTION TO ENFORCE THE SAME IN ANY OTHER
APPROPRIATE JURISDICTION AND GUARANTOR HEREBY
WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY SUCH
JUDGMENT OR ACTION.
16. FOR AND IN CONSIDERATION OF LENDER'S
ADVANCEMENT TO BORROWER OF THE PRINCIPAL SUMS IN
THE AMOUNT OF UP TO SIX MILLION AND NO/100 DOLLARS
($6,000,000.00), GUARANTOR, BEING A PARTNER OF
BORROWER AND AN EXPERIENCED OWNER AND OPERATOR OF
REAL ESTATE AND A PARTICIPANT IN SOPHISTICATED
REAL ESTATE VENTURES, AND HAVING CONSULTED WITH
COUNSEL OF ITS CHOOSING, HEREBY WAIVES ANY RIGHT
TO TRIAL BY JURY WITH RESPECT TO ANY ACTION OR
PROCEEDING ( 1 ) BROUGHT BY GUARANTOR, LENDER OR
ANY OTHER PERSONS RELATING TO (A) THE LOAN
EVIDENCED BY THE NOTE OR (B) THIS GUARANTY OR (2)
TO WHICH LENDER IS A PARTY. GUARANTOR HEREBY
AGREES THAT THIS GUARANTY CONSTITUTES A WRITTEN
CONSENT TO WAIVER OF TRIAL BY JURY, AND GUARANTOR
DOES HEREBY CONSTITUTE AND APPOINT LENDER ITS TRUE
AND LAWFUL ATTORNEY IN FACT, WHICH APPOINTMENT IS
COUPLED WITH AN INTEREST AND IRREVOCABLE, AND
GUARANTOR DOES HEREBY AUTHORIZE AND EMPOWER
LENDER, IN THE NAME, PLACE, AND STEAD OF
GUARANTOR, TO FILE THIS GUARANTY WITH THE CLERK OR
JUDGE OF ANY COURT OF COMPETENT JURISDICTION AS A
WRITTEN CONSENT TO WAIVER OF TRIAL BY JURY.
GUARANTOR ACKNOWLEDGES THAT ITS WAIVER OF TRIAL BY
JURY HAS BEEN MADE KNOWINGLY, INTENTIONALLY AND
WILLINGLY BY GUARANTOR AS PART OF A BARGAINED FOR
LOAN TRANSACTION. GUARANTOR WILL NOT SEEK TO
CONSOLIDATE ANY SUCH ACTION, IN WHICH A JURY TRIAL
HAS BEEN WAIVED, WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED.
17. THIS GUARANTY SHALL TERMINATE AND BE OF
NO FURTHER FORCE OR EFFECT UPON THE PAYMENT IN
FULL OF THE GUARANTEED INDEBTEDNESS AND NO FURTHER
WRITING SHALL BE REQUIRED TO EFFECTUATE SUCH
TERMINATION HEREOF IN SUCH EVENT.
18. Provided there is no Event of Default or
Incipient Default of which Borrower has received
notice from Lender at such time, on the fifth
anniversary of the Loan Closing, Lender will
consider a reduction in the amount of the
Guaranteed Indebtedness, such reduction, if any,
to be in such amounts and upon such terms as
Lender, in its sole and absolute discretion, may
determine.
19. It is the intent of Guarantor and Lender
that the laws of the State of Arizona apply to
this Guaranty as set forth in paragraph 14 above;
however, in the event a court with jurisdiction
rules that the laws of the State of California
apply to and govern this Guaranty, then Guarantor
hereby waives (i) any and all benefits available
to sureties and creditors which might otherwise be
available to Guarantor under the California Civil
Code, including, without limitation, Sections
2809, 2810, 2819, 2839, 2845, 2849, 2850, 2899 and
3433; and (ii) all rights and defenses that
Guarantor may have because the
5
<PAGE>
Obligations (as defined in the Loan Agreement) are
secured by real property. This means, among other
things: ( 1 ) Lender may collect from Guarantor
without first foreclosing on any real or personal
property collateral pledged by Borrower, (2) if
Lender forecloses on any real property collateral
pledged by Borrower: (A) The amount of the debt
may be reduced only by the price for which that
collateral is sold at the foreclosure sale, even
if the collateral is worth more than the sale
price, (B) Lender may collect from Guarantor even
if Lender, by foreclosing on the real property
collateral, has destroyed any right Guarantor may
have to collect from Borrower. This is an
unconditional and irrevocable waiver of any rights
and defenses Guarantor may have because the
Obligations are secured by real property. These
rights and defenses include, but are not limited
to, any rights or defenses based upon Section
580a, 580b, 580d, or 726 of the California Code of
Civil Procedure. Furthermore, Guarantor waives all
rights and defenses arising out of an election of
remedies, even though that election of remedies,
such as a nonjudicial foreclosure with respect to
security for the Guaranteed Indebtedness, has
destroyed Guarantor's rights of subrogation and
reimbursement against the principal by the
operation of Section 580d of the California Code
of Civil Procedure or otherwise.
20. Any notice, request or other
communication required or permitted to be given
hereunder may be given and shall conclusively be
deemed and considered to have been given and
received upon the deposit thereof, in writing, in
the U.S. Mail, certified mail, return receipt
requested, postage prepaid, and addressed to the
party to receive such notice at the address set
forth below or such address elected in writing by
the party to receive such notice; but actual
notice however given or received, shall always be
effective. The last preceding sentence shall not
be construed in anywise to effect or impair the
waiver of notice or demand to or upon Guarantor in
any situation or for any reason (except as
otherwise specifically provided).
If to Guarantor: Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 9812 I
with copy to: Randi Nathanson, Esq.
The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, Washington 98101
If to Lender: FINOVA Capital
Corporation
3200 Park Center Drive, Fifth
Floor
Costa Mesa, California 92626
with copy to: FINOVA Capital
Corporation
7272 East Indian School Road,
Suite 410
Scottsdale, Arizona 85251
Attn.: Vice President - Group
Counsel
6
<PAGE>
21. Unless otherwise defined herein, all
capitalized terms used herein shall have the same
meaning as set forth in the Loan Agreement.
EXECUTED effective as of February 18,1997.
EMERITUS CORPORATION, a
Washington corporation
By: /s/ Raymond R. Brandstrom
- -------------------------------------------
Name: Raymond R. Brandstrom
Title: President
THE STATE OF WASHINGTON )
) ss
COUNTY OF KING )
On this 18th day of February, 1997, before
me, Catherine L. Pasquan, the undersigned notary
public, duly commissioned and sworn, personally
appeared Raymond R. Brandstrom, personally known
to me (or proved to me the basis of satisfactory
evidence) to be the person that executed the
within instrument and acknowledged to me that the
or she executed the same in his or her authorized
capacity and that by his or her signature in the
instrument the person, or the entity upon behalf
of which the person acted, executed the
instrument.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed my official seal the day and year
in this certificate first above written.
/s/ Catherine L. Pasquan
---------------
- ---------------------
Notary Public
My Commission Expires:
3-30-99
- ------------------------------
[SEAL]
7
<PAGE>
YORK CARE FACILITY
YORK, SOUTH CAROLINA
AGREEMENT TO PROVIDE ACCOUNTING
AND ADMIMSTRATIVE SERVICES
TO AN ASSISTED LIVING FACILITY
AGREEMENT TO PROVIDE ACCOUNTING AND
ADMINISTRATIVE SERVICES TO AN INDEPENDENT/ASSISTED
LIVING FACILITY
This Agreement made this 31, day of March,
1997 by and between EMERITUS CORPORATION, a
Washington corporation (hereinafter referred to as
"Administrator"), and COLUMBIA HOUSE, LLC, a
Washington limited liability company (hereinafter
referred to as "Lessee").
WHEREAS, Lessee is the lessee of property
located at 40-42 Ross Cannon Street in York, South
Carolina (the "Property") including an assisted
living facility (the "Facility"), pursuant to the
terms of that certain Lease Agreement dated
January 13,1997 between Albert Lynch, an
individual resident in the state of South
Carolina, as lessor, and Lessee, as lessee (the
"Facility Lease");
WHEREAS, Lessee is interested in retaining
Administrator to assist it with certain
administrative and accounting functions (the
"Administrative Responsibilities");
WHEREAS, Administrator is experienced and
qualified in the field of health care management
and is qualified to provide Lessee with assistance
with the Administrative Responsibilities; and
WHEREAS, Lessee and Administrator are
interested in documenting the terms and conditions
under which said assistance will be provided.
NOW THEREFORE, in consideration of the
foregoing premises and the mutual covenants herein
contained, IT IS AGREED AS FOLLOWS:
I. RESPONSIBILITIES OF ADMINISTRATIOR:
Lessee ' hereby engages Administrator and
Administrator hereby accepts such engagement and
agrees to assist Lessee with respect to the
performance by Lessee of the Administrative
Responsibilities. By entering into this Agreement,
Lessee does not delegate to Administrator any
powers, duties or responsibilities which it is
prohibited by law from delegating. Lessee also
retains such other authority as shall not have
been expressly delegated to Administrator pursuant
to this Agreement. Subject to the foregoing,
Administrator shall provide the following
services:
A. CHARGES: Administrator shall assist Lessee
in establishing the schedules of recommended
charges, including any and all special charges for
services rendered to the residents at the
Facility.
<PAGE>
B. ACCOUNTING: Administrator shall provide
administrative and accounting support to the
Facility. All accounting procedures and systems
utilized in providing said support shall be in
accordance with the operating capital and cash
programs developed by Administrator; which
programs shall conform to generally accepted
accounting principles and shall not materially
distort income or loss. In addition, at Lessee's
sole cost and expense, Administrator shall prepare
or cause to be prepared all payroll tax returns
and shall cause all local taxes to be timely paid
or contested, as appropriate (for purposes of
clarification Lessee shall be responsible for
preparation and filing of state and federal tax
returns). The costs incurred by Administrator in
preparing such returns shall not be included in
Administrator's management fee, but shall be
separately reimbursed by Lessee.
C. REPORTS: Within thirty (30) days after the
end of each calendar month, Administrator shall
provide Lessee with an unaudited balance sheet of
the Facility, dated the last day of such month,
and an unaudited statement of income and expenses
for such month relating to the operation of the
Facility. Within ninety (90) days after the end of
the fiscal year of the Facility, Administrator
shall provide Lessee with unaudited financial
statements including a balance sheet of the
Facility, dated the last day of said fiscal year,
and a statement of income and expense for the year
then ended relating to the operation of the
Facility.
D. PERSONNEL:
(i) All employees shall remain the
employees of Lessee. Administrator shall
administer, including payroll tax reporting, and
Lessee shall fund, payroll twice monthly, in
accordance with all applicable federal and state
laws and regulations. Lessee shall promptly
reimburse Administrator for all amounts expended
by Administrator in connection therewith.
(ii) Lessee shall hire, train, promote,
direct, discipline, suspend and discharge
personnel at the Facility; establish salary levels
and personnel policies; and establish employee
performance standards, all as needed during the
term of this Agreement to ensure the efficient
operation of all departments within and services
offered by the Facility. Lessee shall, as a matter
which shall survive any termination of this
Agreement, indemnify, defend and hold harmless
Administrator from and against any and all costs,
expenses, liabilities, suits or other causes of
action arising from or relating to the employment
of employees at the Facility.
E. INSURANCE: During the term hereof, Lessee,
at its sole cost and expense, shall arrange for
and maintain (i) all necessary and proper hazard
insurance covering the Facility, the furniture,
fixtures, and equipment situated thereon, (ii) all
employee health
insurance for so long as it is the employer of the
Facility employees under the terms hereof, which
insurance shall be administered by Lessee and
(iii) all necessary and proper malpractice and
public liability insurance for the protection of
itself, its officers, agents and employees. Any
insurance provided pursuant to this paragraph
shall comply with the requirements of the Facility
Lease.
<PAGE>
III. PROPRIETARY INTEREST: The systems,
methods, procedures and controls employed by
Administrator and any written materials or
brochures developed by Administrator to document
the same are to remain the property of
Administrator and are not, at any time during or
after the term of this Agreement, to be utilized,
distributed, copied or otherwise employed or
acquired by Lessee, except as authorized by
Administrator.
IV. TERM: The Term of this Agreement shall
commence on April 1,1997 or such later date on
which the transaction with respect to the
financing of the Renovations occurs as evidenced
by a written acknowledgment of Lessee and
Administrator (the "Commencement Date") and shall
terminate concurrently with the termination of the
Facility Lease.
V. DEFAULT: Either party may terminate this
Agreement, as specified in this Section V, in the
event of a default ("Event of Default") by the
other party.
(a) With respect to Administrator, it shall
be an "Event of Default" hereunder:
(i) If
Administrator shall fail to keep, observe or
perform any material agreement, term or provision
of this Agreement, and such default shall continue
for a period of thirty (30) days after notice
thereof shall have been given to Administrator by
Lessee, which notice shall specify the event or
events constituting the default; or
(ii) If Administrator shall apply
for or consent to the appointment of a receiver,
trustee or liquidator of Administrator of all or a
substantial part of its assets, file a voluntary
petition in bankruptcy, or admit in writing its
inability to pay its debts as they become due,
make a general assignment for the benefit of
creditors, file a petition or an answer seeking
reorganization or arrangement with creditors or
taking advantage of any insolvency law, or if an
order judgment or decree shall be entered by a
court of competent jurisdiction, on the
application of a creditor, adjudicating
Administrator, a bankrupt or insolvent or
approving a petition seeking reorganization of
Administrator, or appointing a receiver, trustee
or liquidator of Administrator, of a11 or a
substantial part of its assets.
(b) With respect to Lessee, it shall be an
Event of Default hereunder:
(i) If Lessee shall fail to make or
cause to be made any payment to Administrator
required to be made hereunder (other than its
working capital obligation), and such failure
shall continue for a period of thirty (30) days;
(ii) If Lessee shall fail to keep,
observe or perform any material agreement, term or
provision of this Agreement and such default shall
continue for a period of thirty (30) days after
notice, which notice shall specify an event or
events constituting the default thereof by
Administrator to Lessee; provided, however, that
in the case of Lessee's failure to provide
necessary working capital upon demand by
Administrator, it shall be deemed to be an Event
of Default hereunder if the same is not paid
within ten (10) days of Administrator's initial
demand therefor without any further notice from
Administrator being required;
<PAGE>
(iii) If Lessee shall fail to make
payments, or keep any covenants, owing to any
third party which are beyond the control of
Administrator to make or keep, and which would
cause Lessee to lose possession of the Facility or
any personal property which would be required to
operate the Facility in the normal course; or
(iv) If Lessee shall be dissolved
(other than as a result of a transfer of the
ownership of the Facility to a limited partnership
in which Lessee's shareholders are general and/or
limited partners) or shall apply for or consent to
the appointment of a receiver, trustee or
liquidator of Lessee or of all or a substantial
part of its assets, file a voluntary petition in
bankruptcy, or admit in writing its inability to
pay its debts as they become due, make a general
assignment for the benefit or creditors, file a
petition or an answer seeking reorganization or
arrangement with creditors or taking advantage of
any insolvency law, or if an order, judgment or
decree shall be entered by a court of competent
jurisdiction, on the application of a creditor,
adjudicating Lessee a bankrupt or insolvent or
approving a petition seeking reorganization of
Lessee or appointing a receiver, trustee or
liquidator of Lessee of all or a substantial part
of its assets.
VI. REMEDIES UPON DEFAULT:
(a) If any Event of Default by Lessee
shall occur, Administrator may, in addition to any
other remedy available to it in law or equity on
account of such Event of Default, forthwith
terminate this Agreement, and neither party shall
have any further obligations whatsoever under this
Agreement, but Administrator shall immediately be
entitled to receive payment of all amounts
theretofore unpaid but earned to the date of
termination.
(b) If any Event of Default by
Administrator shall occur, Lessee may, in addition
to any other remedy available to it in law or
equity on account of such Event of Default,
forthwith terminate this Agreement, and neither
party shall have any further obligation whatsoever
under this Agreement; provided, however, that
Administrator shall immediately be entitled to
receive payment of all amounts theretofore unpaid
but earned to date of termination, subject to
Lessee's right to receive payment of damages from
Administrator.
VII. LESSEE'S INSPECTION: During the term
hereof, Lessee shall have the right, upon request
and at reasonable times, to inspect and/or audit
all books and records pertaining to the operation
of the Facility prepared or maintained by
Administrator.
VIII. ADMINISTRATIVE SERVICES FEE: Throughout
the term of this Agreement, Administrator shall
receive a monthly fee equal to $2,500.00 per
month.
A. PRORATION OF FEE. If the services of
Administrator commence or terminate (for any
reason, including those set forth in Paragraph V)
other than on the first day of the month, the fee
shall be prorated in proportion to the number of
days for which services are actually rendered.
B. PAYMENT OF FEE. The Management fee
provided for herein shall be payable to
Administrator on the first day of each month, with
the first such payment due on the Commencement
Date.
<PAGE>
IX. ASSIGNMENT: This Agreement shall not be
assigned by either party without the prior written
consent of the other party, which consent shall
not be unreasonably withheld.
X. NOTICES: All notices required or permitted
hereunder shall be given in writing by hand
delivery, by registered or certified mail, postage
prepaid, by overnight delivery or by facsimile
transmission (with receipt confirmed with the
recipient). Notice shall be delivered or mailed to
the parties at the following addresses or at such
other places as either party shall designate in
writing.
To Administrator: Emeritus Corporation
3131 Elliott Avenue,
Suite 500
Seattle, Washington 98121
Telephone No. : (206) 298-
2909
Facsimile No.: (206) 301-
4500
Attn: President
To Lessee: Columbia House, LLC
3131 Elliott Avenue
Seattle, Washington 98121
Telephone No.: (206) 298-
1201
Facsimile No. : (206) 301-
4545
Attn: Dick Sontgerath
XI. RELATIONSHIP OF THE PARTIES: The
relationship of the parties shall be that of
Lessee and Independent Contractor and all acts
performed by Administrator during the term hereof
as Administrator of the Facility shall be deemed
to be performed in its capacity as an independent
contractor. Nothing contained in this Agreement is
intended to or shall be construed to give rise to
or create a partnership or joint venture or lease
between Lessee, its successors and assigns on the
one hand, and Administrator, its successors and
assigns on the other hand.
XII. INDEMNIFICATION: Administrator will not
be liable in the performance of its duties for any
loss incurred by or damage to the Lessee, unless
such loss or damage results from the negligence or
willful misconduct of Administrator. Administrator
shall indemnify, defend and hold harmless Lessee
from any loss or damage resulting from the acts or
omissions of Administrator's officers, agents or
employees in connection with the operation of the
Facility by Administrator. Lessee shall indemnify,
defend and hold Administrator harmless from any
loss incurred by or damage to Administrator where
such loss or damage result from the negligence or
willful misconduct of Lessee in performing its
obligations under the Agreement.
XIII. ENTIRE AGREEMENT: This Agreement
contains the entire agreement between the parties
and shall be binding upon and inure to the benefit
of their successors and assigns, and shall be
construed in accordance with the laws of the State
of Washington. This Agreement may not be modified
or amended except by written instrument signed by
both of the parties hereto.
XIV. CAPTIONS: The captions used herein are
for convenience of reference only and shall not be
construed in any manner to limit or modify any of
the terms hereof.
<PAGE>
XV. ATTORNEY'S FEES: In the event either
party brings an action to enforce this Agreement,
the prevailing party in such action shall be
entitled to recover from the other all costs
incurred in connection therewith, including
reasonable attorney's fees.
XVI. SEVERABILITY: In the event one or more
of the provisions contained in this Agreement is
deemed to be invalid, illegal or unenforceable in
any respect under applicable law, the validity,
legality and enforceability of the remaining
provisions hereof shall not in any way be impaired
thereby.
XVII. CUMULATIVE; NO WAIVER: A right or
remedy herein conferred upon or reserved to either
of the parties hereto is intended to be exclusive
of any other right or remedy, and each and every
right and remedy shall be cumulative and in
addition to any other right or remedy given
hereunder, or now or hereafter legally existing
upon the occurrence of an Event of Default
hereunder. The failure of either party hereto to
insist at any time upon the strict observance or
performance of any of the provisions of this
Agreement or to exercise any right or remedy as
provided in this Agreement shall not impair any
such right or remedy or be construed as a waiver
or relinquishment thereof with respect to
subsequent defaults. Every right and remedy given
by this Agreement to the parties hereof may be
exercised from time to time and as often as may be
deemed expedient by the parties thereto, as the
case may be.
XVIII. AUTHORIZATION FOR AGREEMENT: The
execution and performance of this Agreement by
Lessee and Administrator have been duly authorized
by all necessary laws, resolutions or corporate
action, and this Agreement constitutes the valid
and enforceable obligations of Lessee and
Administrator in accordance with its terms.
XIX. COUNTERPARTS: This Agreement may be
executed in any number of counterparts, each of
which shall be an original, and each such
counterpart shall together constitute but one and
the same Agreement.
[SIGNATURE PAGE FOLLOWS.]
<PAGE>
IN WITNESS WHEREOF, the parties have hereto
caused this Agreement to be duly executed, as of
the day and year first above written.
COLUMBIA HOUSE, LLC,
a Washington limited liability
company
By: /s/ Stan Baty
-
- --------------------------------
Its:
Managing Member
By: Stan Baty
Its: Managing Member
EMERITUS CORPORATION,
a Washington corporation
/s/ Raymond R. Brandstrom
--------
- --------------------------------------
By:
Raymond R. Brandstrom
Its:
President
<PAGE>
COMMERCIAL LEASE AGREEMENT
WITH OPTION TO PURCHASE
(YORK CARE CENTER)
THIS COMMERCIAL LEASE AGREEMENT ( "Lease" ) is
made and effective this 13th day of January, 1997,
by and between ALBERT M. LYNCH, an individual
("Landlord ), and COLUMBIA HOUSE, L.L.C., a
Washington limited liability company ("Tenant"),
with reference to the following facts:
A. Landlord is the owner of certain improved
real property located at 40 and 42 Ross Cannon
Street, in the City of York, York County, South
Carolina, commonly known as the York Care Center
(the "Premises"), which Premises are more fully
described as follows:
"All that certain piece, parcel or tract of
land lying and being situated in the City of York,
York Township, York County, South Carolina,
containing TWO AND 321/1000 ( 2.321) ACRES, more
or less, according to survey drawn for William P.
Martin by Joe H. Baird, RLS, January 9, 1991, and
being more particularly described according to
said plat as follows: BEGINNING at a point on
eastern edge of Ross Cannon Street, joint corner
with other property of William P. Martin, and
running thence S. 88- 08-45 E. 250.00 feet; thence
S. 1-51-15 W. 322.86 feet; thence S. 59-48-55 W.
107.89 feet; thence S. 57-14-25 W. 192.64 feet to
point on eastern edge of Ross Cannon Street;
thence with said street N. 1-51-15 E. 489.53 feet
to point of beginning."
ALSO "All that certain piece, parcel or lot
of land lying and being situated at the
intersection of Ross Cannon Street and S.C.
Highway 49 (Charlotte Highway), in the City of
York, York County, South Carolina, and being more
particularly described according to plat of
property of William P. Martin, drawn by Joe H.
Baird, RLS, January 9, 1991, as follows: Beginning
at a point on eastern edge of Ross Cannon Street,
joint corner with other property of William P.
Martin, and running thence with edge of Ross
Cannon Street N. 1-51-15 E. 205.00 feet to point
on southern edge of S.C. Highway 49; thence with
edge of S.C. Highway 49 N. 69-57-35 E. 180.00
feet; thence S. 20- 02-25 E. 222.53.feet; thence
S. 1-51-15 W. 65.65 feet; thence N. 88-08-45 W.
250.00 feet to point of beginning."
As used in this Lease, the term "Premises" shall
refer only to the land, improvements, and fixtures
constituting the York Care Center. The "Building"
shall refer to the improvements located on the
above-described real property.
B. Tenant desires to lease the Premises from
Landlord and to acquire an option to purchase the
Premises from Landlord, all according to the terms
set forth in this Lease.
NOW, THEREFORE, Landlord and Tenant agree as
follows:
l. LEASE OF PREMISES. Landlord hereby leases
the Premises to Tenant, and Tenant hereby leases
the Premises from Landlord, for the rent and term,
and subject to the terms set forth in this Lease.
2. TERM OF LEASE. The term of this Lease (the
"Term" ) shall commence on January l, 1997, or
such earlier date as may be agreed upon by the
parties (the "Commencement Date"), and shall
continue until December 31, 2001. Notwithstanding
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<PAGE>
the foregoing, the Commencement Date shall be
deferred and the Term shall not commence until
Tenant has received all necessary licenses and
approvals required by applicable law to operate
the Premises as an assisted living facility.
3. RENT. Tenant ' s basic rental obligation
shall consist of the minimum monthly rent
described below. Additionally, Tenant's rental
obligation shall include all costs to be paid by
Tenant under this Lease in connection with
Tenant's occupancy of the Premises (such as taxes
and assessments, insurance premiums and
maintenance expenses).
3.1 MINIMUM MONTHLY RENT. Tenant shall pay to
Landlord as a minimum monthly rent, without
deduction, set-off, prior notice or demand, the
sum of Sixteen Thousand and No/100 Dollars
($16,000.00) per month in advance on the first day
of each calendar month, beginning on the
Commencement Date and continuing during the Term.
If, by' agreement of the parties, the Term
commences on a date other than the first day of a
calendar month, the first rental payment shall be
due on the Commencement Date and shall include
rent for the first full calendar month, plus
prorated rent for the first partial calendar
month. All rent shall be paid to Landlord in
lawful money of the United States, at such address
as may be designated by Landlord from time to
time.
3.2 DELINQUENT RENT. In the event of default
in the payment of rent under this Lease, which
default is not cured within ten (10) days after
Tenant's receipt of written notice of default,
Tenant agrees to pay a late charge equal to four
percent (4%) of such delinquent amount, which
charge shall become due immediately with the
delinquent rent. Such charge shall be deemed not a
penalty but a reasonable administrative charge for
the expense and inconvenience suffered by the
Landlord on account of the late payment.
4. OPTION TO PURCHASE. In consideration of
the sum o E Two Hundred Fifty Thousand and No/
l00ths ( $250, 000. 00) Dollars ( "Option
Consideration"), due and payable to Landlord by
Tenant on the effective date of this Lease,
Landlord hereby grants to Tenant an option to
purchase the Premises for the price and on the
terms and conditions set forth in Exhibit A
attached hereto and incorporated herein. Except as
specifically provided in Sections 12 and 13 below
with respect to casualty and condemnation, the
Option Consideration is not refundable by Landlord
under any circumstances, including termination of
this Lease for any reason prior to expiration of
its stated term, in which event the option to
purchase as herein provided terminates.
5. PERSONAL GUARANTY. On the effective date
of this Lease Tenant shall procure and deliver to
Landlord the personal guaranty of Tenant's
obligations hereunder on the terms and conditions
set forth on Exhibit B attached hereto and
incorporated herein.
6. USE OF PREMISES; OPERATIONS REPORTING.
Tenant shall use the Premises for the operation of
a full service retirement, convalescent apartment
facility, and/or assisted living facility.
2
<PAGE>
7. REAL PROPERTY TAXES AND
ASSESSMENTS/UTILITIES. Tenant shall pay all real
property taxes and general and special assessments
levied and assessed against the Premises, and
which pertain to the Term (prorated for any
partial tax year at the beginning and end of the
Term). Landlord cause the tax bills to be sent
directly to Tenant from the tax collector. If tax
bills are sent to Landlord, Landlord shall notify
Tenant of the real property taxes and immediately
upon receipt of the tax bill shall furnish Tenant
with a copy of the tax bill. Tenant shall pay the
real property taxes semiannually not later than
ten (10) days before the taxing authority's
delinquent date or ten (10) days after receipt of
the tax bill, whichever is later.
Tenant shall a for all utilities and services
furnished to or used by it, including without
limitation, gas, electricity, water, telephone
service television service, garbage collection,
and for all connection charges.
8. MAINTENANCE. Tenant, at its cost, shall
maintain the Premises, including structural (roof,
foundation, and bearing and non-bearing walls) as
well as nonstructural components thereof, and also
including without limitation, all plumbing,
heating, air conditioning, ventilating, electrical
and lighting facilities and equipment, fire safety
and life systems and alarms within the Premises,
all fixtures, interior walls, ceilings, windows,
doors, plate glass, either within or on the
Premises, and all sidewalks, landscaping,
driveways, parking lots, fences and signs either
in or on the Premises. All such elements shall be
maintained in good condition, reasonable wear and
tear excepted. Landlord shall have no
responsibility to maintain any portion of the
Premises.
Landlord hereby warrants and represents that the
Premises are in good condition and that all
building systems (e.g., heat, HVAC plumbing and
electrical) are in good operating condition.
9. ALTERATIONS AND IMPROVEMENTS.
9.1 TENANT'S ALTERATIONS AND IMPROVEMENTS.
Tenant shall not make any structural alterations
to the Premises without Landlord's prior written
consent. Any alterations made (other than trade
fixtures and personal property, which Tenant may
remove) shall remain on and be surrendered with
the Premises on expiration or termination of the
Term.
9.2 Tenant shall pay all costs for
construction done by it, or caused to be done by
it, and for all materials furnished to it, or
caused to be furnished to it, on the Premises as
permitted by this-Lease. Tenant shall keep the
Premises free and clear from any liens arising out
of construction done by or for Tenant or materials
furnished to or for Tenant.
Tenant shall have the right to contest the
correctness or the validity of any such lien if,
immediately on demand by Landlord, Tenant procures
a lien release bond meeting the requirements of
South Carolina law respecting the release of
mechanic's liens and providing for the payment of
any sum that the claimant may recover on the claim
(together with costs of suit, if the claimant
recovers in the action).
3
<PAGE>
10. INDEMNIFICATION.
10.1 INDEMNITY BY TENANT. Tenant shall
indemnify, defend and hold Landlord harmless from
and against all claims and liabilities arising out
of any damage to any person or property occurring
in, on, or about the Premises, except that
Landlord shall be liable for damage resulting from
the acts or omissions of Landlord or its
authorized representatives.
10.2 INDEMNITY BY LANDLORD. Landlord shall
indemnify, defend and hold Tenant harmless from
and against all claims and liabilities arising out
of any damage to any person or property occurring
as a result of the acts or omissions of Landlord
or its authorized representatives or as a result
of Landlord's breach of this Lease.
11. INSURANCE REQUIREMENTS.
11.1 TYPES OF INSURANCE. Landlord and Tenant
agree that Tenant shall, at its cost, maintain the
following insurance coverages with respect to the
Premises during the term of the Lease:
a. DAMAGE TO PREMISES. A policy or policies
of hazard insurance covering loss or damage to the
Premises, in the amount of the full replacement
value thereof, providing protection against all
perils included within the classification of fire,
extended coverage, vandalism, malicious mischief,
and special extended perils (all risk). The
insurance policy shall be issued in the names of
Landlord, Tenant, and Landlord's lender, as their
interests appear. In case this Lease is
terminated, the insurance policy and all rights
under it, or the insurance proceeds, shall be
assigned to Landlord at Landlord's election.
The "full replacement value" of the Premises
shall be determined by the company issuing the
insurance policy at the time the policy is
initially obtained. Not more frequently than once
every three (3) years, either party shall have the
right to notify the other party that it elects to
have the replacement value redetermined by the
insurance company. The redetermination shall be
made promptly and in accordance with the rules and
practices of the Board of Fire Underwriters, or a
like board recognized and generally accepted by
the insurance company, and each party shall be
promptly notified of the results of the company.
The insurance policy shall be adjusted according
to the redetermination.
b. PUBLIC LIABILITY AND PROPERTY DAMAGE.
Commercial general liability and property damage
insurance with a combined single limit of
liability of not less than $1,000,000 per
occurrence, insuring against all liability of
Tenant and its authorized representatives arising
out of and in connection with Tenant's use or
occupancy of the Premises.-. All such insurance
shall insure performance by Tenant of the
indemnity provisions of Paragraph 10.1 above. Both
parties shall be named as co-insureds, and the
policies shall contain cross liability
endorsements.
c. BUSINESS INTERRUPTION. A policy of
business interruption insurance covering the
Landlord for any loss or damage resulting from any
damages to the Premises for which there is
insurance providing protection against all perils
as identified in 11.1(a) above.
4
<PAGE>
11.2 WAIVER OF SUBROGATION. The parties
hereby release each other, and their respective
authorized representatives, from all claims and
liabilities for damage to any person or to the
Premises, to the extent of the insurance coverage
described in this Paragraph 11, that are caused by
or result from risks insured against under any
insurance policies carried by the parties and in
force at the time of any such damage. Each
insurance policy required under this Lease shall
provide that the insurance company either party in
connection with any damage covered by such policy.
11.3 MISCELLANEOUS INSURANCE PROVISIONS. All
insurance required under this Lease shall:
a. Be issued by insurance companies
authorized to do business in the State of South
Carolina.
b. Be issued as a primary policy;
c. Contain an endorsement requiring twenty
(20) days' written notice from the insurance
company to both parties and Landlord's lender
before expiration, cancellation or change in the
coverage, scope, or amount of any policy.
Each policy, or a certificate of the policy,
together with evidence of payment of premiums,
shall be deposited with Landlord at the
commencement of the Term, and on renewal of the
policy, not less than twenty (20) days before the
expiration of the term of the policy.
12. DAMAGE AND RESTORATION.
12.1 DAMAGE AND REPAIR. If the Building is
damaged by fire or any other cause to such extent
that the cost of restoration will equal or exceed
fifty percent (50%) of the replacement value of
the Building (exclusive of foundations) just prior
to the occurrence of the damage, then Landlord
may, no later than the sixtieth day following the
damage, give Tenant a notice of election to
terminate this Lease. In the event of such
election this Lease shall be deemed to terminate
on the third day after the giving of such notice,
the Option Consideration shall be. returned to
Tenant, Tenant shall surrender possession of the
Premises within a reasonable time thereafter, the
rent shall be apportioned as of the date of
Tenant's surrender and any rent paid for any
period beyond such date shall be repaid to Tenant.
If the cost of restoration as estimated by
Landlord shall amount to less than fifty percent
(50%) of said replacement value of the Building,
or if Landlord does not elect to terminate this
lease, Landlord shall promptly restore the
Building and the Premises (to the extent of the
improvement of the Premises originally provided by
Landlord hereunder),.subject to delays beyond
Landlord's control and delays in the making of
insurance adjustments by Landlord, provided that
if such restoration is reasonably estimated to
render the Premises unusable for 120 days or more,
Tenant may elect to terminate this Lease.
12.2 DESTRUCTION DURING LAST YEAR OF TERM. In
case the Building shall be substantially destroyed
by fire or other cause at any time during the last
Lease Year of this Lease, either Landlord or
Tenant may terminate this Lease upon written
notice to the other given within sixty (60) days
of the date of such destruction. In such event the
Option Consideration shall be returned to Tenant.
5
<PAGE>
13. CONDEMNATION.
13.1 DEFINITIONS.
a. "Condemnation" means (1) the exercise of
any governmental power by a condemnor to condemn
all or any portion of the Premises, whether by
legal proceedings or otherwise, or (2) a voluntary
sale or transfer by Landlord to any condemnor,
either under threat of condemnation or while legal
proceedings for condemnation are pending.
b. "Date of Taking" means the date the
condemnor has the right to possession of the
property being condemned.
c. "Award" means all compensation, sums, or
anything of value awarded, paid, or received on a
total or partial condemnation.
d. "Condemnor" means any public or quasi-
public authority, or private corporation or
individual, having the power of condemnation.
13.2 TOTAL TAKING. If the Premises are
substantially taken by condemnation, and thereby
rendered, totally untenantable, this Lease-shall
automatically terminate as of the date of taking
and the Option Consideration shall be returned to
Tenant.
13. 3 PARTIAL TAKING. If any portion (but not
all) of the Premises is taken by condemnation,
this Lease shall remain in effect, except that
Tenant may elect to terminate this Lease if any
part of the Premises shall be taken so as to
render the
remainder thereof unusable for the purposes for
which the Tenant leased the Premises. If Tenant
elects to terminate this Lease, Tenant must
exercise its right to terminate pursuant to this
Paragraph by giving notice to Landlord within
thirty (30) days after the nature and extent of
the taking have been finally determined. If Tenant
elects to terminate this Lease as provided in this
Paragraph, Tenant shall also notify Landlord of
the date of termination, which date shall not be
earlier than sixty (60) days, nor later than one
hundred twenty (120) days after Tenant has
notified Landlord of its election to terminate;
except that this Lease shall terminate on the date
of taking if the date of taking falls on a date
before the date of termination as designated by
Tenant. If this Lease is so terminated, the Option
Consideration shall be returned to Tenant. If
Tenant does not terminate this Lease within the 15-
day period, this Lease shall continue in full
force and effect.
13.4 RESTORATION OF PREMISES; ABATEMENT OR
REDUCTION OF RENT. If there is a partial taking of
the Premises and this Lease remains in full force
and effect pursuant to Paragraph 13.3, Tenant
shall at its cost accomplish all necessary
restoration. Rent shall be abated or reduced
during the period from the date of taking until
the completion of restoration, but all other
obligations of Tenant under this Lease shall
remain in full force and effect. The abatement or
reduction of rent shall be based on the extent to
which the restoration interferes with Tenant's use
of the Premises. Furthermore, and regardless of
abatement or reduction of rent during restoration,
the rent payable following the date of taking
shall be abated in proportion to the degree to
which Tenant's use of the Premises is impaired.
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<PAGE>
13.5 AWARD. The award shall belong to and be
paid to Landlord, except that Tenant shall receive
from the award the greater of the cost of making
the necessary restorations or the value
specifically allocated by the condemnor to the
partial or total loss of the unexpired term of
this Lease. Additionally, Tenant shall have the
right to make a separate claim against the
condemnor for damages to Tenant as a result of the
taking, including compensation for the taking of
Tenant's property, damages to Tenant's business,
moving expenses, and the like.
14. ASSIGNMENT/ SUBROGATION.
14.1 VOLUNTARY ASSIGNMENT, SUBLETTING, AND
ENCUMBERING BY TENANT. Tenant shall not
voluntarily assign or encumber its interest in
this Lease or in the Premises, or sublease all or
any part of the Premises (except to Tenant's
clients), or allow any other person or entity to
occupy or use all or any part of the Premises
(except Tenant's clients), without first obtaining
Landlord's written consent. Any assignment,
encumbrance, or sublease without Landlord's prior
consent shall be voidable arid, at Landlord's
election, shall constitute a default. No consent
to any assignment, encumbrance, or sublease shall
constitute a further waiver of the provisions of
this Paragraph. Notwithstanding the foregoing,
Tenant may assign its interest under this Lease or
sublease all or part of the Premises without
Landlord's consent to a subsidiary or affiliate of
Tenant, or in connection with a merger or
consolidation involving Tenant.
14.2 ASSIGNMENT BY LANDLORD. Landlord shall
have the right to sell, assign, hypothecate,
pledge, or otherwise transfer or encumber
(collectively "transfer") all or any portion of
its interest in the Premises or this Lease,
without Tenant's consent, and Tenant shall, upon
notice of such transfer, execute a written
amendment to this Lease acknowledging and
consenting to such transfer. If the entire leased
Premises are transferred, and the transferee
assumes in writing all of Landlord's obligations
under this Lease, Tenant agrees that Landlord
shall be released from any further obligations
under this Lease.
15. TENANT ' S DEFAULT. The occurrence of any
of the following shall constitute a default by
Tenant: .
15.1 Failure to pay rent when due, if the
failure continues for ten (10) days after written
notice of the failure to pay.
15.2 Violation of or failure to perform any
other provision of this Lease, if the violation or
failure to perform is not cured within thirty (30)
days after written notice has been given to
Tenant. If the default cannot reasonably be cured
within thirty (30) days, Tenant shall not be in
default of this Lease if Tenant commences to cure
the default within the 30-day period and
diligently and in good faith continues to cure the
default. Notice as given under this Paragraph
shall specify the alleged default and the
applicable Lease provisions, and shall demand that
Tenant perform the provisions of this Lease within
the applicable period of time, or quit the
Premises. Such notice may serve both as a notice
of the default under this Paragraph and as any
statutory notice required as a condition precedent
to an action in unlawful detainer or for damages
or otherwise. No such notice shall be deemed a
forfeiture or a termination of this Lease unless
Landlord so elects in the notice.
7
<PAGE>
16. LANDLORD'S REMEDIES. Landlord shall have
the following remedies if Tenant commits a
default. These remedies are not exclusive; they
are cumulative in addition to any remedies now or
later allowed by law.
16.1 CONTINUATION OF LEASE. Landlord may
continue this Lease in full force and effect, and
the Lease will continue in effect as long as
Landlord does not terminate Tenant's right to
possession, and Landlord shall have the right to
collect rent when due. During the period Tenant is
in default, Landlord may enter the Premises and
relet them, or any part of them, to third parties
for Tenant's account. Tenant shall be liable
immediately to Landlord for all reasonable costs
Landlord incurs in reletting the Premises.
Reletting can be for a period shorter or longer
than the remaining term of this Lease. Tenant
shall pay to Landlord the rent due under this
Lease on the dates the rent is due, less the rent
Landlord receives from any reletting. No act by
Landlord allowed by this Paragraph shall terminate
this Lease unless Landlord notifies Tenant that
Landlord elects to terminate this Lease. After
Tenants default and for as long as Landlord does
not terminate Tenant's right to possession of the
Premises, if Tenant obtains Landlord's consent
Tenant shall have the right to assign or sublet
its interest in this Lease, but Tenant shall not
be released from liability.
16.2 TERMINATION OF LEASE. Landlord may
terminate Tenant ' s right to possession of the
Premises at any time. No act by Landlord other
than giving notice to Tenant shall terminate this
Lease. Acts of maintenance, efforts to relet the
Premises, or the appointment of a receiver on
Landlord's initiative to protect Landlord's
interest under this Lease shall not constitute a
termination of Tenant's right to possession. On
termination, Landlord has the right to recover
from Tenant all past due rent and the difference
between rent owing hereunder and rent received by
Landlord for the remainder of the Term.
17. LANDLORD ' S RIGHT OF ENTRY. Landlord
shall have the right to enter the Premises at all
reasonable times after reasonable prior notice in
order to inspect the Premises or to otherwise
insure compliance with the provisions of this
Lease; provided that any such inspection shall not
unreasonably interfere with the occupants of the
Premises or with Tenant's business operations on
the Premises.
18. SURRENDER OF PREMISES. Prior to
expiration or immediately upon termination of the
term, Tenant shall surrender to Landlord the
Premises and all Tenant's improvements and
alterations in good condition (except for ordinary
wear and tear and damage beyond Tenant's
reasonable control), except for alterations that
Tenant has the right to remove. Tenant shall
remove all its personal property within the above-
stated time. Tenant shall perform all restoration
made necessary by the removal of any alterations
or Tenant's personal property.
19. ESTOPPEL CERTIFICATES. Either party
shall, within ten (10) days after receipt of
written request from the other, execute and
deliver to the requesting party, in recordable
form, a certificate stating: (1) that this Lease
is unmodified and in full force and effect, or in
full force and effect as modified, and stating the
modifications ; and ( 2 ) that the requesting
party is not in default of the provisions of the
Lease, or stating the nature and extent of any
claimed default. The certificate also shall state
the amount of minimum monthly rent, the dates to
which the rent has been paid in advance, and the
amount of any prepaid rent. Failure to deliver the
certificate within the ten (10) days shall
8
<PAGE>
be conclusive for the benefit of the requesting
party that this Lease is in full force and effect
and has not been modified, and that the requesting
party is not in substantial default of the
provisions of this Lease, except as may be
represented by the requesting party.
20. SIGNS. Tenant, at its cost, shall have
the right to place, construct, and maintain an
exterior sign on the Premises, advertising its
business; provided, however, that the size, design
and construction of the sign shall first be
approved by Landlord and shall be in compliance
with local regulations and ordinances.
21. MISCELLANEOUS AND PROCEDURAL.
21.1 TIME OF ESSENCE. Time is of the essence
of each and every provision of this Agreement.'
21.2 ATTORNEY'S FEES. If legal action
(including, without limitation, litigation and/or
arbitration) is required or deemed necessary to
enforce or interpret any of the provisions of this
Agreement, the prevailing party shall be entitled
to recover its costs of suit, including reasonable
attorney's fees, incurred in connection therewith.
21. 3 CONSENT OF PARTIES. Whenever consent or
approval of either party to this Agreement is
required, such consent or approval shall not be
unreasonably withheld or delayed.
21.4 BINDING EFFECT. Subject to the
restrictions on assignment set forth above, this
Agreement shall be binding upon and shall inure to
the benefit of the parties and their respective
successors and assignees.
21.5 CORPORATE AUTHORITY. Each corporate
party to this Agreement, and each individual
signing on behalf of a corporate party, hereby
agrees that, upon execution of this Agreement, a
certified copy of a resolution of such
corporation's Board of Directors authorizing the
execution of this Agreement by such individual.
21.6 GOVERNING LAW; VENUE AND JURISDICTION.
This Agreement shall be construed and interpreted
in accordance with the laws of the State of South
Carolina. Jurisdiction and venue in any action to
interpret or enforce any provisions of this
Agreement shall lie in Lancaster County, South
Carolina.
21.7 INTEGRATED AGREEMENT; MODIFICATION. This
Agreement, together with all exhibits hereto,
contains all agreements of the parties relating to
the Premises, and may not be amended or modified
except in writing by the party to be charged with
such amendment or modification. .
21.8 MEMORANDUM OF LEASE. A memorandum of
this Lease shall be executed, acknowledged, and
recorded with the official records of York County,
South Carolina.
9
<PAGE>
21.9 WAIVER. No delay or omission in the
exercise of any right or remedy of either party to
this Agreement on any default by the other party
shall impair such a right to remedy or be
construed as a waiver. Either party's consent to
or approval of any act by the other party
requiring such consent or approval shall not be
deemed to waive or render unnecessary the
requirement of consent or approval of any
subsequent act by either party.
21.10 NOTICE. Any notice, demand, request,
consent, approval, or communication that either
party desires or is required to give to the other
party or any other person shall be in writing and
either served personally or by facsimile
transmission (where a facsimile number is
available), or sent by prepaid, first-class mail,
according to the following delivery information:
If to Landlord: Albert M. Lynch
538 Briarwood Road
Lancaster, South Carolina 29720
Phone: (803) 285-0080
Fax: (803) 285-0080 (call first)
If to Tenant: Columbia House, L.L.C
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: Richard K. Sontgerath
Phone: (206) 298-2909
Fax: (206) 301-4545
Either party may change its address or other
delivery information by delivering notice of the
change in the manner prescribed in this
subparagraph.
Any such notice shall be deemed delivered upon
personal delivery or upon confirmation of
facsimile transmission, or within forty-eight (48)
hours from the time of mailing if mailed as
provided in this subparagraph.
21.11 HOLDOVER. If Tenant, with Landlord's
consent, remains in possession of the Premises
after expiration or termination of the term,
including any extended term, or after the date in
any notice given by Landlord to Tenant terminating
this Lease as a result of Tenant ' s default, such
possession by Tenant shall be deemed to be a month-
to-month tenancy terminable by either party on
giving thirty (30) days' notice of termination to
the other party. All provisions of this Lease
except those pertaining to term, option to
purchase, and option to extend (and including the
adjustment of minimum rent) shall apply to the
month-to-month tenancy. If Tenant, without
Landlord's consent, remains in possession of the
Premises after expiration or termination of the
term, including any extended term, or after the
date in any notice given by Landlord to Tenant
terminating this Lease as a result of Tenant's
default, such possession by Tenant shall be deemed
to be at sufferance, terminable without notice.
Rent during any such unpermitted occupancy shall
accrue at 150% of the rate otherwise applicable,
and the Landlord's acceptance of such rent shall
not be deemed acknowledgment of right of Tenant to
occupy the Premises.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
executed this Lease the day and year first above
written.
LANDLORD: /s/ Albert M. Lynch
---
- --------------------------------------
Albert M. Lynch
TENANT: COLUMBIA HOUSE, L.L.C., a
Washington
limited liability company
By: /s/ R.K. Sontgerath
------------------------------
-------------
Richard K. Sontgerath
Its: Manager
11
<PAGE>
STATE OF SOUTH CAROLINA )
) ss.
COUNTY OF LANCASTER )
I certify that I know or have satisfactory
evidence that ALBERT M. LYNCH is the person who
appeared before me, and said person acknowledged
that said person signed this instrument and
acknowledged it to be said person's free and
voluntary act for the uses and purposes mentioned
in the instrument.
Dated this 17th day of January, 1997,
/s/ Debra B. Rowell
- --------------------------------------------------
- --
(signature of Notary)
Debra B. Rowell
- --------------------------------------------------
- --
(Legibly Print or Stamp Name of Notary)
Notary public in and for the
state of
S. Carolina, residing at Lancaster
My appointment expires 12-22-
97
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory
evidence that Richard K. Sontgerath
is the person who appeared before me, and said
person acknowledged that said person signed this
instrument, on oath stated that said person was
authorized to execute the instrument and
acknowledged it as the Manager of COLUMBIA HOUSE,
.L. L. C. , a Washington limited liability
company, to be the free and voluntary act of such
limited liability company for the uses and
purposes mentioned in the instrument.
Dated this 13th day of January, 1997
/s/ Rosa Allen
- --------------------------------------------------
- --
(signature of Notary)
Rosa Allen
- --------------------------------------------------
- --
(Legibly Print or Stamp Name of Notary)
[SEAL] Notary public in and for
the state of
Washington, residing at Tacoma
My appointment expires 11-17-
00
12
<PAGE>
EXHIBIT A
OPTION TO PURCHASE
GRANT OF EXCLUSIVE OPTION TO PURCHASE. The
following are the terms pursuant to which Landlord
grants Tenant an option to purchase the Premises.
1. GRANT OF OPTION; EXERCISE; TERMINATION.
1.1 ORIGINAL OPTION. In consideration of the
execution of the Lease, Landlord hereby grants to
Tenant an exclusive option to purchase the
Premises upon expiration of the term of this Lease
on the terms and conditions contained herein.
1. 2 EXERCISE OF OPTON AND CLOSING. Tenant
may exercise the option to purchase the Property
by delivering written notice of exercise of the
option ( "Exercise Notice" ) to Landlord at the
place and in the manner prescribed for notices to
Landlord under this Lease at least sixty (60) days
prior to the expiration of the term of the Lease
and closing shall occur within fifteen (15) days
before or after the expiration of the term of the
Lease.
2. PURCHASE PRICE AND PAYMENT. The purchase
price for the Premises shall be Two Million Three
Hundred Fifty-Seven Thousand Five Hundred Dollars
($2,357,500). The $250,000 Option Consideration
under the Lease shall be applied toward the
purchase price.
3. CONVEYANCE AND TITLE INSURANCE. At
closing, Landlord shall deliver title to the
Premises to Tenant by full warranty deed, free and
clear of all covenants, restrictions, rights,
rights-of-way, leases, easements, liens and
encumbrances, except for the following:
3.1 Liens for taxes and general and special
assessments;
3.2 Covenants, conditions, restrictions,
rights, rights-of-way, leases, easements, liens
and encumbrances of record or in view as of the
date of the Lease; provided that title shall be
clear of any monetary liens created by Landlord;
and
3.3 Any encumbrances arising out of Tenant's
activities on the Premises.
Tenant shall also have confirmed that it will
receive as soon as practicable after closing a
standard form policy of owner's title insurance
issued by a title company acceptable
to Tenant, in the amount of the purchase price,
and showing title vested in the name of Tenant, or
its nominee in the condition described in this
Paragraph 3.
4. CLOSING PROCEDURE AND POSSESSION. Prior to
closing, Seller and Purchaser shall execute and
deposit with the Landlord's attorney in Lancaster,
South Carolina, all documents reasonably required
by the Closing Agent and all funds necessary to
complete the sale in accordance with this option.
Closing shall be deemed to occur on the date of
recordation of the warranty Deed.
13
<PAGE>
5. CLOSING COSTS AND PRORATIONS.
5.1 CLOSING COSTS. Tenant shall pay the
premium for Tenant's policy of title insurance.
Landlord shall pay all costs of placing title in
the condition described herein. The recording fee
(formerly deed documentary stamps) shall be paid
by Landlord. All other miscellaneous closing costs
shall be paid by Tenant and Landlord in accordance
with the usual closing practice of the area.
5.2 PRORATIONS. Rent required under the Lease
shall be prorated as of the date of closing. In
that the Tenant shall have occupied and operated
the Premises during the term of the Lease and
prior to closing on a
"triple-net" basis, there shall be no need to
prorate any other items of income or expense
pertaining to the Premises.
6. REMEDIES ON DEFAULT. If, following
delivery of the Exercise Notice, either party
defaults in its obligations hereunder, and if this
transaction fails to close as a result of such
default, either party may, at its election,
enforce this Agreement by specific performance,
recover damages based on the breach, or rescind
this Agreement.
7. NO BROKER'S COMMISSION. Landlord and
Tenant acknowledge that a commission shall have
been paid in connection with the negotiation and
execution of the Lease,. and that no further
commission shall be payable in connection with the
sale of the Premises. Landlord and Tenant hereby
warrant that, except for the broker(s) to whom the
leasing commission shall have been paid, they have
not discussed nor had any communications
concerning the Premises with any real estate agent
or broker prior to the execution of the Lease.
Should any claim for a commission or finder's fee
be asserted by any third party as a result of the
act or omission of either party, then the party
alleged to have agreed to pay such commission or
fee shall be solely responsible therefor,
and shall indemnify, defend, and hold the other
party harmless from any claim or liability
therefor.
SELLER: /s/ Albert Lynch
---
- --------------------------------
Albert Lynch
PURCHASER: COLUMBIA HOUSE, L.L.C., a
Washington
limited liability company
By: /s/ R.K. Sontgerath
------------------------------
------
Richard K. Sontgerath
Its: Manager
14
<PAGE>
EXIBIT B
PERBONAL GUARANTY
THIS PERSONAL GUARANTY ("Guaranty") is made
and effective this 13th day of January, 1997, by
DANIEL R. BATY of 3131 Elliott, Suite 500;
Seattle, WA 98121 ("Baty") to ALBERT M. LYNCH of
538 Briarwood Road, City of Lancaster, County of
Lancaster, State of South Carolina, 29720
("Lynch").
l. STATE OF GUARANTY. In consideration of
executing and entering into a Commercial Lease
Agreement with Option to Purchase property located
at 40 and 42 Ross Cannon Street, York, South
Carolina (the "Lease") with Columbia House,
L.L.C., a Washington limited liability company,
("Tenant") Baty irrevocably and unconditionally
guarantees payment when due, whether by
acceleration or otherwise of the Lease and all the
obligations and liabilities due and to become due
to Lynch from Tenant under the Lease, together
with all attorney fees, costs, and expenses of
collection incurred by Lynch in enforcing any such
obligations and liabilities.
2. CONTINUING GUARANTY. Baty specifically
agrees that this Guaranty is and shall be an open
and continuing guaranty and all obligations and
liabilities to which it applies or may apply shall
be. conclusively presumed to have been created in
reliance hereon and shall continue in full force
and effect, notwithstanding any (a) change in
rentals or other obligations under the Lease, (b)
renewals, modifications, additions, or extensions
thereto or extensions of time to perform any of
the obligations thereunder.
Baty specifically waives notice of assignment
by Lynch and waives notice of any such changes,
renewals, modifications, additions, extensions, or
of any default by the Tenant.
Baty further agrees and consents to any
assignment of this Guaranty, in which event it
shall inure to the benefit of any such assignee
with the same force and effect as though the
assignee was specifically named in this Guaranty,
and waives any notice of any such assignment.
3. EFFECT OF INVALIDITY. No invalidity,
irregularity, or unenforceability of all or any
part of the obligations and liabilities hereby
guaranteed or of any security therefor shall
affect, impair, or be a defense to this Guaranty.
This Guaranty is a primary obligation of Baty.
4. GOVERNING LAW. This Guaranty shall be
governed according to the law of South Carolina.
As part of the consideration for Lynch's
execution of the Lease, Baty agrees that any and
all actions or proceedings arising directly or
indirectly from this Guaranty shall be litigated
in courts having jurisdiction and venue in
Lancaster County, South Carolina.
5. BINDING EFFECT. This Guaranty shall bind
the respective heirs, executors, administrators,
successors, and assigns of the undersigned.
15
<PAGE>
In witness whereof, this Guaranty is executed
the day and year first above written.
/s/ Daniel R. Baty
------------------------
Daniel R. Baty
16
<PAGE>
THE FOLLOWING LEASE IS SUBSTANTIALLY THE SAME FOR
THE PROPERTIES IN EL PASO, SAN ANTONIO AND SAN
MARCOS WITH THE EXCEPTION OF THE LEASE PAYMENTS
WHICH ARE AS FOLLOWS:
EL PASO $66,693.00 PER MONTH
SAN ANTONIO $74,503.00 PER MONTH
SAN MARCOS $39,998.00 PER MONTH
<PAGE>
LEASE
(San Marcos, Texas)
TEXAS HCP HOLDING, L.P.
Lessor
AND
ESC III, L.P. D/B/A TEXAS-ESC III, L.P.
Lessee
Dated as of April l, 1997
<PAGE>
LEASE
THIS LEASE ("Lease") is dated as of the 1st
day of April, 1997, and is between TEXAS HCP
HOLDING, L.P., a Delaware limited partnership
("Lessor") and ESC III, L.P. D/B/A TEXAS-ESC III,
L.P., a Washington limited partnership ("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").
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 the expiration of
the fifteenth (l5th) Lease Year, 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
1
<PAGE>
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 Emeritus
Corporation.
APPRAISER: As defined in Article XXXIV.
APPRECIATION AMOUNT: The amount, if any, by
which the Fair Market Value exceeds the Minimum
Repurchase Price of the Properties in the
aggregate as of the Outside Closing Date.
ASSIGNMENT AGREEMENT: The agreement of even
date herewith by and between Lessor and Emeritus
Corporation relative to the acquisition by Lessor
of 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 Gross Revenues for
the second Lease Year.
2
<PAGE>
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.
The Capital Renovation Project shall be treated
for all purposes of this Lease as a "Capital
Addition," and all amounts advanced to Lessee, or
otherwise expended by Lessor with respect therein
shall be treated as "Capital Addition Costs"
funded by Lessor.
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 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.
CAPITAL RENOVATION PROJECT: As defined in
Section 10.3.
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
3
<PAGE>
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 Assignment
Agreement.
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 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.
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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 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 (computed at the rate in
effect as of the last day of the prior Lease Year)
and Additional Rent and (ii) the prior Lease
Year's CPI Rent; provided, however, that, with the
exception of the second Lease Year with respect to
which no such limit shall apply, in no event will
the increase in CPI Rent from one Lease Year to
the next be greater than one and fifty one
hundredths percent (1.50%) of the sum of the prior
Lease Year's (a) Minimum Rent computed at the rate
in effect as of the last day of the prior Lease
Year 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.
EMERITUS CORPORATION: Emeritus Corporation, a
Washington corporation
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.
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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 87 unit congregate care and
assisted living facility being operated on the
Leased Property.
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 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. 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.
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(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.
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 Revenues and the rent received or
receivable by Lessee from such Commercial
Sublessee shall be excluded from Gross Revenues
for such purpose.
GUARANTOR: Emeritus Corporation.
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GUARANTY: The Guaranty of even date herewith
executed by Guarantor.
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.
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 Lessor'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 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.
8
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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, 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.
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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 Properties to the Outside
Closing Date yield Lessor and its Affiliates an
annual internal rate of return on the Minimum
Repurchase Price of the Properties in the
aggregate equal to 13.80% (the "Internal Rate of
Return") 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.
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.
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: Congregate care and
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
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<PAGE>
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.
PROPERTIES: The E1 Paso Property, San Antonio
Property, and San Marcos Property, each as defined
in the Assignment Agreement.
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.
Charges.
RENT: Collectively, the Minimum Rent,
Additional Rent and Additional
SEC: Securities and Exchange Commission.
SHARED APPRECIATION PURCHASE PRICE: The
Minimum Repurchase Price of the 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.
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.
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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. 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. Subject to upward
adjustment(s) with respect to the Capital
Renovation Project funded by Lessor as described
in Section 10.3 below, 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
$_________. The first monthly payment of Minimum
Rent shall be payable on the Commencement Date
(prorated as to any partial calendar month at the
beginning of the Term). Such monthly Minimum Rent
shall be increased from time to time on the date
of any payment or funding by Lessor on account of
the Capital Renovation Project pursuant to the
provisions of Section 10.3 by one-twelfth (1/l2th)
of the product of (a) the amount of the particular
payment or funding by Lessor, times (b) Three and
Fifty Hundredths Percent (3.50%) above the ten-
year U. S. Treasury Note Rate, published in the
Wall Street Journal on the date of such payment or
funding by Lessor and quoting the rate for the
immediately prior Business Day. If the ten-year
U.S. Treasury Note Rate is discontinued prior to
any such payment or funding by Lessor, then such
calculation shall be made instead using a
substitute rate selected by Lessor that is
comparable with the ten-year U.S. Treasury Note
rate. similarly, if the Wall Street Journal is
discontinued, a substitute publication selected by
Lessor shall be used. Such monthly Minimum Rent
payable for any month(s) during which an increase
in the Minimum Rent occurs by reason of any
payments or funding by Lessor on account of the
Capital Renovation Project, shall be prorated
based upon the number of days for which such
adjusted rental amounts apply. From time to time
at Lessor's request, Lessor and Lessee shall enter
into an amendment of this Lease in form acceptable
to Lessor to reflect the adjustment in the monthly
Minimum Rent payable hereunder by reason of any
such payments or fundings by Lessor on account of
the Capital Renovation Project. Failure of Lessee
to so execute and deliver any such amendment shall
not, however, affect the determination of the
monthly Minimum Rent payable hereunder. Minimum
Rent for the Extended Terms, if any, shall be
determined in accordance with the provisions of
Article XIX.
3.1.2 ADDITIONAL RENT. In addition to the
Minimum Rent, Lessee shall, commencing with the
first Quarter of the second Lease Year and
continuing through the expiration of the Fixed
Term, pay to Lessor annual "Additional Rent. " For
the second Lease Year Additional Rent shall be
equal to three times CPI Rent, provided, however,
that Additional Rent for the second Lease Year
shall not exceed three percent (3%) of annual
Minimum Rent computed at the rate in effect as of
the first day of the second Lease Year. For the
third Lease Year and each Lease Year thereafter,
Additional Rent shall be equal to the sum of (i)
Percentage Rent and (ii) CPI Rent.
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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 payments 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 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
13
<PAGE>
provided hereinbelow, 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 date 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 wilful 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%a), Lessee
shall pay the costs of such review and/or audit.
Any proprietary information obtained by Lessor
pursuant 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
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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.
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
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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
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.
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ARTICLE V.
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 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.
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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 (San Marcos), dated
March 17, 1997, prepared by VATC Associates Inc.
(the "Environmental Report")) and satisfactory for
its purposes hereunder. Regardless, however, of
any examination 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
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
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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. I 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).
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.
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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 congregate care and
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 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.
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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, 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
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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.
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.
On or before July 31, 1997, Lessee shall complete
or cause to be completed the recommended work
items numbered 1, 5, 6, 8, 9, 10 and 11 described
under the caption "Recommended Work Items" in the
Engineering Report with respect to the Leased
Property, dated February 18, 1997, prepared by
Building Analytics.
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
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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
insurer 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.
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 (including the Capital
Renovation Project as provided in Section 10.3
below) 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
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(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 (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, plumbin5, 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, the 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.
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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 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.
Notwithstanding the foregoing and provided that no
Event of Default exists and no event or condition
exists which with notice and/or passage of time
would constitute an Event of Default, Lessor shall
fund (or accrue, as applicable) an amount not to
exceed $250;000 for the Capital Renovation
Project; provided, however, that groundbreaking
for such Capital Renovation Project commences
within one year of the Commencement Date and
provided further that Lessor shall not be required
to fund any advances requested after the
expiration of two years following the Commencement
Date. As used herein, the term "Capital Renovation
Project" shall mean, subject to review and
approval (not to be unreasonably withheld) by
Lessor of a detailed budget therefor, the
renovation project described on Exhibit E attached
hereto and may include such other improvements to
the Facility as Lessee may hereafter propose
subject to Lessor's approval as provided in
Section 10.1 above. The modification to the
Minimum Rent attributable to any funds advanced or
accrued by Lessor on account of the Capital
Renovation Project shall be as set forth in
Article III.
10.3.2 If Lessor agrees to fund a proposed
Capital Addition and Lessee accepts the terms
thereof, and with respect to the Capital
Renovation Project, Lessor shall periodically at
the request of Lessee, but no more frequently than
once per month, disburse such funds upon the
provision by Lessee of the following prior to any
such 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 (in
the case of the Capital Renovation Project, as set
forth in Article III) 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;
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(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 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) other than with respect to the Capital
Renovation Project, 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, ratification's,
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 for all Capital Additions
financed by 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
(ii) By such other arrangement regarding such
compensation as shall be mutually and reasonably
acceptable to Lessor and Lessee.
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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), 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
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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
X7I 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 X7II.
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 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 any one 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;
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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 of 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 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.
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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 cancelled.
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.
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 insureds and the loss is payable
under such insurance in the same manner as losses
are payable under this Lease. Lessee shall
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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 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.
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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.
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.
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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
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 Assignment
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, 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;
(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
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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;
(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 or Guarantor in the Assignment
Agreement, the Guaranty or otherwise proves to be
untrue when made in any material respect which
materially and adversely affects Lessor;
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(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, within any
12 month period, ten (10) or more residents
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 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, unless such
proceedings are actively resisted by Lessee and
dismissed within 60 days from their institution;
(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 the obligations of Lessee
or an Affiliate of Lessee to Lessor or an
Affiliate of Lessor, including Guarantor; and
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(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,
including the Guaranty, 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 this
Section 16.2, 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.
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.
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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)
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.
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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 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 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
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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 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 (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)
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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 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
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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 shall be in an
amount equal to one-third 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 twenty-five percent (25%) of the
amount required by subsection 21.3. I above, and
if for any eight (8) consecutive month period
during the Term the average Cash Flow Coverage for
the 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 seventy-five
percent (75% ) 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,
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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
totalling, 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.
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
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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 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,
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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 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.
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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 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
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obligation under this Lease is to be 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
to 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 derived 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 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.
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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;
(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,
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patient and resident mix and patient ai>d 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 involvin5 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 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
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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 XXVI.
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.
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.
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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 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: Texas HCP Holding, L.P.
10990 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
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If to Lessee: ESC III, L.P.
Market Place One
3131 Elliott Avenue Suite 500
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 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.
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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
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 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 or the Extended Term,
as applicable, Lessee shall deposit one and one-
half percent of the Minimum Repurchase Price of
the 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 CANCELLED, 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 REASONABLE ATTORNEYS' 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,
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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 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.
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.
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.
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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 PROPERTY. 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.
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,
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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 claims 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 in 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.
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,
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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 (risk) 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.
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 durin5 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:
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(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.
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 expense 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.
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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, but in no event later than two years after
the date on which Lessee would have been obligated
to purchase the Leased Property, 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; 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, but in no event later than two years after
Lessee gives written notice to Lessor of Lessee's
intention to exercise its right to purchase the
Leased Property, 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 at the maximum occupancy of the Facility,
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 at the maximum occupancy of the Facility. If
Lessor subdivides the Land,
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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 adult congregate care and
assisted living services, and provided further
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 adult congregate care and
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.
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 or 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.
59
<PAGE>
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.
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.
60
<PAGE>
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 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
Hays County, Texas, 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.
44. 8 RESERVED.
44.9 ENTIRE AGREEMENT. This Lease, together
with the other Lessee Documents, as defined in the
Assignment Agreement, 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.
61
<PAGE>
44.10 HEADINGS. All titles and headings to
sections, subsections paragraph 5 plus 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.
IN WITNESS WHEREOF, the parties have caused
this Lease to be executed under seal by their duly
authorized officers as of the date first set forth
above.
[CORPORATE SEAL] LESSOR:
TEXAS HCP HOLDING, L.P.,
a
ATTEST: Delaware limited
partnership
By: TEXAS HCP G.P.,
INC., a
Delaware
corporation
Its: General
Partner
/s/ Kelly J. Price
- -----------------------------------------------
- ------------------------------------Secretary
By: /s/ Raymond
R. Brandstrom
- ------------------------------------------
Name: Raymond R.
Brandstrom
Title:
President
62
<PAGE>
STATE OF WASHINGTON
COUNTY OF KING
This 31st day of March, 1997, personally came
before me, Raymond R. Brandstrom who, being by me
duly sworn, says that he is President of ESC G.P.
II, INC., a Washington corporation, that the seal
affixed to the foregoing instrument in writing is
the corporate seal of said Corporation, and that
said writing was signed and sealed by him, in
behalf of said Corporation, by its authority duly
given. And the said President acknowledged the
said writing to be the act and deed of said
Corporation.
/s/ Catherine L. Pasquan
- -------------------------------------------
NOTARY PUBLIC
[NOTARY SEAL]
My Commission expires:
3-30-99
- ------------------------------
63
<PAGE>
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("Amendment")
is dated as of April l, 1997 by and between TEXAS
HCP HOLDING, L.P., a Delaware limited partnership
("Lessor"), and ESC II, L.P. D/B/A TEXAS-ESC III,
L.P., a Washington limited partnership ("Lessee "
).
RECITALS
A. Lessor and Lessee entered into a Lease
dated as of March, 1997 (the
"Lease") for the San Marcos facility located in
San Marcos, Texas.
B. Lessor and Lessee desire to memorialize
their understanding regarding 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 1, 1997;
2. The Fixed Term of the Lease shall end on
March 31, 2012;
3. The first Lease Year for the Lease
commences on April 1, 1997 and ends on March 31,
1998 ; and
4. The first Quarter for which Additional
Rent shall be due shall be the Quarter ending June
30, 1998.
Except as amended above, the Lease between
Lessor and Lessee 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be executed as of the day
and year first above written.
TEXAS HCP HOLDING, L.P., a ESC
III,L.P.D/B/A TEXAS-ESC III,
Delaware limited partnership L.P., a
Washington limited partnership
By: TEXAS HCP G.P., INC. By: ESC G.P. II,
INC., a Washington
Its : Managing General
corporation
Partner
Its: General Partner
By :
By: /s/ Raymond R. Brandstrom
------------------------------------------
- --------------------------------------------
Name:
Name: Raymond R. Brandstrom
Title: President
Title: President
<PAGE>
GUARANTY
THIS GUARANTY ("Guaranty") is made as of
April 1, 1997, by Emeritus Corporation, a
Washington corporation ("Guarantor" or
"Emeritus"), in favor of TEXAS HCP HOLDING, L.P.,
a Delaware limited partnership ("HCP").
Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to
them in the Assignment Agreement (as defined
below).
RECITALS
A. Pursuant to the terms of that certain
Assignment Agreement of even date herewith by and
between Emeritus Corporation, a Washington
corporation ("Emeritus"), as assignor, and HCP, as
assignee, (the "Assignment Agreement"), Emeritus
has agreed to assign to HCP certain of Emeritus's
right, title and interest under the Purchase and
Sale Agreements in and to the E1 Paso Property,
the San Antonio Property and the San Marcos
Property.
B. Pursuant to the terms of (i) that
certain lease of even date herewith by and between
ESC III, L.P. D/B/A TEXAS-ESC III, L.P., a
Washington limited partnership ("ESC"), as lessee,
and HCP, as lessor, with respect to the E1 Paso
Property (the "EI Paso Lease"), (ii) that certain
lease of even date herewith by and between ESC, as
lessee, and HCP, as lessor, with respect to the
San Antonio Property (the "San Antonio Lease") and
(iii) that certain lease of even date herewith by
and between ESC, as lessee, and HCP, as lessor,
with respect to the San Marcos Property (the "San
Marcos Lease", and collectively with the E1 Paso
Lease and the San Antonio Lease, "the Leases",
HCP has agreed to lease the El Paso Property, the
San Antonio Property and the San Marcos Property
(collectively, the "Properties"), respectively, to
ESC.
THEREFORE, to induce HCP to enter into the
Assignment Agreement and the Leases and to
consummate the transactions contemplated thereby
and in consideration thereof, Guarantor
unconditionally guarantees and agrees as follows:
1. GUARANTY.
(a) Guarantor guarantees and promises to pay
to HCP or order, on demand, in lawful money of the
United States of America, all costs, expenses,
fees, rents and other sums payable by ESC under
each of the Leases and guarantees the faithful and
prompt performance when due of each and every one
of the terms, conditions and covenants to be kept
and performed by ESC under each of the Leases,
including, without limitation, any and all
indemnification and insurance obligations and all
obligations to operate, repurchase, rebuild,
restore or repair the Properties or any facilities
or improvements now or hereafter constituting a
portion of the Properties.
(b) Guarantor guarantees and promises to pay
to HCP or order, on demand, in lawful money of the
United States of America, any fees, costs,
interest and charges of enforcement of each of the
Leases, and preservation and protection of the
Properties, if any, which would be owing by ESC
under clause (a) above, but for the effect of the
federal Bankruptcy Code., The obligations listed
in Sections 1(a) and 1(b) are hereafter
collectively referred to as the 'Guaranteed
Obligations".
<PAGE>
2. RIGHTS OF GUARANTEE. Except as otherwise
provided in Section 18 hereof, Guarantor
authorizes HCP, without giving notice to Guarantor
or obtaining Guarantor's consent and without
affecting the liability of Guarantor hereunder,
from time to time to: (a) alter, compromise,
accelerate, extend or change the time or manner
for the payment or the performance of any
Guaranteed Obligation; (b) extend, amend or
terminate any of the Leases; (c) release ESC or
any other party to any of the Leases by consent to
any assignment (or otherwise) as to all or any
portion of the Guaranteed Obligations; (d)
release, substitute or add any one or more
guarantors or lessees; (e) accept additional or
substituted security for any Guaranteed
Obligation; (f) release or subordinate any
security for any Guaranteed Obligation; (g) apply
payments received from ESC or any other person to
any obligations of ESC or such other person under
the Leases, in such order as HCP shall determine
in its sole discretion, whether or not any such
obligations are covered by this Guaranty; (h)
consent, .in the sole discretion of HCP to the
merger, consolidation, restructuring, dissolution
or other change in the structure of ESC or any
other party to any of the Leases; (i) assign this
Guaranty in whole or in part; and (k) consent to
or permit, in HCP's sole discretion, a transfer of
any Property to any other person, including,
without limitation, a transfer of any Property to
an Affiliate (as defined in the Leases). No
exercise or non-exercise by HCP of any right
hereby given to HCP, no neglect or delay in
connection with exercising any such right, no
dealing by HCP with ESC, Guarantor or any other
person, and no change, impairment, release or
suspension of any right or remedy of HCP against
any person, including ESC and any other guarantor
or other person, shall in any way affect any of
the obligations of Guarantor hereunder or any
security furnished by Guarantor or give Guarantor
any recourse or right of offset against HCP.
Except as otherwise provided in Section 18 hereof,
if HCP has exculpated ESC or any other party to
any of the Leases from liability in whole or in
part and/or agreed to look solely to any Property,
any security for the Guaranteed Obligations or any
other asset for the satisfaction of the Guaranteed
Obligations, such exculpation and/or agreement
shall not affect the obligations of Guarantor
hereunder, it being understood that Guarantor's
obligations hereunder are independent of the
obligations of ESC, any other guarantor and any
other party to any of the Leases, and are to be
construed as if no such exculpation or agreement
had been given to ESC, any other guarantor or any
other party to. any of the Leases. It is further
understood and agreed that if any such exculpation
or agreement has been or at any time hereafter is
given to ESC or its affiliates, any other
guarantor or any other party to any of the Leases,
HCP has done or will do so in reliance upon the
agreement of Guarantor expressed herein, subject
to the limitations set forth in Section 18 hereof.
3. GUARANTOR'S GENERAL WAIVERS. Except as
otherwise provided in Section 18 hereof, Guarantor
waives: (a) any defense now existing or hereafter
arising based upon any legal disability or other
defense of ESC, Guarantor or any other guarantor
or other person, or by reason of the cessation or
limitation of the liability of ESC, Guarantor or
any other guarantor or other person from any cause
other than full payment and performance of all
obligations due under the Leases; (b) any defense
based upon any lack of authority of the officers,
directors, partners or agents acting or purporting
to act on behalf of ESC or any other person, or
any defect in the formation of ESC or any other
person; (c) the unenforceability or invalidity of
any security or guaranty or the lack of perfection
or continuing perfection, or failure of priority
of any security for the obligations guarantied
hereunder; (d) any right or defense based upon
HCP's election of any remedy against Guarantor,
ESC or any other person;
2
<PAGE>
(e) any defense based upon HCP's failure to
disclose to Guarantor any information concerning
ESC s or any other person's financial condition or
any other circumstances bearing on ESC's or any
other person's ability to pay and perform all
obligations due under the Leases; (f) any failure
by HCP to give notice to ESC, Guarantor or any
other person of the sale or other disposition of
security held for the obligations due under any of
the Leases, and any defect in notice given by HCP
in connection with any such sale or disposition of
security held for the obligations due under any of
the Leases; (g) any failure of HCP to comply with
applicable laws in connection with the sale or
disposition of security held for the obligations
due under any of the Leases, including, without
limitation, any failure by HCP to conduct a
commercially reasonable sale or other disposition
of such security; (h) any defense based upon any
statute or rule of law which provides that the
obligation of a surety must be neither larger in
amount nor in any other respects more burdensome
than that of a principal, or that reduces a
surety's or guarantor's obligations in proportion
to the principal's obligation; (i) any use of cash
collateral under Section 363 of the Federal
Bankruptcy Code; (j) any defense based upon HCP's
election, in any proceeding instituted under the
Federal Bankruptcy Code, of the application of
Section 1111(b)(2) of the Federal Bankruptcy Code
or any successor statute; (k) any defense based
upon any borrowing or any grant of a security
interest under Section 364 of the Federal
Bankruptcy Code; (1) any right to enforce any
remedy which HCP may have against ESC or any other
person and any right to participate in, or benefit
from, any security now or hereafter held by HCP
for the obligations due under any of the Leases;
(m) presentment, demand, protest and notice of any
kind, including notice of acceptance of this
Guaranty and of the existence, creation or
incurring of new or additional guaranteed
obligations; (n) the benefit of any statute of
limitations affecting the liability of ESC or any
other person, enforcement of any of the Leases,
the liability of Guarantor hereunder or the
enforcement hereof; (o) relief from any applicable
valuation or appraisement laws; and (p) any
defense based upon any other action by HCP,
whether authorized by Section 2 or otherwise, or
any omission by HCP or other failure of HCP to
pursue, or delay in pursuing, any other remedy in
HCP's power. Guarantor agrees that the payment and
performance of all obligations due under the
Leases or any part thereof or other act which
tolls any statute of limitations applicable to any
of the Leases shall similarly operate to toll the
statute of limitations applicable to Guarantor's
liability hereunder.
4. WAIVER OF RIGHTS OF SUBROGATION.
Notwithstanding anything to the contrary contained
herein or in any other document to which Guarantor
is a party, until all obligations under this
Guaranty are fully paid and performed, Guarantor
hereby expressly waives with respect to ESC and
any other person (including any surety) any and
all rights at law or in equity to subrogation, to
reimbursement, to exoneration, to contribution, to
setoff or to any other rights that could accrue to
a surety against a principal, to a guarantor
against a maker or obligor, to an accommodation
party against the party accommodated, or to a
holder or transferee against a maker, and which
Guarantor may have or hereafter acquire against
ESC or any other person in connection with or as a
result of Guarantor's execution, delivery and/or
performance of this Guaranty or any other document
to which Guarantor is a party. Guarantor agrees
that Guarantor shall not have or assert any such
rights against ESC or any other person (including
any surety), either directly or as an attempted
setoff to any action commenced against Guarantor
by ESC or any other person (whether as borrower or
in any other capacity) or by HCP unless and until
all obligations under this Guaranty are fully paid
and performed.
Guarantor hereby acknowledges and agrees that this
waiver is intended to benefit HCP
3
<PAGE>
and shall not limit or otherwise affect
Guarantor's liability to HCP hereunder, under any
other document to which Guarantor is a party, or
the enforceability hereof or thereof or
Guarantor's rights against ESC under any other
document except as expressly set forth herein.
5. GUARANTOR'S WARRANTIES AND COVENANTS.
Guarantor warrants and acknowledges that: (a) HCP
would not enter into the Leases and consummate the
transactions contemplated thereby but for this
Guaranty; (b) Guarantor has read and understands
the Leases; (c) there are no conditions precedent
to the effectiveness of this Guaranty and this
Guaranty shall be in full force and effect and
binding on Guarantor as of the date hereof,
regardless of whether HCP obtains other collateral
or any guaranties from others or takes any other
action not contemplated by Guarantor; (d)
Guarantor has established adequate means of
obtaining from sources other than HCP, on a
continuing basis, financial and other information
pertaining to ESC's and any other person's
financial condition, and the status of ESC's and
any other person's payment and performance of all
obligations due under the Leases, and Guarantor
agrees to keep adequately informed from such means
of any facts, events or circumstances which might
in any way affect Guarantor's risks hereunder, and
HCP has made no representation to Guarantor as to
any such matters; (e) the most recent financial
statements of Guarantor delivered to HCP are true
and correct in all material respects, have been
prepared in accordance with generally accepted
accounting principles consistently applied (or
other principles disclosed in writing and
acceptable to HCP) and fairly present the
financial condition of Guarantor as of the
respective dates thereof, and no material adverse
change has occurred in the financial condition of
Guarantor since the respective dates thereof; and
(f) except as permitted by Section 24.1.1 of each
of the Leases, Guarantor has not and shall not,
without the prior written consent of HCP, sell,
lease, assign, encumber, hypothecate, transfer or
otherwise dispose of all or substantially all of
Guarantor's assets, or any interest therein,
without HCP's prior written consent, which consent
may be given or withheld in HCP's sole discretion.
6. SUBORDINATION. Until all the obligations
under this Guaranty are fully paid and performed,
Guarantor hereby subordinates all present and
future indebtedness owing by ESC and any Affiliate
of ESC to Guarantor to the obligations at any time
owing by ESC or any Affiliate of ESC to HCP under
any of the Leases; provided, that payments under
any such indebtedness may be received by Guarantor
so long as no Event of Default exists under any of
the Leases. Guarantor agrees to make no claim for
such indebtedness until all obligations of ESC and
any Affiliate of ESC under each of the Leases and
all other direct and indirect obligations of
Guarantor to HCP have been fully discharged or
such Event of Default has been waived.
7. BANKRUPTCY OF ESC OR AN OTHER PERSON;
REINSTATEMENT AND REVIVAL. In any bankruptcy or
other proceeding in which the filing of claims is
required by law, Guarantor shall file, on or
before the date which is fifteen (15) days prior
to the expiration of the prescribed statutory
period for filing of claims, all claims which
Guarantor may have against ESC or any other person
relating to any indebtedness of ESC to Guarantor
and shall assign to HCP all rights of Guarantor
thereunder, but only to the extent necessary to
satisfy any obligations owing to HCP under the
Leases or hereunder. If Guarantor does not timely
file any such claim, HCP, as attorney-in-fact for
Guarantor, is hereby authorized to do so in the
name of Guarantor or, in HCP's discretion, to
assign the claim to a nominee and to cause proof
of claim to be
4
<PAGE>
filed in the name of HCP's nominee. The foregoing
power of attorney is coupled with an interest and
cannot be revoked. HCP or its nominee shall have
the right, in its reasonable discretion, to accept
or reject any plan proposed in such proceeding and
to take any other action which a party filing a
claim is entitled to do. In all such cases,
whether in administration, bankruptcy or
otherwise, the person or persons authorized to pay
such claim shall pay to HCP the amount payable on
such claim and, to the full extent necessary for
that purpose, Guarantor hereby assigns to HCP all
of Guarantor's rights to any such payments or
distributions; provided, however, Guarantor's
obligations hereunder shall not be satisfied
except to the extent that HCP receives cash by
reason of any such payment or distribution;
provided further, that HCP's rights in such sums
shall be limited to the amounts necessary to
satisfy the obligations owing to HCP under the
Leases or hereunder. If HCP receives anything
hereunder other than cash, the same shall be held
as collateral for amounts due under this Guaranty.
The liability of Guarantor hereunder shall be
reinstated and revived, and the rights of HCP
shall continue, with respect to any amount at any
time paid by ESC or any other person on account of
the obligations under the Leases which HCP shall
be required to restore or return upon the
bankruptcy, insolvency or reorganization of ESC or
any other person or for any other reason, all as
though such amount had not been paid.
8. DISCLOSURE OF INFORMATION. HCP shall
have the right at any time to sell, assign,
transfer, negotiate or grant participation in all
or any part of any of the Leases and/or this
Guaranty, and Guarantor acknowledges and agrees
that, in connection with any such action by HCP,
HCP may forward to each actual or prospective
assignee, transferee or participant all documents
and information in HCP's possession, relating to
this Guaranty or to Guarantor, whether such
documents and information were furnished by ESC or
Guarantor to HCP or otherwise.
9. ADDITIONAL, INDEPENDENT AND UNSECURED
OBLIGATIONS. This is a guaranty of payment and not
of collection and the obligations of Guarantor
hereunder shall be in addition to and shall not
limit or in any way affect the obligations of
Guarantor under any other existing or future
guaranties unless said other guaranties are
expressly modified or revoked in writing. This
Guaranty is independent of the obligations of ESC
and any other person under the Leases. HCP may
bring a separate action to enforce the provisions
hereof against Guarantor without taking action
against ESC or any other person or joining ESC or
any other person as a party to such action, and
without first or concurrently proceeding against
any security held by HCP. This Guaranty is secured
and shall be deemed to be secured by any security
instrument which recites that it secures this
Guaranty.
10. ATTORNEYS' FEES; ENFORCEMENT. If prior
to the filing of any legal action or proceeding
any attorney is engaged by HCP to enforce any
provision of this Guaranty after breach by
Guarantor of its obligations hereunder or to
enforce any provision of any of the Leases as a
consequence of any default or event of default
under any of the Leases, then Guarantor shall
immediately pay on demand all Attorneys' Fees and
Costs, as defined below, incurred by HCP in
connection therewith, together with interest
thereon from the date of such demand until paid,
at the then applicable Overdue Rate (as defined in
the Leases). In addition, if any action or
proceeding is commenced by HCP or Guarantor to
enforce or interpret this Guaranty or the Leases,
the party prevailing in such action or proceeding
and any appeal thereupon shall be paid all
Attorneys' Fees and Costs by the losing party. As
used in this Guaranty, "Attorneys' Fees and Costs"
shall
5
<PAGE>
mean all the fees and expenses of outside counsel
to HCP, which may include, without limitation,
costs incurred for printing, photostating,
duplicating, facsimile transmissions, record
searches, appraisals, air freight charges and
other expenses, and fees billed for law clerks,
paralegals, librarians, experts, accountants, and
others not admitted to the bar but performing
services under the supervision of or on behalf of
an attorney. The term "Attorneys' Fees and Costs"
shall also include, without limitation all such
fees and expenses incurred with respect to
appeals, arbitrations, and bankruptcy proceedings.
11. EFFECT OF WAIVERS. Guarantor
warrants and agrees that each of the waivers set
forth in this Guaranty is made with Guarantor's
full knowledge of its significance and
consequences, and that under the circumstances the
waivers are reasonable. If any of said waivers
shall hereafter be determined by a court of
competent jurisdiction to be contrary to any
applicable law or against public policy, such
waivers shall be effective only to the maximum
extent permitted by law.
12. RULES OF CONSTRUCTION. The term
"ESC" as used herein shall include any other
person at any time assuming or otherwise becoming
primarily liable for all or any part of the
obligations of ESC under any of the Leases. The
term "person" as used herein shall include any
individual, company, trust or other legal entity
of any kind whatsoever. If this Guaranty is
executed by more than one person, the term
"Guarantor" shall include all such persons. When
the context and construction so require, all words
used in the singular herein shall be deemed to
have been used in the plural and vice versa. All
headings appearing in this Guaranty are for
convenience only and shall be disregarded in
construing this Guaranty.
13. GOVERNING LAW. THIS GUARANTY SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF WASHINGTON EXCEPT TO THE
EXTENT PREEMPTED BY FEDERAL LAWS.
14. NO THIRD PARTY BENEFICIARIES. This
Guaranty is solely for the benefit of HCP and its
successors and assigns, and is not intended to nor
shall it be deemed to be for the benefit of any
third party, including, without limitation, ESC.
15. AMENDMENTS. Neither this Guaranty nor
any provision hereof may be amended, modified,
waived, discharged or terminated except by an
instrument in writing duly signed by or on behalf
of HCP and Guarantor.
16. MISCELLANEOUS. The provisions of this
Guaranty shall bind and benefit the successors and
assigns of Guarantor and HCP. The liability of all
persons and entities who are in any manner
obligated hereunder shall be joint and several. If
any provision of this Guaranty shall be determined
by a court of competent jurisdiction to be
invalid, illegal or unenforceable, that portion
shall be deemed severed from this Guaranty and the
remaining parts shall remain in full force as
though the invalid, illegal or unenforceable
portion had never been part of this Guaranty.
17. WAIVER OF RIGHT TO TRIAL BY
JURY. GUARANTOR 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, THE STATE OF WASHINGTON AND
THE STATE WHERE THE PROPERTIES ARE LOCATED.
GUARANTOR HEREBY
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<PAGE>
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1)
ARISING UNDER THIS GUARANTY OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR (2) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF HCP AND GUARANTOR WITH RESPECT TO THIS
GUARANTY 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
HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE; AND GUARANTOR
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY, AND THAT HCP OR
GUARANTOR MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF GUARANTOR TO THE WAIVER
OF ITS RI HT TO TRIAL BY JURY.
18. ADDITIONAL PROVISIONS. Such additional
terms, covenants and conditions as may be set
forth on any exhibit executed by Guarantor and
attached hereto which recites that it is an
exhibit to this Guaranty are incorporated herein
by this reference.
[This portion of the page intentionally left
blank.]
7
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed
this Guaranty as of the date first written above.
"Guarantor"
EMERITUS CORPORATION, a
Washington corporation
By: /s/ Raymond R. Brandstrom
- -----------------------------------------------
Name: Raymond R. Brandstrom
Its: President
8
<PAGE>
ASSIGNMENT AGREEMENT
between
EMERITUS CORPORATION
as Assignor
and
TEXAS HCP HOLDING, L.P.
as Assignee
April 1, 1997
El Paso, Texas
San Antonio, Texas
San Marcos, Texas
<PAGE>
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT (this "Agreement"),
dated as of April 1, 1997, is between EMERITUS
CORPORATION, a Washington corporation
("Assignor"), and TEXAS HCP HOLDING, L.P., a
Delaware limited partnership ("HCP").
RECITALS
WHEREAS, Assignor is a party to the Purchase
and Sale Agreements (as hereinafter defined)
pursuant to which Assignor has the right to
acquire the Properties (as hereinafter defined)
which term shall include, without limitation, all
of Sellers' (as hereinafter defined) right, title
and interest, owned, leased or otherwise, in and
to all buildings, structures and improvements now
thereon, and the fixtures and equipment owned,
leased or otherwise belonging to Sellers and used
in connection with the operation and maintenance
of said Properties, including, without limitation,
any of the following: (a) furnaces, heaters,
heating equipment, oil and gas burners, air
conditioning equipment and ventilators, and
fixtures appurtenant thereto, hot water heaters,
plumbing and bathroom fixtures, electric and other
lighting fixtures, outside television antennas,
fences, gates, trees, shrubs, and plants; (b) all
of the right, title, and interest of Sellers, if
any, in and to and with respect to any land lying
in the beds of ways bounding said Properties; and
(c) any easements, rights-of-way and other
appurtenances, rights and privileges, benefitting,
belonging or pertaining to said Properties;
WHEREAS, pursuant to the Purchase and Sale
Agreements, Assignor has the right to assign its
rights under the Purchase and Sale Agreements; and
WHEREAS, Assignor and HCP desire that
pursuant hereto on the Closing Date (as
hereinafter defined), HCP shall have the right to
receive the conveyance of the Properties from the
applicable Sellers in accordance with the terms of
the applicable Purchase and Sale Agreements, and
simultaneously therewith that HCP, as lessor, and
ESC, as lessee, shall enter into a separate lease
for each of the Properties, all in accordance with
the terms and conditions hereinbelow set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the
mutual covenants of Assignor and HCP and of the
premises, Assignor hereby assigns, transfers and
sets over to HCP all of Assignor's rights under
the Purchase and Sale Agreements to receive the
conveyance of the Properties from the applicable
Sellers in accordance with the terms of the
applicable Purchase and Sale Agreements, it being
expressly understood and agreed that none of the
duties or obligations of Assignor under the
Purchase and Sale Agreements, other than the
obligation to pay the purchase price set forth
below in Section 2.1 upon conveyance of good and
indefeasible title to the Properties, free and
clear of all liens, claims and encumbrances
(except Permitted Encumbrances (as defined
below)), are delegated or otherwise transferred to
HCP hereby. To the extent that the total purchase
price under the Purchase and Sale Agreements is
less than the total purchase price set forth in
Section 2.1 below, HCP shall pay the difference to
Assignor in consideration of its entry into this
Agreement. Assignor and HCP hereby further agree
as follows:
<PAGE>
ARTICLE I.
DEFINITIONS
Section 1.1. As used in this Agreement, the
following capitalized terms have the respective
meanings set forth after them:
ASSIGNOR - Emeritus Corporation, a Washington
corporation. Closing the transactions taking
place on the Closing Date.
CLOSING DATE - The date on which HCP receives
the conveyance of good and indefeasible title to
the Properties from the applicable Sellers, free
and clear of all liens, claims and encumbrances
(except Permitted Encumbrances).
E1 PASO FACILITY - the land and improvements
commonly known as Camlu Retirement Apartments
located in EI Paso, Texas, consisting of the 158-
unit retirement and personal care facility on the
parcel of land described on Exhibit A to the El
Paso Lease.
EL PASO LEASE - the lease of the El Paso
Property of even date herewith executed by HCP, as
lessor, and ESC, as lessee.
EL PASO PROPERTY - the EI Paso Facility
together with the El Paso Personal Property (as
defined as "Personal Property" in the El Paso
Lease).
ESC - ESC III, L.P. D/B/A TEXAS-ESC III,
L.P., a Washington limited partnership.
FACILITIES - the El Paso Facility, the San
Antonio Facility and the San Marcos Facility.
GOVERNMENTAL AUTHORITIES - the United States,
the state, county, city and other political
subdivisions in which the respective Properties
are located or which exercise jurisdiction over
the Properties or the construction or use of the
Properties thereon for all uses contemplated by
the applicable Lease, and any court,
administrator, agency, department, commission,
board, bureau or instrumentality or any of them
which exercise jurisdiction over the respective
Properties or the construction or use of the
Properties thereon for all uses contemplated by
the applicable Lease.
HAZARDOUS SUBSTANCES - as defined in the
Leases.
HCP - Texas HCP Holding, L.P., a Delaware
limited partnership.
LEASES - the El Paso Lease the San Antonio Lease
and the San Marcos Lease. ,
LESSEE DOCUMENTS - collectively, this
Agreement, the deeds or other instruments of
conveyance with respect to the Properties and the
Leases.
PERMITTED ENCUMBRANCES - collectively, (i)
liens for taxes, assessments and governmental
charges not yet delinquent and (ii) such other
title exceptions as counsel for HCP may reasonably
approve.
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<PAGE>
PROPERTIES - the EI Paso Property, the San
Antonio Property and the San Marcos Property.
PURCHASE AND SALE AGREEMENTS - (i) the
Purchase and Sale Agreement, dated November 15,
1996, by and between Triple C of Texas, a Texas
General Partnership, as seller, and Assignor, as
purchaser, as amended by the First Amendment to
Purchase and Sale Agreement, dated January 15,
1997, (ii) the Purchase and Sale Agreement, dated
November 15, 1996, by and between Carl and Betty
Campbell, a married couple, and Triple C
Retirement Centers, a Texas General Partnership,
as sellers, and Assignor, as purchaser, as amended
by the First Amendment to Purchase and Sale
Agreement, dated January 15, 1997, and (iii) the
Purchase and Sale Agreement, dated November 15,
1996, by and between San Marcos Investors, a
Washington general partnership, and Development
Enterprises, Inc., a Washington corporation, as
sellers, and Assignor, as purchaser, as amended by
the First Amendment to Purchase and Sale
Agreement, dated January 15, 1997.
SELLERS - Triple C of Texas, a Texas General
Partnership, Carl and Betty Campbell, a married
couple, Triple C Retirement Centers, a Texas
General Partnership, San Marcos Investors, a
Washington general partnership, and Development
Enterprises, Inc., a Washington corporation.
SAN ANTONIO FACILITY - the land and
improvements commonly known as Camlu Retirement
Apartments located in San Antonio, Texas,
consisting of a 162-unit retirement and personal
care facility on the parcel of land described on
Exhibit A to the San Antonio Lease.
SAN ANTONIO LEASE - the Lease of the San
Antonio Property of even date herewith executed by
HCP, as lessor, and ESC, as lessee.
SAN ANTONIO PROPERTY - the San Antonio
Facility together with the San Antonio Personal
Property (as defined as "Personal Property" in the
San Antonio Lease).
SAN MARCOS FACILITY - the land and
improvements commonly known as Camlu Retirement
Apartments located in San Marcos, Texas,
consisting of an 87-unit retirement and personal
care facility on the parcel of land described on
Exhibit A to the San Marcos Lease.
SAN MARCOS LEASE - the lease of the San
Marcos Property of even date herewith executed by
HCP, as lessor, and ESC, as lessee.
SAN MARCOS PROPERTY - the San Marcos Facility
together with the San Marcos Personal Property (as
defined as "Personal Property" in the San Marcos
Lease).
TITLE COMPANY - Chicago Title Insurance
Company, with an address at 701 5th Avenue, Suite
1800, Seattle, Washington 98104.
3
<PAGE>
ARTICLE II.
TERMS OF THE SALE AND LEASEBACK
Section 2.1. ACQUISITION. On the terms but
subject to the conditions of this Agreement (i)
Assignor shall cause the applicable Sellers to
convey, assign or grant, and HCP shall acquire on
the Closing Date, the Properties for a purchase
price equal to Twenty One Million One Hundred
Nineteen Thousand Dollars ($21,110,000). Subject
to subsection 2.1(a) below, the purchase price
shall be paid in cash on the Closing Date by wire
transfer of immediately available funds. The total
purchase price shall be allocated between the
Properties as follows:
EI Paso Property $
7,770,000
San Antonio Property $
8,680,000
San Marcos Property $
4,660,000
---------------
Total:
$21,110,000
=========
Section 2.2. CLOSING. The Closing shall be
held at the offices of Latham & Watkins, 633 West
Fifth Street, Los Angeles, California, or at such
location as may otherwise be agreed upon by the
parties. If the Closing does not take place on or
prior to April 30, 1997, HCP may terminate this
Agreement.
Section 2.3. CONVEYANCE. On the Closing Date,
subject to the terms and conditions of this
Agreement, Assignor shall cause the applicable
Sellers to deliver directly or through the Title
Company, deeds to the Facilities and bills of sale
for the balance of the Properties and such other
instruments as shall be necessary to convey,
assign or grant to HCP good and marketable title
to the Properties, in each case, free and clear of
all liens, claims and encumbrances (except for
Permitted Encumbrances). HCP shall and Assignor
shall or shall cause Sellers to execute and
deliver such instruments and take such actions as
either party may reasonably request in order to
effectuate the purposes of this Agreement.
(a) The deeds or other instruments of
conveyance shall be sufficient to convey good and
indefeasible title, shall be duly executed and, if
requested by HCP, duly acknowledged and in
recordable form. Such deeds or other instruments
of conveyance shall, if applicable, include the
appropriate state and/or county Real Estate
Transfer Tax Declaration of Real Estate Value or
other affidavit as to any tax due on gross income
derived from the sale.
(b) The conveyance to HCP of the
respective Properties on the Closing Date shall
include, without limitation, subject to and in
accordance with the terms of the Purchase and Sale
Agreements, all of Sellers' right, title and
interest, owned or otherwise, in and to all
buildings, structures and improvements now
thereon, and the fixtures and equipment or other
assets or rights owned, leased or otherwise
belonging to Sellers and used in connection with
the operation and maintenance of the Properties,
including, without limitation, any of the
following: (i) furnaces, heaters, heating
equipment, oil and gas burners, air conditioning
equipment and ventilators, and fixtures
appurtenant thereto, hot water heaters, plumbing
and bathroom fixtures, electric and other lighting
fixtures,
4
<PAGE>
outside television antennas, fences, gates, trees,
shrubs, and plants; (ii) all of the right, title,
and interest of Sellers, if any, in and to and
with respect to any land lying in the beds of ways
bounding said Properties; and (iii) any easements,
rights-of-way and other appurtenances, rights and
privileges, benefitting, belonging or pertaining
to said Properties; provided, however, that no
intangible personal property relating to the trade
or business operated on the Properties, such as
operating licenses and good will, and no inventory
or vehicles shall be conveyed to HCP, and that all
such assets will be acquired by Assignor or ESC;
and Assignor will cause Sellers to execute or
obtain and deliver to HCP, as applicable, on the
Closing Date all proper instruments for the
conveyance of such title.
(c) On the Closing Date, HCP, as lessor,
and ESC, as lessee, shall enter into the Leases
and execute and deliver to the Title Company for
recordation memoranda thereof in form and
substance satisfactory to HCP and Assignor.
Section 2.4. PRORATIONS. Taxes, assessments,
water, sewer charges, premiums on existing
insurance policies, rents or any other items
pertaining to the Properties shall be prorated at
the Closing between Sellers and Assignor inasmuch
as all such items which are the responsibility of
Assignor under the terms of the Purchase and Sale
Agreements, will be the responsibility of ESC
pursuant to the Leases.
Section 2.5. COMMITMENT FEE DEPOSIT. Assignor
has paid HCP a commitment fee deposit of One
Hundred Ten Thousand Dollars ($110,000). HCP will
be entitled to retain such commitment fee deposit
in its entirety if the transactions contemplated
herein do not close because Assignor chooses
another financing source; otherwise, the
commitment fee will be applied against HCP's out
of pocket costs related to the transactions
contemplated with respect to the Lessee Documents
and the balance shall be refunded to Assignor.
Upon Assignor's request, HCP will provide
reasonable evidence in writing of its out of
pocket costs to Assignor.
Section 2.6. COSTS AND EXPENSES.
(a) All costs and expenses related to
the transactions contemplated with respect to the
Lessee Documents other than HCP's Costs (as
defined below), shall be paid for (as between HCP
and Assignor) by Assignor, including (i)
documentary transfer taxes, documentary stamp
taxes, sales and similar taxes and all other taxes
applicable to the transactions contemplated herein
together with interest and penalties, if any,
thereon, but excluding any income taxes of HCP;
(ii) all legal fees and disbursements of
Assignor's counsel incurred in connection with the
preparation of the Lessee Documents and the
conveyance of the Properties to HCP; (iii) all
costs relating to owner's title insurance
commitments and policies and chain of title
reports and ALTA surveys; and (iv) fees arising
out of Assignor's inspection for Hazardous
Substances and Assignor's engineering fees and all
other consulting fees not expressly included
within HCP's Costs. In addition, Assignor shall
pay fifty percent (50%) of HCP's Costs in excess
of One Hundred Ten Thousand Dollars ($110,000).
Nothing herein shall be construed as modifying or
amending any rights (as between Assignor and
Sellers) which Assignor has under the Purchase and
Sale Agreements to seek contribution from Sellers
for some or all of the costs described herein.
5
<PAGE>
(b) HCP shall be responsible for the
payment of HCP's legal fees (including in-house
costs) and HCP's appraisal, engineering and
environmental fees and travel costs related to the
transactions contemplated with respect to the
Lessee Documents (collectively, "HCP's Costs") up
to One Hundred Ten Thousand Dollars ($110,000).
HCP shall pay fifty percent (50%) of HCP's Costs
in excess of One Hundred Ten Thousand Dollars
($110,000).
Section 2.7. NATURE OF HCP'S INTEREST. HCP is
only purchasing the Properties and is acquiring no
interest, other than as a lessor pursuant to the
Leases (including any security interests granted
pursuant thereto), in the trade or business
operated by Seller or to be operated by ESC with
respect to the Properties.
ARTICLE III.
CONDITIONS TO THE OBLIGATION OF HCP TO CLOSE
The obligations of HCP hereunder are subject
to the following conditions. Should any condition
not be fulfilled or waived on the Closing Date to
the satisfaction of HCP, HCP shall, at its option,
but without waiving any rights provided in this
Agreement, be relieved of all obligations under
this Agreement.
Section 3.1. COMPLIANCE BY ASSIGNOR. Assignor
shall have complied with and satisfied all
provisions and conditions of the Lessee Documents
to be complied with or satisfied by Assignor prior
to the Closing Date, and shall cause ESC to comply
with and satisfy all provisions of the Lessee
Documents to be complied with or satisfied by ESC
prior to the Closing Date.
Section 3.2. RECORDATION AND COSTS. Assignor
shall have (i) made arrangements for the deeds or
other instruments of conveyance for the Properties
being transferred to HCP, as applicable, as well
as short form memoranda of the Leases, to be duly
recorded or filed for recordation in the manner
required by the laws of the state in which the
Properties are located, and (ii) paid, or arranged
to be paid, all costs and fees to be paid by
Assignor pursuant to Section 2.6, and such
arrangements shall be satisfactory to HCP and its
counsel.
Section 3.3. SURVEYS. HCP shall have
received, at Assignor's expense, either (a) final
"as-built" ALTA surveys of the respective
Properties done in accordance with the Minimum
Standard Detail requirements for ALTA/ACSM Land
Title Surveys jointly established and adopted by
ALTA and ACSM in 1986 that meet the requirements
of a Class A Survey as defined therein, certified
within 30 days of the Closing Date, or (b) such
other form of title surveys which are in form and
substance satisfactory to HCP. Such surveys shall
be certified to HCP and the Title Company as being
true and accurate and shall identify thereon all
easements, improvements (with dimensions in
relation to the lot and building lines), building
set back lines, flood plain and wetlands
boundaries or other legal boundary lines of
adjoining bodies of water, sewage, water,
electricity, gas and other utility facilities to
the points of connection (including location and
size, together with the recording information
concerning the documents creating easements for
such facilities), driveways or other cuts in
curbs, fences, rights of way, parking areas (along
with the number of spaces and striping), roads and
means of ingress and egress to and from the
respective Properties to all public or private
roads, and showing no
6
<PAGE>
encroachments, overlaps, conflicts or protrusions
onto any adjacent property or onto any building
line or easement affecting any portion of the
respective Properties; and showing that all
parcels comprising each respective Property are
contiguous. The respective survey certificates
shall include certification as to the metes and
bounds description and the acreage of the
respective Properties.
Section 3.4. TITLE INSURANCE. HCP shall have
received, at Assignor's expense, commitments from
the Title Company satisfactory to HCP and its
counsel for policies of title insurance showing
title to the Properties vested in HCP as of the
Closing Date subject only to the Permitted
Encumbrances. The policies, when issued, shall be
in current TLTA owner's form and shall include
such endorsements as HCP may reasonably require.
Each respective policy shall be in an amount equal
to the value of the applicable Property, but in no
event less than the portion of the purchase price
attributable to the land and improvements plus
$250,000, and shall insure (i) that any
conditions, covenants and restrictions affecting
the applicable Property have not been violated and
that a future violation thereof will not result in
a forfeiture or reversion of title; (ii) if
obtainable, that all streets adjoining the
applicable Property have been completed, dedicated
and accepted for public maintenance and use by the
appropriate governmental authorities and that the
applicable Property has access to public streets;
(iii) such matters with respect to local zoning
ordinances, general plans and all other applicable
land use regulations, private covenants,
conditions and restrictions, if any, as may be
reasonably required by HCP; and (iv) over and
against all parties in possession except the
current occupants thereof.
Section 3.5. FLOOD ZONE COMPLIANCE. HCP shall
have received, at Assignor's expense, written
statements from the Title Company or the surveyor
in form and substance satisfactory to HCP to the
effect that the respective Properties are not
located in flood hazard areas or satisfactory
evidence of the existence of flood insurance to
the extent any or all of the Properties are
located in a flood hazardous area.
Section 3.6. ENVIRONMENTAL REPORTS. HCP shall
have received written reports in form and
substance satisfactory to HCP from a qualified
geotechnical or engineering firm acceptable to HCP
concerning the presence, handling, treatment and
disposal of Hazardous Substances on, in or under
the respective Properties.
Section 3.7. INSURANCE. HCP shall have
received certificates of insurance fulfilling the
requirements therefor set forth in the Leases,
together with proof that any premiums therefor due
on or prior to the Closing Date have been paid.
Section 3.8. LETTER(S) OF CREDIT. HCP shall
have received letter(s) of credit fulfilling the
requirements set forth in the Leases.
Section 3.9. LICENSES, PERMITS, APPROVALS.
HCP shall have received evidence reasonably
satisfactory to it that (i) all licenses, permits,
approvals and authorizations from all Governmental
Authorities required to transfer the Properties
and to permit each respective Property to be used
for all uses contemplated by the applicable Lease,
including, if issued in the applicable
jurisdiction, a permanent, unconditional
certificate of occupancy and all requisite
licenses have been obtained and are in full force
and effect, or if all requisite licenses are not
expected to be obtained by the Closing Date, HCP
shall have received and approved an opinion from
The Nathanson Group or other counsel to Assignor,
dated as of the Closing Date, which shall
summarize (a) the process
7
<PAGE>
of obtaining all requisite licenses, (b) the steps
that have been taken to obtain all requisite
licenses, (c) the remaining steps to be performed,
if any, (d) the expected date of receipt of each
requisite license and (e) any possible
circumstances which might delay or prevent
Assignor from obtaining any requisite license; and
(ii) the zoning ordinance, general plan and all
other land use regulations of the cognizant
Governmental Authorities and all private
covenants, conditions and restrictions, if any,
affecting each respective Property, permit the use
of such Property (and reconstruction and
resumption of use of such Property in the event of
damage or destruction thereof or cessation of use
thereof) for all uses contemplated by the
applicable Lease on terms and conditions
acceptable to HCP.
Section 3.10. LITIGATION. HCP shall have
reviewed and approved a written disclosure of all
pending or threatened litigation or governmental
proceedings (including any pending or threatened
audits relating to taxes) that affect any of the
Properties or are material to Assignor.
Section 3. 11. PHYSICAL INSPECTION. HCP shall
have reviewed and approved the physical condition
of the Properties, including the improvements and
the HVAC, electrical, plumbing and other systems,
and shall have received written reports in form
and substance satisfactory to HCP from a qualified
engineering firm approved by HCP or an engineer
employed by HCP to the effect that (i) the
improvements on each respective Property have been
constructed in compliance with the requirements of
all laws, ordinances, rules, regulations and
restrictions of record applicable thereto which
materially affect the use of such Property; (ii)
all public utilities, including water, sewer, gas
and electricity, to the extent necessary for the
operation of each respective Property, have been
connected to the Property and are adequate for all
uses of such Property contemplated by the
applicable Lease; (iii) all means of ingress and
egress, streets, parking and drainage facilities
are available to service each respective Property
and are adequate for all uses of such Property as
contemplated by the applicable Lease; and (iv) any
exceptions to HCP's title to or interest in each
respective Property will not interfere with any
use of such Property contemplated by the
applicable Lease or cause the value of such
Property to fall below the acquisition price.
Section 3.12. RECORDS. HCP shall have
reviewed all operating reports, plans and
specifications, leases and such other records
pertaining to the Properties as HCP shall
reasonably request.
Section 3.13. REPRESENTATIONS AND WARRANTIES.
The representations and warranties made by
Assignor in this Agreement and in any certificates
delivered pursuant hereto shall be true and
correct on and as of the Closing Date as if they
had been made on the Closing Date.
Section 3.14. LEASE; NO DEFAULT. No condition
shall exist which, with notice or the lapse of
time, or both, would constitute an Event of
Default under any of the Leases on the Closing
Date.
Section 3.15. DOCUMENTS AND CERTIFICATES. HCP
shall have received and approved such corporate
and other documents and certificates incident to
Assignor or the transactions contemplated herein
as HCP or its counsel shall reasonably request.
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Section 3.16. LEGAL OPINION. HCP shall have
received and approved opinions of The Nathanson
Group or other counsel to Assignor, dated as of
the Closing Date, to the effect that:
(a) Assignor is duly organized, validly
existing and in good standing in its state of
incorporation and the state in which the
Properties are located; the execution and delivery
of this Agreement, the Leases and the other Lessee
Documents to be executed and delivered by Assignor
have been duly authorized; and this Agreement, the
Leases and all other Lessee Documents to be
executed and delivered by Assignor are valid,
binding and enforceable against Assignor, in
accordance with their terms as the enforcement of
remedies may be limited by applicable creditors
rights laws and governing principles of equity;
(b) ESC is duly organized, validly
existing and in good standing in the state of
Washington; the execution and delivery of the
Lease and the other Lessee Documents to be
executed and delivered by ESC have been duly
authorized; and the Lease and all other Lessee
Documents to be executed and delivered by ESC are
valid, binding and enforceable against ESC, in
accordance with their terms as the enforcement of
remedies may be limited by applicable creditors
rights laws and governing principles of equity;
(c) the execution and delivery of the
applicable Lessee Documents and the accomplishment
of the transactions contemplated thereby do not
and will not constitute an event of default under
or violation of any law, regulation, decree,
order,
contract, or other agreement by which Assignor or
ESC is or may be bound, including laws and
regulations governing the use of the Properties;
(d) to such counsel's knowledge,
Assignor and ESC have obtained all approvals and
consents required by Governmental Authorities and
other third parties necessary to convey, or cause
to be conveyed, to HCP the Properties, to lease
the Properties from HCP and operate the
Properties, and all licenses, permits, other
certificates, approvals and other authorizations
from Governmental Authorities or other third
parties which are necessary to permit the use of
the Properties for all uses contemplated by the
Leases, including if issued in the applicable
jurisdiction, a permanent, unconditional
certificate of occupancy and all requisite
licenses, have been obtained and are in full force
and effect, or if all requisite licenses are not
expected to be obtained by the Closing Date, a
summary of (i) the process of obtaining all
requisite licenses, (ii) the steps that have been
taken to obtain all requisite licenses, (iii) the
remaining steps to be performed, if any, (iv) the
expected date of receipt of each requisite license
and (v) any possible circumstances which might
delay or prevent Assignor from obtaining any
requisite license; and
(e) there are no pending or, to the best
knowledge of such counsel, threatened proceedings
by any Governmental Authority with respect to, or
in any manner affecting Assignor or ESC.
Section 3.17. MATERIAL ADVERSE CHANGE. HCP
shall have received evidence satisfactory to it to
the effect that no material adverse change in the
financial condition, business, or prospects of (i)
the Properties has occurred from September 30,
1996 to the Closing Date or (ii) Assignor or ESC
has occurred from December 31, 1996 to the Closing
Date.
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Section 3.18. NON FOREIGN AFFIDAVIT. Assignor
shall cause each of the Sellers to provide to HCP
a certificate to the effect that such Seller is
not a foreign person pursuant to Section
1445(b)(2) of the Internal Revenue Code.
Section 3.19. CONCURRENT CLOSING.
Concurrently on the Closing Date, HCP shall
receive the conveyance from the applicable Sellers
of all of such Sellers' right, title and interest,
owned, leased or otherwise in and to the
Properties and simultaneously therewith HCP, as
lessor, and ESC, as lessee, shall enter into the
Leases.
ARTICLE IV.
CONDITIONS TO THE OBLIGATION OF ASSIGNOR TO CLOSE
The obligations of Assignor hereunder are
subject to the following conditions. Should any
condition not be fulfilled to the satisfaction of
Assignor on the Closing Date, or waived by
Assignor, Assignor shall, at its option, but
without waiving any rights provided in this
Agreement, including without limitation, Section
2.5 hereof, be relieved of all obligations under
this Agreement.
Section 4.1. COMPLIANCE WITH AGREEMENT. HCP
shall have complied with all of the provisions of
this Agreement to be complied with by HCP prior to
or as of the Closing Date.
Section 4.2. REPRESENTATIONS AND WARRANTIES.
The representations and warranties made by HCP in
this Agreement and in any certificates delivered
pursuant hereto shall be true and correct on and
as of the Closing Date as if they had been made on
the Closing Date.
Section 4.3. CONCURRENT CLOSING. Concurrently
on the Closing Date, HCP shall receive the
conveyance from the applicable Sellers of all of
such Sellers' right, title and interest, owned,
leased or otherwise in and to the Properties and
simultaneously therewith HCP, as lessor, and ESC,
as lessee, shall enter into the Leases.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES AND COVENANTS OF
THE PARTIES
Section 5. I. REPRESENTATIONS AND WARRANTIES
OF ASSIGNOR. Assignor represents and warrants as
follows:
(a) Assignor is a corporation duly
organized, validly existing and in good standing
under the laws of. its state of incorporation and
is, or will be on the Closing Date, duly qualified
and authorized to do business in the states in
which the Properties are located in accordance
with local law. Assignor has full power, authority
and legal right to execute and deliver, and to
perform and observe the provisions of this
Agreement and all other instruments provided for
herein to which it is a party and to carry out the
transactions contemplated herein.
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(b) ESC is duly organized, validly
existing and in good standing
under the laws of the state of Texas and is, or
will be on the Closing Date, duly qualified and
authorized to do business in the states in which
the Properties are located in accordance with
local law. ESC has full power, authority and legal
right to execute and deliver, and to perform and
observe the provisions of all instruments provided
for herein to which it is a party and to lease
from HCP pursuant to the Leases, the Properties.
(c) This Agreement has been, and on the
Closing Date all other Lessee Documents will have
been, duly authorized, executed and delivered by
Assignor.
(d) The execution and delivery of the
Lessee Documents, compliance with the provisions
thereof and the consummation of the transactions
therein contemplated by Assignor and ESC will not
result in (i) a breach or violation of (a) any law
or governmental rule or regulation applicable to
Assignor or ESC now in effect; (b) any provision
of the Articles of Incorporation or By-Laws of
Assignor or the limited partnership agreement of
ESC; (c) any judgment, order or decree of any
court or Governmental Authority binding upon
Assignor or ESC; or (d) any agreement or
instrument to which Assignor or ESC is a party or
by which it is bound; (ii) the acceleration of any
obligation of Assignor or ESC; or (iii) the
creation of any lien, claim or encumbrance other
than the Leases upon the Properties.
(e) To the best of Assignor's knowledge,
Sellers have and can convey to HCP good and
marketable fee simple title to the Properties,
free and clear of all liens, restrictions and
encumbrances except for Permitted Encumbrances,
provided that, to the best of Assignor's
knowledge, none of the Permitted Encumbrances,
individually or in the aggregate, materially
impairs the use of any of the Properties or any
portion thereof, for their present purpose or
results in title no longer being good and
marketable. A true, correct and complete copy of
the instrument or other document giving rise to
each Permitted Encumbrance has heretofore been
delivered to HCP.
(f) No consent, approval or other
authorization of, or registration, declaration or
filing with, any court or Governmental Authority
is required for the due execution and delivery of
any of the Lessee Documents by Assignor or ESC, or
for the validity or enforceability of any thereof
against Assignor or ESC, or for the payment of any
amounts by Assignor or ESC thereunder other than
the recording or filing for recordation of a short
form memorandum for each of the Leases and the
deed to each of the Properties.
(g) The Purchase and Sale Agreements are
in full force and effect, free of defaults by
Assignor, and free of defaults by Sellers known to
Assignor. The Purchase and Sale Agreements have
not been amended or otherwise modified except as
described in the definition of the Purchase and
Sale Agreements. To the best of Assignor's
knowledge, the representations and warranties of
Sellers, as set forth in the Purchase and Sale
Agreements, are true and correct in all material
respects.
(h) There are no actions, proceedings or investigations pending or ,
(h) There are no actions, proceedings or
investigations pending or, to the best knowledge
of Assignor, threatened against Assignor or ESC
before or by any court, arbitrator or Governmental
Authority which are expected, in the reasonable
judgment of Assignor, to materially and adversely
affect the financial condition or operations of
Assignor or ESC, or their ability to carry out the
transactions contemplated herein.
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(i) Assignor and ESC are solvent and
each (i) has timely filed all tax returns which
ace required to be filed by it and timely paid all
taxes which are required to be paid by it and (ii
i is not in default in the payment of any taxes
levied or assessed against it or any of its
assets, or under any judgment, order, decree, rule
or regulation of any court, arbitrator, or
Governmental Authority to which it may be subject
which would, in each case or in the aggregate,
adversely affect the transactions contemplated
herein.
(j) Except as otherwise disclosed in the
Environmental Reports provided pursuant to Section
3.6, (i) there are no underground tanks or
Hazardous Substances currently located on the
Properties, (ii) to Assignor's best knowledge, the
Properties have never been used for the purpose of
generating, storing, disposing of, treating or
transporting Hazardous Substances other than the
use and storage, in accordance with applicable
laws, of Hazardous Substances ordinarily used in
the course of Sellers' operations at the
Properties, (iii) to Assignor's best knowledge, no
Hazardous Substances are present or used, stored,
treated, released from or disposed of on the
Properties, other than the use and storage, in
accordance with applicable laws, of Hazardous
Substances ordinarily used in the course of
Sellers' operations at the Properties; (iv) no
enforcement, cleanup, removal or other
governmental or regulatory actions are pending or,
to the best of Assignor's knowledge, threatened
with respect to any of the Properties; (v) there
is no current or, to the best of Assignor's
knowledge, prior violation or state of
noncompliance with any environmental law relating
to Hazardous Substances with respect to any of the
Properties; (vi) no claims have been made or, to
the best of Assignor's knowledge, threatened by
any third party with respect to any of the
Properties relating to damage, contribution, cost
recovery, compensation, loss or injury resulting
from or related to any Hazardous Substance; and
(,vii) to the best of Assignor's knowledge, there
are no current, and have been no, businesses
engaged in the storage, treatment or disposal of
Hazardous Substances on any property adjacent to
any of the Properties.
(k) No eminent domain or condemnation
proceedings are pending or, to the best knowledge
of Assignor threatened, with respect to any of the
Properties.
(1) To the actual knowledge of Assignor,
none of the Properties are located within an area
of special risk with respect to natural or man-
made disasters or hazards, such as hurricanes,
earthquakes, tropical storms, flood, nuclear risk
or hazardous waste.
(m) To the best of Assignor's knowledge,
without any soil studies having been performed for
Assignor, there are no adverse geological or soil
conditions affecting any of the Properties.
(n) Neither Assignor nor Daniel R. Baty
is retaining, or has any current intent to obtain,
any direct or indirect interest in any land or
project adjacent to or within one mile of any of
the Properties.
(o) Except as otherwise disclosed in the
Purchase and Sale Agreements, there are no pending
or, to the best knowled5e of Assignor, threatened
proceedings by any Governmental Authority with
respect to, or in any manner affecting, any of the
Properties, or in which HCP is or will be a party
by reason of its acquisition of any of the
Properties, and there are no pending or, to the
best knowledge of Assignor, threatened
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proceedings with respect to, or in any manner
affecting any of the Properties or the use thereof
or in which HCP or ESC is or will be a party by
reason of their respective ownership and leasehold
interests, including proceedings for or involving
evictions, collections, taxes, condemnation or
eminent domain, building code or zoning violations
or personal injuries or property damage alleged to
have occurred on any of the Properties or by
reason of the construction of improvements on or
the use and operation of any of the Properties, or
any present plan or study by any Governmental
Authority which in any way challenges, affects or
would challenge or affect the continued ownership
or use of any of the Properties, or any street or
highway servicing or adjacent to any of the
Properties.
(p) Except as disclosed in the
Engineering Reports for each of the Properties
prepared by Building Analytics, dated February 18,
1997, there are no structural, electrical,
plumbing, mechanical or other physical defects
affecting the Properties.
(q)
(1) To the best of Assignor's
knowledge, each of the Properties and the use
thereof for all uses contemplated by the
applicable Lease are in material compliance
with all applicable laws, regulations and
ordinances, including all health, building,
safety and zoning laws, regulations and
ordinances;
(2) Local zoning ordinances,
general plans and other applicable land use
regulations and all private covenants,
conditions and restrictions, if any, permit
the transfer and use of the Properties (and
reconstruction and resumption of use of the
Properties in the event of damage or
destruction thereof or cessation of use
thereof for the business presently conducted
thereon as a matter of right for an unlimited
time period, and specifically not merely as a
legal non-conforming use or any other legal
status which would by its terms or by
operation of law limit the duration of such
use or the right to rebuild and resume use of
any of the Properties for all uses
contemplated by the applicable Lease in the
event of damage, destruction or cessation of
use of any of the Properties for any reason;
(3) Except as described in the
opinions provided pursuant to Section 3.16
hereof, all licenses, permits, approvals and
authorizations from all Governmental
Authorities required to transfer the
Properties and to permit each of the
Properties to be used for all uses
contemplated by the applicable Lease,
including, if issued in the applicable
jurisdiction, a permanent, unconditional
certificate of occupancy, have been obtained
and are or will be in full force and effect
on or before the Closing Date or as soon as
reasonably possible thereafter;
(4) To the best knowledge of
Assignor, there are no outstanding
deficiencies or work orders of any cognizant
Governmental Authority requiring conformity
to any applicable statute, regulation or
ordinance pertaining to any of the
Properties;
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(5) To the best knowledge of
Assignor, none of the Properties are subject
to any notice, claim, requirement or demand
of any cognizant certifying agency or
Governmental Authority to rework or redesign
any portion of the Properties or to provide
additional fixtures, equipment or inventory
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;
(6) To the best knowledge of
Assignor, all public utilities ,
including water, sewer, gas and
electricity, to the extent necessary for the
operation of the Properties, have
been connected to the Properties and are
adequate for the intended use of
each of the Properties;
(7) To the best knowledge of
Assignor, all means of ingress and egress,
streets, parking and drainage facilities are
adequate for the use of each respective
Property for all uses contemplated by the
applicable Lease;
(8) Assignor has delivered to -HCP
copies of its audited financial statements
for the year ended December 31, 1996, the
unaudited financial statements of ESC for the
year ended December 31, 1996 and the
Properties' unaudited financial statements
dated September 30, 1996, and such financial
statements are true, correct and complete in
all material respects, and Assignor's and
ESC's financial statements have been prepared
from and in accordance with the books and
records of Assignor and ESC, respectively,
and, to the best of Assignor's knowledge, the
Properties' financial statements have been
prepared from and in accordance with the
books and records of the Properties, and such
financial statements fairly present the
financial position of Assignor and ESC and,
to the best of Assignor's knowledge, the
Properties, and the results of Assignor's and
ESC's and, to the best of Assignor's
knowledge, the Properties' operations at the
date(s) and for the period(s) indicated;
.
(9) Since December 31, 1996, there
has been no material adverse change in the
financial condition of Assignor or ESC from
that disclosed in the financial statements
described in Section 5.1(p)(8) above; and
(10) To the best knowledge of
Assignor since September 30, 1996, there has
been no material adverse change in the
financial condition, business, or prospects
of any of the Properties from that disclosed
in the financial statements described in
Section 5.1 (p)(8) above.
(r) Neither Assignor, nor any of the
officers, employees or affiliates of Assignor has
employed any broker, finder or similar agent, or
entered into or will enter into any agreement with
any person or firm which could result in the
obligation of HCP to pay any finder's fees,
brokerage fee or commission or similar payment in
connection with the execution of this Agreement or
the consummation of the transactions contemplated
hereunder.
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(s) Neither this Agreement nor any
certificate, statement or other document furnished
or to be furnished to HCP by or on behalf of
Assignor or ESC in connection with the
transactions contemplated herein 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 make the statements
contained herein or therein not misleading.
(t) The transactions set forth in this
Agreement are not subject to the tax withholding
provisions of the Internal Revenue Code or of any
other provision of law.
(u) Each of the Sellers is a United
States person within the meaning of the Internal
Revenue Code.
Section 5.2. REPRESENTATIONS AND WARRANTIES
OF HCP. HCP represents and warrants as follows:
(a) HCP is a limited partnership duly
organized, validly existing and in good standing
under the laws of the State of Delaware. HCP has
full power, authority and legal right to execute
and deliver, and to perform and observe the
provisions of this Agreement and all other
instruments provided for herein to which it is a
party and to acquire from Sellers and lease to
ESC, pursuant to the Leases, the Properties and to
carry out the transactions contemplated herein.
(b) This Agreement has been, and all
other Lessee Documents to be delivered by HCP
pursuant to this Agreement on or before the
Closing Date, will have been, duly authorized,
executed and delivered by HCP.
(c) Neither HCP nor any of its officers,
employees or affiliates has employed any broker,
finder or similar agent or entered into or will
enter into any agreement with any person or firm
which could result in the obligation of Assignor
or HCP to pay any finder's fee, brokerage fee or
commission or similar payment in connection with
the execution of this Agreement or the
consummation of the transactions contemplated
herein.
ARTICLE VI.
OBLIGATIONS OF ASSIGNOR
Section 6.1. COVENANTS OF ASSIGNOR. Prior to
the Closing Date, Assignor shall (and to the
extent Assignor does not control the Properties,
Assignor shall use its best efforts to cause
Sellers and ESC to comply with the following
covenants with respect to the Properties):
(a) not amend any material agreement or
other instrument related to any of the
respective Properties or their respective
businesses to which it is a party or by which
it or any of the respective Properties may be
bound, and Assignor shall use its best
efforts to cause ESC and Sellers to not amend
any material agreement or other instrument
related to any of the respective Properties
or their respective businesses to which ESC
or any of the Sellers is a party or by which
ESC, any of the Sellers or any of the
respective Properties may be bound;
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(b) pay or cause to be paid all income,
property, sales and withholding taxes and all ad
valorem and other taxes upon the respective
Properties and businesses operated with respect to
the respective Properties as they become due but
only to the extent that Assignor, ESC or any of
the Sellers are responsible therefor and/or to the
extent that nonpayment would result in a lien for
other than current property taxes;
(c) not dispose of or encumber any of
the respective Properties;
(d) not enter into or assume any
contract, agreement, obligation, lease, license or
commitment related to any of the respective
Properties except in the ordinary course of
business or as contemplated herein;
(e) not do any act or omit any act which
would cause a breach of any contract, commitment
or obligation which would have a material adverse
affect on any of the respective Properties;
(f) promptly advise HCP in
writing of any material adverse change in its
financial position, assets or earnings, or in the
financial position, assets or earnings of ESC or
any of the respective Properties;
(g) not amend, terminate or waive any
right related to any of the respective Properties
or its or their respective businesses, provided,
however, that nothing herein shall preclude
Assignor from making such termination as may be
necessary to deliver title to the respective
Properties to HCP in accordance with the terms
hereof;
(h) not commit to make any Capital
Additions (as defined in the Leases) to the
respective Properties without the written approval
of HCP;
(i) afford the officers, attorneys,
accountants, and other authorized representatives
of HCP access during normal business hours to the
respective Properties and to their books and
records related to the transactions contemplated
herein in order to afford HCP such opportunity of
review, examination and investigation as HCP shall
desire to make of the respective Properties and
permit HCP to make extracts from, and take copies
of, such books and records as may be reasonably
necessary for such purposes;
(j) give all notices to
Governmental Authorities required by law for the
transfer of the respective Properties; and
(k) take all action as may be necessary
to comply promptly with any and all rules,
regulations or orders of any Governmental
Authority affecting the respective Properties,
including orders of any board of fire underwriters
or other similar bodies in connection with the
making of repairs and alterations, and promptly,
and in no event later than seventy-two (72) hours
from the time of its receipt, notify HCP of all
such orders and requirements.
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Section 6.2. NOTIFICATION OF CHANGES. At any
time at or prior to the Closing Date, Assignor
shall promptly notify HCP of (i) any change in the
condition of the respective Properties or any
contiguous or neighboring property which could
have a material adverse affect on any of the
respective Properties, Assignor, ESC or HCP, or
(ii) any event or circumstance of which Assignor
becomes aware which makes any representation or
warranty of Assignor contained herein untrue or
misleading, or any covenant of Assignor, ESC or
HCP under this Agreement or the Leases incapable
or less likely of being performed, it being
understood that the obligation to provide notice
to HCP under this Section shall in no way relieve
Assignor of any liability for a breach by Assignor
of any of its representations, warranties or
covenants contained herein, it being further
understood and agreed that Assignor shall have no
liability to HCP for a breach hereof in the event
HCP receives written notification from Assignor
with respect to such breach and HCP elects to
consummate the transactions provided for herein
notwithstanding the existence of such breach.
Section 6.3. EFFECT TRANSACTION. Assignor
shall take, and shall cause ESC to take, all
actions necessary or desirable to effect the
transactions contemplated herein.
Section 6.4. INDEMNIFICATION.
(a) Assignor unconditionally and
irrevocably indemnifies and agrees to defend and
hold harmless HCP from and against any and all
loss, cost or expense, including reasonable
attorneys' fees, arising from (i) the material
breach or violation of any representation or
warranty of Assignor contained herein; (ii) the
failure of Assignor to satisfy or perform any
covenant or other provision contained herein or in
the Purchase and Sale Agreements; (iii) any
material violations of any covenant, condition or
restriction affecting any of the Properties; (iv)
any encroachments of buildings or other
improvements onto adjoining lands or onto
easements or licenses or rights-of-way located on
any of the Properties which is not a Permitted
Encumbrance. (v) without limiting any other
provision of this Section 6.4(a), any encroachment
from the El Paso Property onto the property to the
southwest of the EI Paso Property (Assignor shall
have the right to contest and defend any action or
claim brought or made against HCP in connection
with such encroachment using counsel reasonably
acceptable to HCP and shall otherwise have the
right to negotiate with the adjoining owners and
resolve such matters in such reasonable manner and
within such reasonable time as Assignor shall
decide, subject to the reasonable consent of and
upon reasonable notice to HCP; provided, however,
that all costs and expenses, including attorney's
fees, associated with the matters covered by this
clause (v) shall remain the obligation of
Assignor) (vi) the presence or existence of any
Hazardous Substance on, in or under any of the
Properties and (vii) any claims made against HCP
by any of the Sellers or any third party arising
out of the transactions contemplated in this
Agreement or the Purchase and Sale Agreements
which claims are not the result of a breach of
HCP's covenants hereunder.
(b) HCP unconditionally and irrevocably
indemnifies and agrees to defend and hold harmless
Assignor from and against any and all loss, cost
or expense, including reasonable attorneys' fees,
arising from (i) the material breach or violation
of any representation or warranty of HCP contained
herein; and (ii) the failure of HCP, to satisfy or
perform any covenant of HCP or other provision
with respect to HCP s obligations contained
herein.
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ARTICLE VII.
DAMAGE DESTRUCTION OR CONDEMNATION
Section 7.1. DAMAGE DESTRUCTION OR
CONDEMNATION. Assignor shall have the risk of loss
or damage to the Properties and liability arising
out of the operation of the Properties from any
cause whatsoever prior to the Closing Date. In the
event of any loss or damage to the Properties or
condemnation of all or any portion of any of the
Properties, the following procedure shall be used:
(a) In the event that prior to the
Closing Date, a material portion of one or more of
the Properties, taken individually, 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, HCP shall have the right
to terminate this Agreement on written notice to
Assignor which notice must be delivered within ten
(10) days after HCP receives notice of such
damage, destruction or condemnation. In the event
HCP fails to exercise its termination right
hereunder, then it shall be conclusively deemed to
have waived said right and Assignor shall assign
to HCP all of its rights to any insurance proceeds
or condemnation award and all claims in connection
therewith. In the event HCP exercises its
termination right hereunder, the parties shall
have no further rights or obligations hereunder
other than any rights Assignor may have to a
refund of a portion of its commitment fee pursuant
to Section 2.5 hereof.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1. SURVIVAL. All agreements,
representations and warranties made by Assignor
and HCP herein and in all certificates and other
instruments delivered pursuant to this Agreement
shall survive the execution and delivery of this
Agreement and the delivery of the deed or other
instrument of conveyance to each of the
Properties.
Section 8.2. BROKERS. Assignor shall be
solely responsible for, and shall indemnify and
hold HCP harmless from and against any and all
claims for, any real estate commissions, leasing
fees or similar fees arising out of or in any way
relating to the purchase, sale or lease of the
Properties, except in the event of breach of HCP's
representation and warranty in Section 5. 2(c)
hereof.
Section 8.3. NOTICES. All notices, demands
and other communications hereunder shall be in
writing and delivered in accordance with the
provisions therefor set forth in the Leases.
Section 8.4. ATTORNEYS' FEES. If HCP or
Assignor brings an action or other proceeding
against the other to enforce any of the terms,
covenants or conditions hereof or any instrument
executed pursuant to this Agreement, 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 attorneys' fees
incurred therein.
18
<PAGE>
Section 8.5. SUCCESSORS AND ASSIGNS. This
Agreement shall be binding upon HCP and Assignor
and their respective successors and assigns;
provided, however, that neither the rights nor the
obligations of Assignor hereunder may be assigned
or delegated without the prior written consent of
HCP, which such consent may be granted or withheld
in its sole and absolute discretion.
Section 8.6. NO WAIVER. Except: as otherwise
specifically provided herein, no delay in
exercising any right or remedy shall constitute a
waiver thereof, and no waiver by HCP or Assignor
of a breach of any covenant of this Agreement,
shall be construed as a waiver of any preceding or
succeeding breach of the same or any other
covenant or condition of this Agreement.
Section 8.7. INVALIDITY. In the event any one
or more of the provisions contained in this
Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability
shall not affect any other provision of this
Agreement.
Section 8. 8. GOVERNING LAW. This agreement
shall be governed by, and construed in accordance
with, the laws of the State of Washington except
to the extent the laws of the states in which the
Properties are located necessarily govern.
Section 8.9. ENTIRE AGREEMENT. This
Agreement, together with the other Lessee
Documents, the exhibits 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.
Section 8.10. SEVERABILITY. In the event any
provision of this Agreement is deemed to be
invalid, illegal or unenforceable, the remainder
of the Agreement shall be valid and enforceable.
Section 8.1 I. HEADINGS. All titles and
headings to sections, subsections, paragraphs or
other divisions of this Agreement 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. "Including"
shall mean including, without limitation, and
other phrases of similar intent.
Section 8.12. COUNTERPARTS. This Agreement
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.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be executed on the day
and year first above written by their respective
duly authorized officers.
TEXAS HCP HOLDING, L.P., a
Delaware limited partnership
By: TEXAS HCP G.P. , INC. , a
Delaware corporation
Its: General Partner
By:
Its:
EMERITUS CORPORATION,
a Washington corporation
By: /s/ Raymond R.
Brandstrom
----------------------
--------------------
Raymond R. Brandstrom
Its: President
20
<PAGE>
RECORDING REQUESTED BY AND WHEN RECORDED RETURN
TO:
GIBSON, DUNN & CRUTCHER LLP 200 Park Avenue
New York, NY I 0166 Attn: Deborah E. Miller
DEED OF TRUST, SECURITY AGREEMENT, FINANCING
STATEMENT ASSIGNMENT OF RESIDENT
AGREEMENTS AND RENTS
(Security For Construction And Mini-Permanent
Loan)
Grantor (Borrower): Emeritus Properties III, Inc.
Grantee (Lender): Ocwen Federal Bank FSB
Grantee (Trustee): Chicago Title Insurance Company
Legal Description (abbreviated): Lot l, Columbia
Pacific Management Building Site Plan, 9507190625;
Additional legal on Exhibit A
Assessor's Tax Parcel ID#6021650010
THIS DOCUMENT TO BE RECORDED BOTH AS
A DEED OF TRUST AND FIXTURE FILING
THIS DOCUMENT SECURES OBLIGATIONS WHICH
CONTAIN
PROVISIONS FOR A VARIABLE RATE OF
INTEREST
THIS DEED OF TRUST, SECURITY AGREEMENT,
FINANCING STATEMENT AND ASSIGNMENT OF RESIDENT
AGREEMENTS AND RENTS (this "Deed of Trust") is
made as of the 30th day of January,1997, by and
between EMERITUS PROPERTIES III, INC., a
Washington corporation whose address is 3131
Elliott Avenue, Suite 500 Seattle Washington 98121
("Grantor"), CHICAGO TITLE INSURANCE COMPANY, a
Missouri corporation, whose address is 2601 South
35th Street, Suite 100, Tacoma, Washington 98409,
Attn: Bruce Judson, as Trustee ("Trustee") and
OCWEN FEDERAL BANK FSB, a federally chartered
savings bank whose address is 1675 Palm Beach
Lakes Boulevard, West Palm Beach, Florida 33401,
Attention: Secretary ("Beneficiary").
Terms which are used in this Deed of Trust
and not otherwise defined herein shall have the
meanings described to such terms in Article I
below.
RECITALS
THIS DEED OF TRUST CONSTITUTES A FIXTURE
FILING UNDER SECTIONS 9-313 AND 9-402 OF THE
UNIFORM COMMERCIAL CODE AS ADOPTED BY THE STATE OF
WASHINGTON TO THE EXTENT THE GOODS ARE FIXTURES
UNDER THE LAWS OF THE STATE OF WASHINGTON, THE
FIXTURES ARE OR ARE TO BECOME FIXTURES ON THE REAL
PROPERTY LOCATED IN THE COUNTY OF PIERCE, STATE OF
WASHINGTON, MORE PARTICULARLY DESCRIBED ON EXHIBIT
A ATTACHED HERETO. THE NAME
<PAGE>
OF THE RECORD OWNER OF THE REAL PROPERTY IS
GRANTOR
Of even date herewith, Grantor, as Borrower,
and Beneficiary, as Lender, have entered into a
Loan Agreement (the "LOAN AGREEMENT") pursuant to
which Beneficiary has agreed to make a loan (the
"LOAN") to Grantor in the original principal sum
of Six Million Four Hundred Sixty-Five Thousand
and No/100 Dollars ($6,465,000) upon the terms and
conditions set forth therein. The Loan is
evidenced by a Promissory Note (the "NOTE") in the
original principal amount of the Loan executed by
Grantor and payable to the order of Beneficiary.
As security for the Loan, and as partial
consideration therefor, Grantor has agreed to
execute and deliver this Deed of Trust as one of
the Loan Documents described in the Loan
Agreement.
NOW, THEREFORE, in consideration of the
making of the Loan and other good and valuable
consideration, the receipt, adequacy and
sufficiency of which are hereby conclusively
acknowledged, to secure the Loan and the other
Indebtedness, Grantor has granted, mortgaged,
bargained, sold, alienated, enfeoffed, released,
conveyed and confirmed, and by these presents does
grant, mortgage, bargain, sell, alienate,
enfeoffed release, convey and confirm unto the
Trustee, in trust, WITH POWER OF SALE, in fee
simple, all that land situated in Pierce County,
Washington, and more particularly described on
Exhibit A attached hereto and made a part hereof
for all purposes (the "LAND"), together with the
buildings and improvements erected or to be
erected thereon, including but not limited to all
appurtenant parking areas, driveways, roadways,
walkways and landscaped areas (the
"IMPROVEMENTS");
TOGETHER with all the walks, fences,
shrubbery, driveways, fixtures, equipment,
machinery, apparatus, fittings, building materials
and other articles of personal property of every
kind and nature whatsoever, now or hereafter
ordered for eventual delivery to the Land (whether
or not delivered thereto), and all such as are now
or hereafter located in or upon any interest or
estate in the Land or any part thereof and used or
usable in connection with any present or future
operation of the Land now owned or hereafter
acquired by Grantor, including, without limiting
the generality of the foregoing, all heating,
lighting, laundry, clothes washing, clothes
drying, incinerating and power equipment, engines,
boilers, pipes, tanks, motors, conduits,
switchboards, plumbing, lifting, cleaning, fire-
prevention, fire-extinguishing, refrigerating,
ventilating, and communications apparatus,
telephones and office equipment, television sets,
radio systems, recording systems, computer
equipment, copiers, chairs, desks, tables, sofas,
air-cooling and air-conditioning apparatus,
elevators, escalators, shades, awnings, draperies,
curtains, curtain rods, mirrors, paneling, fans,
furniture, furnishings, beds ,
mattresses, linens, bedding, towels, wheel chairs,
walkers, canes, medical equipment and supplies,
vans and other transportation equipment,
carpeting, linoleum and other floor coverings,
screens, storm doors and windows, stoves, dishes,
glasses, silverware and other kitchen and
restaurant equipment and supplies, gas and
electric ranges, refrigerators, garbage disposals,
sump pumps, dishwashers, bath tubs, water heaters,
water closets, sinks, attached cabinets,
partitions, ducts and compressors, landscaping,
swimming pool, lawn and garden equipment, security
systems and including all materials and equipment
installed or to be installed or used or usable in
the construction, reconstruction, alteration,
repair and operation of the building or buildings
or appurtenant facilities erected or to be erected
in or upon the Land; it being understood that all
of the
2
<PAGE>
aforesaid shall be deemed to be fixtures and part
of the Land, but whether or not of the nature of
fixtures they shall be deemed and shall constitute
part of the security for the Indebtedness and
shall be covered by this Deed of Trust excluding,
however, only personal property owned by any
resident actually occupying all or part of the
premises. Except as otherwise expressly allowed
pursuant to this Deed of Trust, disposition of any
of the aforesaid or of any interest therein is
prohibited; however, if any disposition is made in
violation hereof, Beneficiary shall have a
security interest in the proceeds therefrom to the
fullest extent permitted by the laws of the State
of Washington; and
TOGETHER with all and singular the. rights, rights-of wa
y
,
s
t
r
i
p
s
a
n
d
g
o
r
e
s
of land, streets, alleys, ways, passages, sewer
rights, water, water courses, water rights and
powers, air rights and development rights,
mineral, oil and gas rights, easements, tenements,
privileges, advantages, accessions, hereditaments
and appurtenances belonging or in any way
appearing to the Land and other property described
herein, and the reversions and remainders,
earnings, revenues, rents, royalties, issues and
profits thereof and including any right, title,
interest or estate hereafter acquired by Grantor
in the Land and other property described herein,
and all land lying in the bed of any street, road
or avenue, opened or proposed, in front of or
adjoining the Mortgaged Property (hereinafter
defined) to the center line thereof and all the
estates, rights, titles, interests, dower and
rights of dower, curtesy and rights of curtesy,
properly, possession, claim and demand whatsoever
both at law and in equity, of Grantor of, in and
to the Mortgaged Property and every part and
parcel thereof, with the appurtenances thereto;
and
TOGETHER with all the right, title and
interest (but not the obligations) of Grantor,
present and future, in and to all present and
future accounts, contract rights (including all
rights of Grantor set forth in the Loan
Agreement), general intangibles, chattel paper,
Documents and instruments including but not
limited to licenses, construction contracts,
management contracts, service contracts, utility
contracts, options, Permits, public works
agreements, architectural and engineering
agreements, all architectural, engineering and
similar plans, specifications, drawings, reports,
surveys, plats, permits, bonds, deposits and
payments thereunder, relating or appertaining to
the Land and other property described herein and
its development, occupancy and use; provided,
however, that nothing herein shall be construed to
grant Trustee or Beneficiary any right, title, or
interest in or to any such items, to the extent
such grant would be in violation of any applicable
Governmental Requirement; and
TOGETHER with any right to payment of the
rental for the use or occupancy (transient or
otherwise) of rooms or other space, including,
without limitation, any residential unit or bed,
any hotel or motel rooms, meeting, banquet,
restaurant, parking, health or health service,
medical, recreational or spa facilities, or for
goods sold or leased or for services rendered,
whether or not yet earned by performance, arising
from the operation of the Improvements or any
other facility on the Land, including, without
limitation, ( 1 ) all accounts arising from the
operation of the Improvements and all proceeds
thereof (whether cash or noncash, movable or
immovable, tangible or intangible) received upon
the sale, exchange, transfer, collection or other
disposition or substitution thereof, and (2) all
rights to payment from any consumer credit/charge
card organization or entity, including, without
limitation, payments arising from the use of the
American Express Card, Visa Card, Carte Blanche
Card, Master Card, Diner's Club, or any other
credit card, including those now existing or
hereafter created or any substitutions therefor
and all proceeds thereof (whether cash or non-cash
3
<PAGE>
moveable Or immovable, tangible or intangible)
received upon the sale, exchange, transfer,
collection, or other disposition or substitution
thereof; provided however, that nothing herein
shall be construed to grant Trustee or Beneficiary
any right, title, or interest in or to any such
items, to the extent such grant would be in
violation of any applicable Governmental
requirement; and
TOGETHER with all of the rents, royalties,
revenues, income, proceeds, profits and other
benefits paid or payable by parties to the
Resident Agreements for using, leasing, licensing,
possessing, occupying, operating from, residing
in, selling or otherwise enjoying the Land, the
improvements, and other property securing the
Indebtedness, or any portion thereof; provided,
however, that nothing herein shall be construed to
grant Trustee or Beneficiary any right, title, or
interest in or to any such items, to the extent
such grant would be in violation of any applicable
Governmental Requirement; and
TOGETHER with aI1 of Grantor's right, title
and interest in and to any and all judgments,
awards of damages (including but not limited to
severance and consequential damages), payments,
proceeds, settlements or other compensation
(collectively, the "AWARDS") heretofore or
hereafter made, including interest thereof and the
right to receive the same, as a result of, in
connection with, or in lieu of (a) any taking of
the Mortgaged Property or any part thereof by the
exercise of the power of condemnation or eminent
domain, or the police power; (b) any change or
alteration of the grade of any street or (c) any
other injury or decrease in the value of the
Mortgaged Property or any part thereof (including
but not limited to destruction or decrease in
value by fire or other casualty), a11 of which
Awards, rights thereto and shares therein are
hereby assigned to Beneficiary, who is hereby
authorized to collect and receive the proceeds
thereof and to give property receipts and
acquittances therefor and to apply, at its option,
the net proceeds thereof, after deducting expenses
of collection as a credit upon any portion, as
selected by Beneficiary, of the Indebtedness
secured hereby; and
TOGETHER with all of Grantor's right, title
and interest in and to any and all payments,
proceeds, settlements or other compensation
heretofore or hereafter made, including any
interest thereon, and the. right to receive the
same from any and all insurance policies covering
the Property or any portion thereof, or any of the
other property described herein; and
TOGETHER with the interest of Grantor in any
cash escrow fund and in any and all funds,
securities, instruments, Documents and other
property which are at any time paid to, deposited
with, under the control of, or in the possession
of Beneficiary, or any of its agents, branches,
affiliates, correspondents or others acting on its
behalf, which rights shall be in addition to any
right of set-off or right of lien that Beneficiary
may otherwise enjoy under applicable law,
regardless of whether the same arose out of or
relates in any way, whether directly or
indirectly, to the Mortgaged Property; and
TOGETHER with the interest of Grantor in and
to any and all funds created or established and
held by Beneficiary pursuant to any indenture of
trust or similar instrument authorizing the
issuance of bonds or notes for the purpose of
financing the Project; and
4
<PAGE>
TOGETHER with all inventory, including raw
materials, components, work-in progress, finished
merchandise and packing and shipping materials
owned by Grantor and located on the Mortgaged
Property; and
TOGETHER with all proceeds, products,
returns, additions, accessions and substitutions
of and to any or all of the above; and
TOGETHER with all of the records and books of
account now or hereafter maintained by or on
behalf of Grantor in connection with the Project;
and
TOGETHER with all names now or hereafter used
in connection with the Project and the goodwill
associated therewith.
The Land, the Improvements and all of the
property, rights, privileges and franchises
referenced hereinabove and/or granted herein by
Grantor to Beneficiary, together with the
proceeds, products, replacements, additions,
substitutions, renewals and accessions of or to
any and all of the foregoing, are collectively
referred to herein as the "MORTGAGED PROPERTY."
TO HAVE AND TO HOLD all and singular the
Mortgaged Property unto the Trustee, its
successors and assigns forever; PROVIDED, HOWEVER,
that these presents are upon the condition that if
Grantor shall pay and fully perform the Loan,
including, without limitation, all sums,
including, without limitation, the principal,
interest and Additional Interest payable in
respect to the Note, Loan Agreement and Loan
Documents and all amounts and any other promissory
note or evidence of indebtedness secured by this
Deed of Trust, at the times and in the manner
stipulated therein and herein, all without any
deduction or credit for taxes or other similar
charges paid by Grantor, and shall keep, perform
and observe all and singular the terms,
conditions, covenants and provisions in the Note,
Loan Agreement and Loan Documents, and any
renewal, extension consolidation or modification
thereof and in this Deed of Trust expressed to be
kept, performed and observed by and on the part of
Grantor, all without fraud or delay, then the
Trustee shall, upon receipt of the written request
of Holder and at the expense of Grantor, release
and discharge this Deed of Trust of record and
shall transfer and deliver up to Grantor any
property at the time subject to this Deed of Trust
which may be then in its possession, provided the
Trustee hereunder shall be entitled to a
reasonable fee for the release and reconveyance of
such property.
This Deed of Trust does not secure any funded
or unfunded commitment to any governmental agency
to pay for the construction or maintenance of any
sidewalks, roads, traffic controls, storm or
sanitary sewer lines, landscaping or other
improvements to or in the vicinity of the
Mortgaged Property or any extension fees or other
sums due in connection therewith if and to the
extent such commitment is or becomes secured by a
separate deed of trust.
5
<PAGE>
ARTICLE I
DEFINITIONS
When used in this Deed of Trust, the
following terms shall have the respective meanings
assigned to them or if no definition is set forth
herein, then the meanings assigned to such terms
in the Loan Agreement:
"ACCREDITATION BODY" shall have the meaning
ascribed to such term in the Operating Agreement.
"AFFILIATE" shall have the meaning ascribed
to such term in the Operating Agreement.
"ASSIGNMENT OF LICENSES AND PERMITS" shall
mean the Assignment of Licenses and Permits dated
of even date herewith executed by Grantor and
delivered to Beneficiary, as the same may be
amended from time to time.
"ASSIGNMENT OF RENTS AND LEASES" shall mean
the Assignment of Rents and Leases dated of even
date herewith executed by Grantor and delivered to
Beneficiary, as the same may be amended from time
to time.
"ASSISTED LIVING FACILITY " shall have the
meaning ascribed to such term in the Loan
Agreement.
"BORROWING GROUP" shall mean collectively,
Grantor, Guarantor, any Person which is an
Affiliate of Grantor or Guarantor or any Manager
which is an Affiliate of Grantor or Guarantor.
"BUSINESS DAYS" shall mean any day other than
a Saturday or Sunday or any day which is a legal
holiday in Florida or any day on which banking
institutions are authorized or are required by law
or other governmental action to close.
"COLLATERAL" shall mean the Mortgaged
Property and all additional property covered by
any Security Agreement or any of the other Loan
Documents and identified as collateral or security
for the Loan.
"CONTRACTS" shall mean all agreements
(including, without limitation, Provider
Agreements and Resident Agreements), 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 Project 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 Project and all renewals,
replacements and substitutions therefor, now or
hereafter issued by or entered into with any
Governmental Authority, Accreditation Body or
Third Party Payor or maintained or used in
conjunction with the Project by any member of the
Borrowing Group or entered into in conjunction
with the Project by any member of the Borrowing
Group with any other Person.
6
<PAGE>
"DEFAULT RATE" shall mean the rate of
interest set forth in the Note as the applicable
interest rate after the occurrence of an Event of
Default or after the Maturity Date.
"ENVIRONMENTAL LAWS" shall mean any
Governmental Requirement applicable to Grantor or
to the Mortgaged Property relating to industrial
hygiene or to environmental or unsafe conditions,
including but not limited to, those relating to
the generation manufacture, storage, handling,
transportation, disposal, release, emission or
discharge of Substances, those in connection with
the construction, fuel supply, power generation
and transmission, waste disposal or any other
operations or processes relating to the Mortgaged
Property, and those relating to the atmosphere,
soil, surface and ground water, wetlands, stream
sediments and vegetation on, under, in or about
the Mortgaged Property. Environmental Laws also
shall include, but not be limited to, the Model
Toxics Control Act, as adopted in the State of
Washington and amended from time to time, the
Comprehensive Environmental Response, Compensation
and Liability Act, the Emergency Planning and
Community Right-to-Know Act of 1986, the Hazardous
Materials Transportation Act, the Resource
Conservation and Recovery Act the Solid Waste
Disposal Act, the Clean Water Act, the Clean Air
Act, the Toxic Substance Control Act, the Safe
Drinking Water Act and the Occupational Safety and
Health Act, and all regulations adopted in respect
to the foregoing laws.
"ENVIRONMENTAL REPORT" shall mean the Phase I
Environmental Report dated October 3, 1996,
prepared by Eckland Consultants, Inc. with respect
to the Land.
"GOVERNMENTAL AUTHORITY" shall mean the
United States, the state, the county, the city, or
any other political subdivision in which the
Mortgaged Property is located, and any other
political subdivision, agency or instrumentality
exercising jurisdiction over Grantor, Guarantor,
the Project, or if the context requires, any
Design Professional, the General Contractor, any
subcontractor, the Developer, or the Manager under
the Management Contract.
"GOVERNMENTAL REQUIREMENTS" shall mean shall
mean all laws, statutes, ordinances, bylaws,
codes, rules, regulations, restrictions, orders,
writs, injunctions, judgments or decrees
(including, without limitation, all applicable
building, health code, zoning, subdivision and
other land use and health-care 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, applicable at any time and from time to
time to Beneficiary, any member of the Borrowing
Group (to the extent applicable to the Project or
the Loan), the Project or if the context requires,
any Design Professional, the General Contractor,
any subcontractor, the Developer or the Manager
under the Management Contract, or the ownership,
construction, development, maintenance,
management, repair, use, occupancy, possession or
operation of the Project, or the operation of any
programs or services in connection with the
Project, including, without limitation, any of the
foregoing which may (i) require repairs,
modifications or alterations in or to the Project,
(ii) in any way affect (adversely or otherwise)
the use and enjoyment of the Project, or (iii)
require the assessment, monitoring, clean-up,
containment, removal, remediation or other
treatment of any Substances on, under or from the
Project. Without limiting the foregoing, the term
Governmental Requirements includes all Permits and
Contracts issued or entered into by any
Governmental Authority, any Accreditation Body
and/or
7
<PAGE>
any Third Party Payor and the requirements of
Chapter 18.20 of the Revised Code of Washington.
"HIGHEST LAWFUL RATE" shall have the meaning
ascribed to such term in Section 5.8 hereof.
"INDEBTEDNESS" shall mean the Loan, all
liabilities and obligations of Grantor, Guarantor
and other Persons owing to Lender under the Loan
Documents and all other amounts which by the terms
of this Deed of Trust or the Loan Documents are
secured by this Deed of Trust.
"INTENDED USE" shall mean the use of the
Land, Improvements and other Mortgaged Property as
an assisted living facility and such ancillary
uses as are permitted by law and may be necessary
in connection therewith or incidental thereto.
"LOAN DOCUMENTS" shall mean the Loan
Application, the Loan Agreement, the Note, this
Deed of Trust, the Assignment of Licenses and
Permits, the Assignment of Rents and Leases, the
Conditional Assignment of Management Contract, the
Operating Agreement, the Security Agreements, the
Guaranties, the Loan Disbursing Agreement,
Borrowers Counsel's Opinion, each Consent of
Design Professional, each Consent of Contractor,
and all other Documents, instruments and
agreements now existing or hereafter entered into
by Grantor or any Guarantor with or for the
benefit of Beneficiary in relation to the Loan, as
the same may be amended from time to time,
including all Documents evidencing the authority
and capacity of Grantor and Guarantor to
consummate the transactions contemplated by the
Loan Agreement.
"MEDICAID" shall have the meaning ascribed to
such term in the Operating Agreement.
"MEDICARE" shall have the meaning ascribed to
such term in the Operating Agreement.
"OPERATING AGREEMENT" shall mean that certain
Washington Assisted Living Facilities Operating
and Licensing Agreement dated of even date
herewith executed by Grantor and Beneficiary.
"PERMITS" shall mean collectively, all
permits, licenses, approvals, variances,
permissive uses, accreditations, certificates,
certifications, consents, .agreements, contracts,
contract rights, franchises, interim licenses,
permits and other authorizations of every nature
whatsoever required by, or issued under,
applicable Governmental Requirements benefiting,
relating or affecting the Project or the
construction development, maintenance, management,
use or operation thereof or the operation of any
programs or services in conjunction with the
Project and all renewals, replacements and
substitutions therefor, now or hereafter required
or issued by any Governmental Authority,
Accreditation Body or Third Party Payor, or
maintained or used in conjunction with the Project
by any member of the Borrowing Group, or entered
into in conjunction with the Project by any member
of the Borrowing Group with any Person.
8
<PAGE>
"PERMITTED ENCUMBRANCES" shall mean (i) the
liens and security interests of Beneficiary
arising under this Deed of Trust and the other
Loan Documents; (ii) such matters as are expressly
stated as exceptions to title in any Title
Insurance Policy accepted by Beneficiary; (iii)
liens for taxes, assessments, or Governmental
charges or levies not yet due and payable, or
being contested in good faith by appropriate
proceedings promptly initiated and diligently
conducted, provided that a reserve or other
appropriate provision as may be required by GAAP
shall have been made therefor and no foreclosure,
distraint, sale or other similar proceedings shall
have been commenced and any additional
requirements with respect thereto imposed by the
Loan Documents have been satisfied; (iv) Resident
Agreements on a form previously approved by
Beneficiary and other residency agreements that
are acceptable to Beneficiary; and (v) such other
matters affecting the Mortgaged Property as
Beneficiary may accept in writing from time to
time in Beneficiary's sole discretion.
"PERSON" shall mean any individual, sole
proprietorship, partnership, joint venture, trust,
unincorporated organization, association,
corporation, institution, entity, party or
government (whether territorial, national,
federal, state, county, city, municipal or
otherwise, including, without limitation, any
instrumentality, division, agency, body or
department thereof).
"PROJECT" shall mean the acquisition of the
Land and the development, construction and
operation of a one hundred (100) unit Assisted
Living Facility thereon, including assisted living
residences and related amenities including
activity lounges, dining facilities, a library and
a barber/beauty salon. All references to the term
Project shall be deemed to include the Mortgaged
Property.
"PROVIDER AGREEMENT" shall have the meaning
ascribed to such term in the Operating Agreement.
"RESIDENT AGREEMENTS" shall mean all
contracts, agreements and consents executed by or
on behalf of any resident or other Person seeking
services at the Project, including without
limitation assignments of benefits and guarantees.
Resident Agreements shall include all agreements
pursuant to which Persons are granted the right to
reside or remain in the Project for any period of
time.
"SUBSTANCES" shall mean all substances which
are regulated by Environmental Laws or other
Governmental Requirements as to use, generation,
collection, storage, treatment or disposal and
include, without limitation, petroleum and
petroleum products (excluding a small quantity of
gasoline used in maintenance equipment on the
Mortgaged Property), flammable explosives,
radioactive materials (excluding radioactive
materials in smoke detectors), polychlorinated
biphenyl, asbestos in any form that is or could
become friable, hazardous waste , toxic or
hazardous substances or other related materials
whether in the form of chemical, element
compound, solution mixture or otherwise, including
but not limited to, those materials defined as
"hazardous substances," "extremely hazardous
substances," "hazardous chemicals," "toxic waste"
"toxic materials," "hazardous materials," "toxic
substances," "toxic chemicals," "air pollutants,"
"toxic pollutants," "hazardous wastes," "extremely
hazardous waste," or "restricted hazardous waste"
by Environmental Laws.
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"THIRD PARTY PAYORS" shall have the meaning
ascribed to such term in the Operating Agreement.
ARTICLE II
COVENANTS, AGREEMENTS, REPRESENTATIONS
AND WARRANTIES OF GRANTOR
2.1 TITLE TO MORTGAGED PROPERTY. Grantor
represents and warrants to Beneficiary that at the
time of the execution and delivery of this Deed of
Trust it has good title to all of the Mortgaged
Property described in the granting clauses of this
Grantor as being presently granted, assigned,
conveyed and transferred hereunder. Grantor hereby
warrants generally and shall defend the title to
the Mortgaged Property, and every part thereof,
whether now owned or hereafter acquired, unto
Trustee, its successors and assigns, against all
claims and demands by any Person whatsoever,
subject only to the Permitted Encumbrances.
Grantor covenants that Grantor shall comply with
all the terms, covenants and conditions of all
agreements and instruments, recorded and
unrecorded, affecting the Mortgaged Property,
including all Permitted Encumbrances.
2.2 GRANTOR.
2.2.1 SINGLE ASSET ENTITY. Grantor shall
own only the Mortgaged Property as its sole asset
and shall not own or operate any other real or
personal property other than the Mortgaged
Property, shall not operate or conduct any
business other than the operation of the Mortgaged
Property, and shall not incur any liability or
obligation other than those incurred in connection
with the ownership and operation of the Mortgaged
Property.
2.2.2 NO OTHER NAME. Grantor has never
used any other name (including a trade name) other
than the name set forth in the first paragraph of
this Deed of Trust, and Grantor has not changed
its identity or partnership or corporate
structure, as applicable, so as to make the use of
Grantors name as set forth in the first paragraph
of this Deed of Trust in a filed financing
statement materially misleading.
2.3 FURTHER ASSURANCES.
2.3.1 ASSURANCES. At any and all times
Grantor shall furnish and record all and every
such further assurances as may be requisite or as
Beneficiary shall reasonably require for the
better assuring and confirming unto Trustee and/or
Beneficiary of the estate and property hereby
granted, assigned, conveyed or transferred, or
intended so to be whether now owned or hereafter
acquired, and Grantor shall bear all expenses,
charges and taxes in connection therewith.
2.3.2 AMENDMENTS TO FINANCIAL
STATEMENTS. If, at any time, any of the
information contained in any financing statement
filed in connection with the security interests
created by this Deed of Trust, including without
limitation, the description of the Collateral,
shall change in any manner so as to cause such
financing statement to become misleading in any
material respect or to impair the perfection of
the security interests intended to be created by
this Deed of Trust, then Grantor shall
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immediately advise Beneficiary of such change and,
upon Beneficiary's request, Grantor shall promptly
prepare any amendments to any affected financing
statement necessary in order to protect and
continue the perfection of the security interest
intended to be created thereby, and will obtain
the signatures of the debtor and secured party to
such amendment, and file the same in all offices
where such amendment is required to be filed in
order to protect and continue the perfection of
the security interest intended to be created
thereby. Grantor shall prepare, have executed and
file (and hereby irrevocably constitutes and
appoints Beneficiary as its attorney-in-fact to
prepare, execute and file) any amendments to the
financing statements filed with respect to the
security interests created by this Deed of Trust
in such form as Beneficiary may require in order
to continue the perfection of such security
interests. Grantor shall pay all costs and
expenses incurred in connection with the
performance of its obligations set forth in this
Section.
2.4 CHANGE IN TAX LAW. In the event of the
passage of any law after the date of this Deed of
Trust, which law changes in any way the laws for
the taxation of mortgages, deeds of trust or debts
secured by mortgages or deeds of trust, or the
manner of collection of any such taxation so as to
affect this Deed of Trust, Beneficiary may give
thirty (30) days' written notice to Grantor
requiring the payment of the Indebtedness secured
hereby. If such notice be given, the Indebtedness
secured hereby shall become due and payable at the
expiration of said thirty (30) days; provided
however, that such requirement of payment shall be
ineffective if Grantor is permitted by law to pay
the whole of such tax in addition to all other
payments required hereunder, without any penalty
or charge thereby accruing to Beneficiary, and if
Grantor expressly assumes in writing the
obligation to pay to Beneficiary an amount equal
to, and in fact pays the amount of, such tax to
Beneficiary prior to the date upon which such tax
is due and payable by Beneficiary.
2.5 MAINTENANCE AND CONTINUED OWNERSHIP OF
MORTGAGED PROPERTY.
2.5.1 REPAIR. Grantor (a) shall repair,
restore, replace or rebuild any part of the
Mortgaged Property that is damaged or destroyed by
casualty or the remainder of the Mortgaged
Property after a taking by eminent domain
proceedings whether or not covered by insurance or
award; (b) shall keep the Mortgaged Property in
good order, condition and repair, and shall not
commit, permit or suffer any waste thereof; (c)
shall make all needful and commercially reasonable
renewals, replacements and additions of and to the
same and shall permit Beneficiary or its designee
to enter upon and inspect the Mortgaged Property
at any time or times; (d) shall not alter or tear
down the Improvements on or to be made on the Land
or change them nor permit them to be torn down or
changed, without the written consent of
Beneficiary; and (e) shall not make or permit
residents, tenants or others to make any
improvements to or on the Mortgaged Property,
without the written consent of Beneficiary.
2.5.2 NO IMPAIRMENT. Grantor shall not
suffer any act to be done or any conditions to
exist on the Mortgaged Property or any part
thereof or any thing or article to be brought
thereon (a) which may cause structural injury to
the Improvements; or (b) which would cause the
value or usefulness of the Mortgaged Property or
any part thereof to diminish (ordinary wear and
tear excepted); or (c) which may be dangerous,
unless safeguarded as required by law; or (d)
which may in fact or in law, constitute a
nuisance, public or private; or (e) which may void
or make voidable any insurance then
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in force or required by the terms of the Operating
Agreement and other Loan Documents to be in force.
2.5.3 COMPLIANCE WITH GOVERNMENTAL
REQUIREMENTS. Grantor shall observe and comply
with all conditions and requirements necessary to
obtain preserve and extend any and all Permits and
shall promptly and faithfully comply with and obey
all other Governmental Requirements with respect
to the Mortgaged Property; provided, however,
nothing herein or in any of the other Loan
Documents shall be construed to require Grantor to
participate in or, if at any time during the term
of the Loan Grantor elects to participate in, to
continue to participate Medicare or Medicaid.
2.5.4 NO TRANSFER. It is understood and
agreed by Grantor that as part of the inducement
of Beneficiary to make the Loan, Beneficiary has
relied upon the creditworthiness and the
reliability and reputation of Grantor. Grantor
shall not sell, abandon, cease to own, lease
(except as authorized herein), assign, transfer,
or dispose of the Mortgaged Properly or any
interest therein or portion thereof (except as
authorized herein) nor permit the sale,
assignment, or transfer of any shares or
partnership interests, as applicable, in Grantor,
without the prior written consent of Beneficiary
other than in the ordinary course of the operation
of the Project for its Intended Use. Any such
sale, conveyance, transfer, pledge, lease or
encumbrance made without Beneficiary's prior
written consent shall constitute an Event of
Default hereunder. Beneficiary's consent may be
withheld in its absolute and sole discretion, or
it may be conditioned upon a number of actions to
be determined in Beneficiary's sole discretion,
including but not limited to a determination of
the transferee's creditworthiness, the payment of
any assumption fee and associated costs and
expenses, and a modification of the Note, this
Deed of Trust, the Loan Agreement or the other
Loan Documents, and any and all terms and
provisions thereof. A contract to deed or an
agreement for deed or an assignment of beneficial
interest in any trust shall constitute a transfer
pursuant to the provisions of this Section. If any
Person should obtain any interest in all or any
part of the Mortgaged Property (without implying
Beneficiary's consent or acquiescence to such
acquisition, which consent is hereby expressly
denied), whether pursuant to execution or
enforcement of any lien, security interest or
other right, equal or subordinate to this Deed of
Trust or the lien and security interests hereof,
such event shall be deemed to be a transfer by
Grantor and unless expressly authorized herein or
approved hereunder, shall be an Event of Default
under this Deed of Trust.
2.6 ENCUMBRANCES.
2.6.1 NO FURTHER ENCUMBRANCES. Grantor
shall keep the Mortgaged Property free from all
liens, claims, and other encumbrances of every
kind except the Permitted Encumbrances and such
other encumbrances as are approved in writing by
Beneficiary. In the event Beneficiary consents to
an encumbrance on the Property, a default under
the terms of any document creating such an
encumbrance shall be an Event of Default
hereunder.
2.6.2 NO TITLE RETENTION. Grantor shall
not, without the prior written permission of
Beneficiary, place any personal property upon the
Mortgaged Property or any part thereof or attach
any fixture that is subject to a title retention
agreement, security agreement, or other
encumbrance, whether said lien or interest is
prior to the legal operation and effect of this
Deed of Trust or subsequent thereto, nor
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shall Grantor place or permit to be placed any
personal property upon the Mortgaged Property or
any part thereof, other than the personal property
of Grantor, of any resident or tenant actually
occupying all or part of the Mortgaged Property
pursuant to a binding Resident Agreement, or of
the Manager pursuant to the Management Contract. .
2.7 RESIDENT AGREEMENTS.
2.7.1 COMPLIANCE WITH RESIDENT
AGREEMENTS. Grantor shall carry out or cause to be
carried out all of the agreements and covenants of
owner or landlord under the Resident Agreements
and not further encumber, assign or permit further
encumbrance or assignment of the owner's or
landlord's interest in such agreements. No
Resident Agreement shall include any space, or
grant to any resident any right or interest in any
area outside of the limits of the Mortgaged
Property and no Resident Agreement shall obligate
the owner or landlord thereunder to provide
services outside of the Mortgaged Property, except
as otherwise agreed by Beneficiary, which approval
may be evidenced by Beneficiary's approval of a
form of Resident Agreement as provided in the Loan
Agreement. Upon demand of Beneficiary, Grantor
shall furnish Beneficiary with an executed copy of
each Resident Agreement immediately upon its
execution. All Resident Agreements shall be
written on the standard form accepted by
Beneficiary, with only such changes as Beneficiary
shall have approved in writing or pursuant to
agreements otherwise approved by Beneficiary.
2.7.2 ASSIGNMENT OF RESIDENT AGREEMENTS.
Grantor hereby assigns and transfers to
Beneficiary all Resident Agreements, subleases,
rents, issues and profits of the Mortgaged
Property. Grantor hereby irrevocable appoints
Beneficiary its true and lawful attorney-in-fact,
at the option of Beneficiary, at any time and from
time to time, to demand, receive and enforce
payment, give receipts, releases and
satisfactions, and to sue, in the name of Grantor
or Beneficiary, for all such rents, issues and
profits. Grantor, however, shall have the right to
collect such rents, issues and profits (but not
more than one (1) month in advance) prior to or at
any time there is not an Event of Default under
this Deed of Trust. The assignment of Resident
Agreements, subleases, rents, issues and profits
of the Mortgaged Property in this Section is
intended to operate as an absolute assignment, not
merely the passing of a security interest, to the
fullest extend permissible by Washington law. If
required by Beneficiary, Grantor will specifically
assign to Beneficiary all such Resident Agreements
whether now existing or hereafter created.
2.7.3 COLLECTION UPON DEFAULT.
Beneficiary may, upon any Event of Default under
this Deed or Trust, and at any time thereafter
without notice unless such Event of Default has
been cured to Beneficiary's satisfaction and
Beneficiary has not elected to exercise its
remedies in accordance with Article IV hereof, and
either in person, by agent or by a receiver
appointed by the court, and without regard to the
adequacy of any security for the Indebtedness
hereby secured, enter upon and take possession of
the Mortgaged Property, or any part thereof. Upon
any Event of Default, Beneficiary may, in its own
name, sue for or otherwise collect such rents,
issues, and profits, including those past due and
unpaid, and apply same less costs and expenses of
operation and collection, including litigation
expenses, court costs, costs of suit, cost of an
abstract of title and other title evidence and
attorneys' fees, and paralegal charges, including
all appellate proceedings and disbursements, upon
any Indebtedness secured hereby and in such order
as Beneficiary may determine. The collection of
such rents,
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issues and profits or the entering upon and taking
possession of the Mortgaged Property, or
application thereof as aforesaid, shall not cure
or waive any default or notice of default
hereunder or invalidate any act done in response
to such default or pursuant to such notice of
default, or otherwise invalidate, impair, nullify,
waive or extinguish the rights and protections
afforded Beneficiary under the other provisions of
this Deed of Trust or the provisions of any of the
other Loan Documents. Furthermore, upon the
occurrence of an Event of Default, Beneficiary may
apply for a court order requiring Grantor to
deposit all rents in the court registry. Grantor
hereby consents to entry of such an order upon the
sworn ex parte motion of Beneficiary that an Event
of Default has occurred hereunder.
2.7.4 MODIFICATION OF RESIDENT
AGREEMENTS. Other than may be reasonably necessary
in the ordinary course of Grantor's business or as
required by applicable Governmental Requirements,
Grantor will not modify, surrender, or terminate,
either orally or in writing, any Resident
Agreement now existing or hereafter created upon
the Mortgaged Property, nor will Grantor permit an
assignment or sublease thereof without the express
prior written consent of Beneficiary, which
consent shall not be unreasonably withheld.
2.7.5 ASSIGNMENT OF BANKRUPT AWARDS.
Grantor hereby assigns to Beneficiary any award
made hereafter to Grantor in any bankruptcy,
insolvency or reorganization proceeding (whether
federal or state) involving any of the residents
of the Project and all payments by any tenant in
lieu of rent pursuant to or as a result of such
proceedings.
2.7.6 LIMITATION OF LIABILITY UNDER
RESIDENT AGREEMENTS. Beneficiary shall not be
obligated to perform or discharge any obligation
or duty to be performed or discharged by Grantor
under any Resident Agreement; and Grantor hereby
agrees to indemnify Beneficiary for and to save
Beneficiary harmless from, any and all liability
arising from any Resident Agreement, or this
assignment thereof, except liability resulting
solely from the gross negligence, willful
misconduct or fraud of Beneficiary or
Beneficiary's officers, directors, employees or
duly authorized agents, and this assignment shall
not place the responsibility for the control,
care, management or repair of the Mortgaged
Properly upon Beneficiary, nor make Beneficiary
liable for any negligence in the management,
operation, upkeep, repair or control of the
Mortgaged Property resulting in loss or injury or
death to any tenant, agent, guest, or stranger.
2.8 CONTRACTS.
2.8.1 COMPLIANCE WITH CONTRACTS.
Grantor shall carry out or cause to be carried out
all of its agreements and covenants under and
relating to all Contracts and not permit a lien or
other encumbrance superior to such Contracts other
than this Deed of Trust and the Permitted
Encumbrances. Upon demand of Beneficiary, Grantor
shall furnish Beneficiary an executed copy of each
Contract immediately upon its execution.
2.8.2 ASSIGNMENT OF CONTRACTS. Grantor
hereby assigns and transfers to Beneficiary all
Contracts and all rents, issues, profits and other
revenues generated from such Contracts. Grantor
hereby irrevocably appoints Beneficiary its true
and lawful attorney-in-fact, at the option of
Beneficiary, at any time and from time to
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time, to demand, receive and enforce payment, give
receipts, releases and satisfactions, and to sue,
in the name of Grantor or Beneficiary, for or
under all such Contracts. Grantor, however, shall
have the right to collect such issues and profits
prior to or at any time there is not an Event of
Default under this Deed of Trust. The assignment
of Contracts, rents, issues and profits of the
Mortgaged Property in this Section is intended to
operate as an absolute assignment, not merely the
passing of a security interest, to the fullest
extent permissible by Washington law. If required
by Beneficiary, Grantor will specifically assign
to Beneficiary all Contracts whether now existing
or hereafter created.
2.8.3 COLLECTION UPON DEFAULT.
Beneficiary may, upon any Event of Default under
this Deed of Trust, and at any time thereafter
without notice unless such Event of Default has
been cured to Beneficiary's satisfaction and
Beneficiary has not elected to exercise its
remedies in accordance with Article IV hereof in
its own name, sue for or otherwise collect all
revenues generated by all Contracts ("Revenues"),
including those past due and unpaid, and apply
same less costs and expenses of operation and
collection, including litigation expenses, court
costs, costs of suit, cost of an abstract of title
and other title evidence and attorneys' fees, and
paralegal charges, including all appellate
proceedings and disbursements, upon any
Indebtedness secured hereby and in such order as
Beneficiary may determine. The collection of such
Revenues or application thereof as aforesaid,
shall not cure or waive any default or notice of
default hereunder or invalidate any act done in
response to such default or pursuant to such
notice of default, or otherwise invalidate,
impair, nullify, waive or extinguish the rights
and protections afforded Beneficiary under
Washington law. Furthermore, upon the occurrence
of an Event of Default, Beneficiary may apply for
a court order requiring Grantor to deposit all
Revenues in the court registry. Grantor hereby
consents to entry of such an order upon the sworn
ex parte motion of Beneficiary that an Event of
Default has occurred hereunder.
2.8.4 LIMITATION OF LIABILITY UNDER
CONTRACTS. Beneficiary shall not be obligated to
perform or discharge any obligation or duty to be
performed or discharged by Grantor under any
Contract and Grantor hereby agrees to indemnify
Beneficiary for and to save Beneficiary harmless
from, any and all liability arising from any
Contract, or this assignment thereof, except
liability resulting solely from the gross
negligence, willful misconduct or fraud of
Beneficiary or Beneficiary's officers, directors,
employees or duly authorized agents, and this
assignment shall not place the responsibility for
the control, care, management or repair of the
Mortgaged Property upon Beneficiary nor make
Beneficiary liable for any negligence in the
management, operation upkeep, repair or control of
the Mortgaged Property resulting in loss or injury
or death to any resident, tenant, agent, guest, or
stranger.
2.9 ENVIRONMENTAL MATTERS.
2.9.1 NO SUBSTANCES PRESENT. Grantor
hereby represents and warrants to Beneficiary
that, to the best of its knowledge, after a
physical inspection of the Mortgaged Property and
all appropriate investigation except as disclosed
in the Environmental Report, (a) there are not now
and have never been any Substances located on or
near the Mortgaged Property other than those being
used in compliance with all applicable
Environmental Laws, and (b) the Mortgaged Properly
is not now being used nor has it ever been used in
the past for any activities involving the use,
generation, collection, storage, treatment, or
disposal of any Substances. Grantor will not place
or
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permit to be placed any Substances on or near the
Mortgaged Property except for those Substances
that (i) are typically used in connection with the
maintenance and operation of an Assisted Living
Facility, provided the same are in appropriate
quantities to ensure compliance with all
applicable Environmental Laws and other
Governmental Requirements, (ii) are stored, used,
and disposed of properly, or (iii) are approved in
writing by Beneficiary.
2.9.2 ACTING UPON PRESENCE OF
SUBSTANCES. Grantor hereby covenants and agrees
that, if at any time (a) Substances are spilled,
emitted, disposed, or leaked on, in, or under the
Mortgaged Property in any amount in excess of that
permitted under applicable Environmental Laws, or
(b) it is determined that there are Substances
located on, in, or under the Mortgaged Property
other than those of which Beneficiary has approved
in writing or which are permitted to be used on
the Mortgaged Property without Beneficiary's
written approval pursuant to subsection 2.9.1 of
this Section, Grantor shall immediately notify
Beneficiary and any Governmental Authorities or
private Persons required by law to be notified,
and shall, within thirty (30) days thereafter or
sooner if required by Beneficiary or any
Governmental Authority, take or cause to be taken,
at Grantor's sole expense, such action as may be
required by Beneficiary or any Governmental
Authority. If Grantor shall fail to take such
action, Beneficiary may make advances or payments
towards performance or satisfaction of the same
but shall be under no obligation so to do; and all
sums so advanced or paid, including all sums
advanced or paid in connection with any
investigation or judicial or administrative
proceeding relating thereto, including, without
limitation, reasonable attorneys' fees, expert
fees, fines, or other penalty payments, shall be
at once repayable by Grantor and shall bear
interest at the Default Rate, from the date
advanced or paid by Beneficiary until the date
paid by Grantor to Beneficiary, and all sums so
advanced or paid, with interest as aforesaid,
shall become a part of the Indebtedness secured
hereby. Notwithstanding the foregoing, nothing
contained herein shall be construed to prevent
Grantor from seeking reimbursement for, or other
compensation for, the existence of any Substances
on, in, or under the Mortgaged Property from any
Person responsible therefor, provided Grantor's
obligations to Beneficiary hereunder shall not be
conditioned or dependent upon any such
reimbursement or compensation.
2.9.3 ENVIRONMENTAL AUDITS. Grantor,
promptly upon the written request of Beneficiary
from time to time, shall provide Beneficiary, at
Grantor's expense, from time to time with an
environmental site assessment or environmental
audit report, or an update of such an assessment
or report, all in scope, form, and content
satisfactory to Beneficiary.
2.9.4 ENVIRONMENTAL NOTICES. Grantor
shall furnish to Beneficiary duplicate copies of
all correspondence, notices, or reports it
receives from any Governmental Authority or any
other Person regarding environmental matters or
Substances at or near the Mortgaged Properly,
immediately upon Grantor's receipt thereof.
2.9.5 CONDITION OF PROPERTY. Grantor
hereby represents and warrants that, to the best
of its knowledge, after a physical inspection of
the Mortgaged Property and all appropriate
investigation except as disclosed in the
Environmental Report and on the Survey, there are
no wells or septic tanks on the Mortgaged Property
serving any other property; no wells or septic
tanks on other property serving the
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Mortgaged Property; no burial grounds,
archeological sites, or habitats of endangered or
threatened species on the Mortgaged Property; and
that no part of the Mortgaged Property is subject
to tidal waters; has been designated as wetlands
by any Governmental Authority; or is located in a
special flood hazard area.
2.9.6 ENVIRONMENTAL INDEMNITY.
2.9.6.1 Grantor shall at all times
indemnify and hold harmless Beneficiary and
Trustee against and from any and all claims,
suits, actions, debts, damages, costs, losses,
obligations, judgments, charges, and expenses, of
any nature whatsoever suffered or incurred by
Beneficiary or Trustee, whether as beneficiary or
trustee of this Deed of Trust, as Beneficiary in
possession, or as successor-in-interest to Grantor
by foreclosure deed or deed in lieu of
foreclosure, under or on account of the
Environmental Laws or any similar laws or
regulations, including the assertion of any lien
thereunder, with respect to:
(a) any discharge of
Substances, the threat of a discharge of
any Substances, or the presence of any
Substances affecting the Mortgaged
Property whether or not the same
originates or emanates from the Mortgaged
Property or any contiguous real estate
including any loss of value of the
Mortgaged Property as a result of any of
the foregoing;
(b) any costs of removal or
remedial action incurred by any state
or the United States Government or any
costs incurred by any other person or
damages from injury to, destruction of,
or loss of natural resources, including
reasonable costs of assessing such
injury, destruction or loss incurred
pursuant to any Environmental Laws;
(c) liability for personal
injury or property damage arising under
any statutory or common law tort theory,
including, without limitation damages
assessed for the maintenance of a public
or private nuisance or for the carrying
on of an abnormally dangerous activity
at or near the Mortgaged Property;
and/or
(d) any other environmental
matter affecting the Property within the
jurisdiction of the Environmental
Protection Agency or any other
Governmental Authority.
2.9.6.2 Grantor's obligations under
this Section shall arise upon the discovery of the
presence of any Substance, whether or not the
Environmental Protection Agency or any other
Governmental Authority has taken or threatened any
action in connection with the presence of any
Substances.
2.9.7 CONTROLLING AGREEMENT. Grantor
acknowledges that Beneficiary has agreed to make
the Loan in reliance upon Grantor's
representations, warranties and covenants in this
Section 2.9. Grantor further acknowledges that in
addition to the representations, warranties and
covenants contained in this Section 2.9, Grantor
has made additional representations, warranties
and covenants with respect to
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Substances and Environmental Laws in the
Environmental Indemnity Agreement dated of even
date herewith by and among Grantor, Emeritus and
Beneficiary, and that such additional
representations, warranties and covenants are
intended to be in addition to, and not in lieu of
the representations, warranties and covenants set
forth herein. Moreover, although Grantor and
Beneficiary intend for all such representations,
warranties and covenants regarding Substances and
Environmental Laws to be read together and to be
consistent, to the extent of any inconsistencies
between the representations, warranties and
covenants set forth in this Deed of Trust
regarding Substances and Environmental Laws and
those set forth in the Environmental Indemnity
Agreement, the representations, warranties and
covenants set forth in the Environmental Indemnity
Agreement shall govern All of the representations,
warranties, covenants and indemnities of this
Section 2.9 shall survive the repayment of the
Note and/or the release of the operation and
effect of this Deed of Trust and shall survive the
transfer of any or all right, title and interest
in and to the Mortgaged Property by Grantor to any
party, whether or not affiliated with Grantor.
2.10 ADDITIONAL ADVANCES. If Grantor shall
fail to perform any of the covenants or satisfy
any of the conditions contained herein,
Beneficiary may make advances or payments towards
performance or satisfaction of the same but shall
be under no obligation so to do; and all sums so
advanced or paid shall be at once repayable by
Grantor and shall bear interest at the Default
Rate from the date advanced until the date paid,
and all sums so advanced or paid, with interest as
aforesaid, shall become a part of the Indebtedness
secured hereby; but no such advance or payment
shall relieve Grantor from any default or Event of
Default hereunder. If Grantor shall fail to
perform any of the covenants or satisfy any of the
conditions contained herein, Beneficiary may use
any funds of Grantor, including any funds held as
Tax Deposits or Insurance Deposits under the
Operating Agreement, towards performance or
satisfaction of the same but shall be under no
obligation so to do; and no such use of funds
shall relieve Grantor from any default hereunder,
including the obligation to make sufficient Tax
Deposits and Insurance Deposits as required by the
Operating Agreement.
2.11 CONDEMNATION AWARDS. Should the
Mortgaged Property or any part thereof or interest
therein be taken or damaged by reason of any
public use or improvement or by condemnation or
eminent domain proceedings or in any other manner,
or should the grade of any street be altered as a
result of condemnation or eminent domain
proceedings or otherwise, all or such part of any
award or proceeds derived therefrom as Beneficiary
in its sole discretion may determine in writing
shall be paid to Beneficiary and applied to the
payment of the Indebtedness secured hereby (in
such manner or combination thereof including
inverse order of maturity of installments of
principal, if any, as Beneficiary may, iii its
sole discretion, elect) and all such proceeds are
hereby assigned to Beneficiary; provided however,
should Beneficiary notify Grantor that Grantor is
obligated to repair or replace any portion of the
Mortgaged Property damaged or taken in such
condemnation proceeding, Beneficiary shall make
the proceeds of such condemnation actually
received by Beneficiary available to Grantor for
such purposes. Any such condemnation proceeds
shall be advanced to Grantor in accordance with
the provisions of the Loan Agreement governing
Advances, following receipt and approval by
Beneficiary of such plans, specifications,
construction contracts, contractors, suppliers and
similar matters as Beneficiary deems reasonably
necessary to ensure that the necessary repair and
replacement is completed in accordance with the
requirements of the Loan Documents and that
sufficient funds are available for such purpose.
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2.12 COSTS OF DEFENDING AND ENFORCING LIEN.
Grantor shall pay all costs, charges and expenses,
including appraisals, title examinations, and
reasonable attorney's fees, which Beneficiary may
incur in defending or enforcing the validity or
priority of the legal operation and effect of this
Deed of Trust, or-any term, covenant or condition
hereof, or in collecting any sum secured hereby,
or in protecting the security of Beneficiary,
including without limitation being a party in any
condemnation, bankruptcy or administrative
proceedings, or, if an Event of Default shall
occur, in administering and executing the trust
hereby created and performing its powers,
privileges and duties hereunder. Beneficiary may
make advances or payments for such purposes but
all advances or payments made by Beneficiary for
such purposes shall be repayable immediately by
Grantor and shall bear interest at the Default
Rate from the date the same shall become due and
payable until the date paid, and any such sum or
sums with interest as aforesaid shall become a
part of the indebtedness secured hereby; but no
such advance or payment shall relieve Grantor from
any default hereunder.
2. 13 MODIFICATION OF TERMS; NO NOVATION.
Beneficiary may at any time, and from time to
time, extend the time for payment of the
Indebtedness secured hereby, or any part thereof,
or interest thereon, and waive, modify or amend
any of the terms, covenants or conditions in the
Note, in this Deed of Trust or in any other paper
or document executed in connection with the Loan,
in whole or in part, either at the request of
Grantor or of any person having an interest in the
Mortgaged Properly, accept one or more notes in
replacement or substitution of the Note, consent
to the release of all or any part of the Mortgaged
Property from the legal operation and effect of
this Deed of Trust, take or release other
security, release any party primarily or
secondarily liable on the Note or hereunder or on
such other security, grant extensions, renewals or
indulgences therein or herein, apply to the
payment of the principal and interest and premium,
if any, of the Indebtedness secured hereby any
part or all of the proceeds obtained by sale or
otherwise as provided herein without resort or
regard to other security, or resort to any one or
more of the securities or remedies which
Beneficiary may have and which in its absolute
discretion it may pursue for the payment of all or
any part of the Indebtedness secured hereby, in
such order and in such manner as it may determine,
all without in any way releasing Grantor or any
party secondarily liable from any of the terms,
covenants or conditions of the Note, this Deed of
Trust, or other paper or document executed in
connection with the Loan, or relieving the
unreleased Mortgaged Property from the legal
operation and effect of this Deed of Trust for all
amounts owing under the Note and this Deed of
Trust. Beneficiary and Grantor recognize and agree
that the provisions of this Deed of Trust, the
Note, and the other Loan Documents may be modified
by agreement between Beneficiary and Grantor or
their successors or assigns at any time before or
after default (which modification may involve
increasing the rate of interest in the Note,
agreeing that other charges should be paid, or
modifying any other provision in any such
instruments). Beneficiary may extend the time of
payment, may agree to alter the terms of payment
of the Indebtedness and may grant partial releases
of any portion of the property included herein. No
such modification by Beneficiary and Grantor nor
any such action by Beneficiary referred to above
shall be a substitution or novation of the
original Indebtedness or instruments evidencing or
securing the same, but shall be considered a
possible occurrence within the original
contemplation of the parties.
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2.14 GOVERNMENTAL ACTION ADVERSELY AFFECTING
MORTGAGED PROPERTY. Grantor agrees that in the
event of the enactment of any law or ordinance,
the promulgation of any zoning or other
Governmental regulation, or the rendition of any
judicial decree restricting or affecting the use
of the Mortgaged Property or rezoning the area
wherein the same shall be situate which
Beneficiary reasonably believes adversely affects
the Mortgaged Property or the ability of Grantor
to maintain and operate the Project for its
Intended Use, Beneficiary may, upon at least sixty
(60) days' written notice to Grantor, require
payment of the Indebtedness secured hereby at such
time as may be stipulated in such notice, and the
whole of the Indebtedness secured hereby, shall
thereupon become due and payable.
2.15 USE OF MORTGAGED PROPERTY. Grantor shall
at all times operate the Mortgaged Property for is
Intended Use in accordance with the requirements
of the Operating Agreement.
ARTICLE III
EVENTS OF DEFAULT
The occurrence of one of more of the
following events (herein called an "Event of
Default") all constitute and be an Event of
Default:
(a) Any sale, lease, exchange, assignment,
conveyance, transfer of possession or other
transfer or disposition of the Mortgaged Property
or any portion thereof or interest therein other
than as expressly permitted in the Loan Documents
or in the ordinary course of the operation of the
Project for its Intended Use, regardless of
whether such sale, lease or other disposition
shall diminish the value of the security for the
Indebtedness, increase the likelihood of the
occurrence of some other Event of Default,
increase the likelihood that Beneficiary will have
to resort to any security for payment of the
Indebtedness or add or remove the liability of any
Person for payment or performance of the
Indebtedness; or
(b) If title of Grantor to any or all of the
Mortgaged Property or the status of this Deed of
Trust as a first and prior lien and security
interest on the Mortgaged Property shall be
challenged or endangered by any Person whatsoever,
and Grantor shall fail to cure the same upon
demand by Beneficiary; or
(c) The occurrence of an event of default
(regardless of how such default may be defined or
described) under the Note or any of the other Loan
Documents and the expiration of any cure period
expressly provided with respect thereto.
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ARTICLE IV
REMEDIES
4.1 ACCELERATION. If one or more of the
Events of Default shall occur, Beneficiary may, at
its option, declare the entire unpaid principal
amount of the Note rif not already due and
payable) to be due and payable immediately, by
delivery to Trustee of written declaration of
default and demand for sale and written notice of
default and of election to cause the Mortgaged
Property to be sold, which notice Trustee shall
cause to be duly filed for record. Beneficiary
shall also deposit with the Trustee this Deed of
Trust, the Note and all documents evidencing the
expenditures secured hereby. If Beneficiary
exercises Beneficiary's option to declare the
entire unpaid principal amount of the Note to be
due and payable, Grantor covenants to pay
immediately the full amount of the Indebtedness
secured hereby even though foreclosure or other
court proceedings to collect the Indebtedness have
not been commenced. Acceleration of maturity, once
declared by Beneficiary, may at the option of
Beneficiary, be rescinded by written
acknowledgment to that effect by Beneficiary, but
the tender and acceptance of partial payments
alone shall not rescind or affect in any way such
acceleration of maturity.
4.2 POSSESSION OF MORTGAGED PROPERTY. If
one or more of the Events of Default shall occur,
Grantor shall, upon demand, forthwith surrender
the actual possession, and, to the extent
permitted by law, Beneficiary, by such officers or
agents as it may appoint, may enter and take
possession of the Mortgaged Property and may
exclude Grantor, its agents and servants, wholly
therefrom, and having and holding the same, may
use, operate, manage and control the Mortgaged
Property or any part thereof, and upon every such
entry Beneficiary, at the expense of Grantor and
of the Mortgaged Property, from time to time may
make all necessary or proper repairs, renewals,
replacements and useful or required alterations,
additions, betterments and improvements to and
upon the Property as to it may seem judicious and
pay all costs and expenses of so taking, holding
and managing the same, including reasonable
compensation to its employees and other agents
(including, without limitation, attorneys fees and
management and rental commissions) and any taxes,
assessments and other charges prior to the legal
operation and effect of this Deed of Trust which
Beneficiary may deem it wise or desirable to pay,
and in such case Beneficiary shall have the right
to manage the Mortgaged Property and to carry on
the business and exercise all rights and powers of
Grantor, either in the name of Grantor, or
otherwise, as Beneficiary shall deem advisable;
and Beneficiary shall be entitled to collect and
receive all rents thereof and therefrom. The
taking of possession and collection of rents by
Beneficiary shall not be construed to be an
affirmation of any Resident Agreement or
acceptance of attornment with respect to any
Resident Agreement covering all or any portion of
the Mortgaged Property. After deducting the
expenses of operating the Mortgaged Properly and
of conducting the business thereof, and of all
repairs, maintenance, renewals, replacements,
alterations, additions, betterments, improvements
and all payments which it may be required or may
elect to make for taxes or other proper charges on
the Mortgaged Property, or any part thereof as
well as just and reasonable compensation for all
its employees and other agents (including, without
limitation, attorney's fees and management and
rental commissions) engaged and employed, the
moneys arising as aforesaid shall be applied to
the Indebtedness secured hereby. Whenever all that
is due upon the principal of and interest on the
Note and under any of the terms of this Deed of
Trust shall have been paid and all defaults made
good,
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Beneficiary shall surrender possession to Grantor.
The same right of entry, however, shall exist if
any subsequent Event of Default shall occur.
4.3 APPOINTMENT OF A RECEIVER. Until one or
more of the Events of Default shall occur (but not
thereafter), Grantor shall have possession of the
Mortgaged Property and shall have the right to use
and enjoy the same and to receive the rents
thereof and therefrom. If one or more of the
Events of Default shall occur, and without the
requirement of any other showing, Beneficiary
shall be entitled as a matter of right and to the
extent permitted by law, without notice to
Grantor, and without regard to the adequacy of the
security, to the immediate appointment of a
receiver of the Mortgaged Property in an ex parte
proceeding with all such other powers as the court
or courts making such appointment shall confer to
take charge of, manage, preserve, protect,
complete construction of and operate the Mortgaged
Property and any business or businesses located
thereon; to collect rents, issues, profits and
income therefrom from whatever source derived; to
make all necessary and needed repairs to the
Mortgaged Property; to pay all taxes and
assessments against the Mortgaged Property and
insurance premiums for insurance thereon and
thereupon, it being hereby expressly covenanted
and agreed that the court shall forthwith appoint
such receiver with the usual powers and duties in
like cases; and such appointment shall be made by
the court as a matter of strict right to the
Beneficiary, and without reference to the adequacy
or inadequacy of the value of the Mortgaged
Property, or to the solvency or insolvency of
Grantor and after payment of the expense of the
receivership, including reasonable attorney's fees
to Beneficiary's attorney, and after compensation
to the receiver for management and completion of
the Mortgaged Property, to apply the net proceeds
derived therefrom in reduction of the Indebtedness
secured hereby or in such other manner as such
court shall direct. All expenses, fees and
compensation incurred pursuant to a receivership
approved by such court shall be secured by the
lien of this Deed of Trust until paid. Grantor
hereby specifically waives the right to object to
the appointment of a receiver as aforesaid and
hereby consents that such appointment shall be
made as an admitted equity and as a matter of
absolute right to the Beneficiary and that the
same may be done without notice to Grantor or any
other defendant to such suit and without the
requirement of any other showing and without
regard to the adequacy of the security. Grantor
shall deliver to the receiver appointed pursuant
to the provisions of this Section, or to
Beneficiary in the event of entry pursuant to the
terms of the preceding Section, all original
records, books, bank accounts, Resident Agreement,
agreements, security deposits of the residents and
all other materials relating to the operation of
the Mortgaged Property except those, if any, which
Grantor is required to maintain as confidential or
in its possession pursuant to applicable
Governmental Requirements.
4.4 POSSESSION AND DISPOSITION OF PERSONAL
PROPERTY.
4.4.1 ASSEMBLY OF MORTGAGED PROPERTY. If
one or more of the Events of Default shall occur,
Beneficiary may at its discretion require Grantor
to assemble such items of the Mortgaged Property
as may be designated by Beneficiary and make them
available to Beneficiary at a place reasonably
convenient to both parties to be designated by
Beneficiary. Upon the occurrence of an Event of
Default under this Deed of Trust, Beneficiary
shall have the right to take possession of such
items of the Mortgaged Property as Beneficiary may
elect except those, if any, which Grantor is
required to maintain as confidential or in its
possession pursuant to applicable Governmental
Requirements. In taking possession Beneficiary may
proceed without
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judicial process if this can be done without
breach of the peace. Beneficiary shall have the
further right to remove such items of the
Mortgaged Property as it may choose to any
location or locations selected by Beneficiary
except those, if any, which Grantor is required to
maintain as confidential or in its possession
pursuant to applicable Governmental Requirements,
and Grantor shall pay the costs of such removal
and for the storage and protection of such items
immediately upon demand therefor.
4.4.2 SECURITY AGREEMENT This Deed of
Trust shall be construed as a security agreement
and financing statement under the Uniform
Commercial Code as adopted and in force, from time
to time, in the State of Washington, and shall be
operative and effective as such in addition to,
and not in substitution for, any other security
agreement executed by Grantor in connection with
the transaction secured hereby. This Deed of Trust
further constitutes a fixture filing under
Sections 62A9-313 and 62A9-402(6) of the
Washington Uniform Commercial Code, as amended or
recodified from time to time; provided, however
that the execution and/or filing hereof does not
imply that the items of personal property included
in the Mortgaged Property are or are to become
fixtures. The filling hereof as a fixture filing
is intended to protect the parties from
unwarranted assertions by third Persons. Grantor
agrees to and shall, upon the request of
Beneficiary, execute and deliver to Beneficiary,
in form satisfactory to Beneficiary, such
"financing statements," descriptions of property
and such further assurances as Beneficiary, in its
sole discretion, may, from time to time, consider
necessary to create, perfect and preserve the lien
and encumbrance hereof and the security interest
granted herein upon and both the real properly,
the Improvements, and all rights and interest of
Grantor in the Mortgaged Property described
herein. Beneficiary, at the expense of Grantor,
may cause such statements, descriptions and
assurances, and this Deed of Trust to be recorded
and re-recorded, filed and re-filed, at such times
and in such places as may be required or permitted
by law to so create, perfect and preserve the lien
and encumbrance hereof and the security interest
granted herein upon and in all of said Mortgaged
Property. With respect to such Mortgaged Property,
the Beneficiary is a "secured party" and the
Grantor is a "debtor" under the Washington Uniform
Commercial Code with its address being as set
forth in this Deed of Trust. If Beneficiary elects
to proceed under the Washington Uniform Commercial
Code to dispose of some of the Mortgaged Property,
Beneficiary shall give Grantor notice by certified
mail, postage prepaid, return receipt requested,
of the time and place of any public sale of any of
such property, or of the time after which any
private sale or other intended disposition thereof
is to be made by sending notice to Grantor at
least five (5) Business Days before the time of
the sale or other disposition which provisions for
notice Grantor and Beneficiary agree are
reasonable; provided, however, that nothing herein
shall preclude Beneficiary from proceeding as to
all the Mortgaged Property to the maximum extent
permitted by applicable Washington law in
accordance with the rights and remedies of
Beneficiary in respect of the real property.
Notwithstanding any release of any or all of the
property included in the Mortgaged Property which
is deemed "real property", any proceedings to
foreclose this Deed of Trust, or its satisfaction
of record, the terms hereof shall survive as a
security agreement with respect to the security
interest created hereby and referred to above
until the repayment or satisfaction in full of the
obligations of Grantor as are now or hereafter
evidenced by the Note and Loan Agreement.
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4.5 FORECLOSURE SALE.
4.5.1 If one or more of the Events of
Default shall occur, Beneficiary may request that
Trustee sell the Mortgaged Property in accordance
with the Deed of Trust Act of the State of
Washington (RCW Chapter 61.24 as existing now, or
hereafter amended) and the Uniform Commercial Code
of the State of Washington where applicable, at
public auction to the highest bidder for cash at
such time and at such place as are statutorily
prescribed. Grantor acknowledges that there is no
right to an extension of the trustee's sale on
"equitable" or other grounds, and that
Beneficiary's remedies under this Deed of Trust
shall not be affected or impaired by the exercise
of any right of setoff or to collect and apply
rents, profits, insurance proceeds or condemnation
awards. Any person except Trustee may bid at a
Trustee's sale. The Trustee is not obligated to
notify any party hereto of pending sale under any
other deed of trust or of any action or proceeding
in which Grantor, Trustee or Beneficiary shall be
a party, unless such action or proceeding is
brought by the Trustee. If the Mortgaged Property
consists of several known lots or parcels,
Beneficiary may designate the order in which such
parcels shall be sold or offered for sale.
4.5.2 Trustee may postpone sale of all
or any portion of the Mortgaged Property by public
announcement at such time and place of sale, and
from time to time thereafter may postpone such
sale by public announcement at the time fixed by
the preceding postponement.
4.5.3. Without declaring the entire
unpaid principal balance due, Beneficiary may
foreclose only as to the sum past due without
injury to this Deed of Trust or the displacement
or impairment of the remainder of the lien thereof
and at such foreclosure sale the Mortgaged
Property shall be sold subject to all remaining
items of Indebtedness and Beneficiary may again
foreclose in the same manner as often as there may
be any sum past due.
4.5.4 Beneficiary shall have the right
to judicially foreclose this Deed of Trust as a
mortgage. If this Deed of Trust is foreclosed by
judicial procedure, Beneficiary will be entitled
to a judgment which wil1 provide that if the
foreclosure sale proceeds are insufficient to
satisfy the judgment, execution may issue for any
amount by which the unpaid balance of the
obligations secured by this Deed of Trust exceeds
the net sale proceeds payable to Beneficiary,
subject to any limitations with respect thereto
set forth in the Note. In the event Grantor
remains in possession of the Mortgaged Properly
after the Mortgaged Property is sold as provided
above or Beneficiary otherwise becomes entitled to
possession of the Mortgaged Property upon default
of Grantor, Grantor shall become a tenant at will
of Beneficiary or the purchaser of the Mortgaged
Property and shall pay a reasonable rental for use
of the Mortgaged Property while in Grantor's
possession. The purchaser at any foreclosure sale
may (but shall be under no obligation to), during
any redemption period, make such repairs and
alterations to the improvements as may be
appropriate for the proper operation, care,
preservation, and protection thereof pay any taxes
and assessments due during such period; insure the
improvements on the Mortgaged Property against
loss by casualty and itself against liability
arising from its ownership and use of the
Mortgaged Property; and pay liens not extinguished
by the foreclosure and any other amounts relating
to the Mortgaged Property to the extent due during
such redemption period, and all of such expenses
and payments, together with interest thereon from
the date so paid to reimbursement at the rate
provided for any other
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redemption amounts, shall be included in the
amount required to be paid by any person to redeem
the Mortgaged Property.
4.5.5 Beneficiary may exercise all other
remedies available, whether at law or equity, in
such order as Beneficiary may elect. All such
other rights and remedies available to Beneficiary
with respect to this Deed of Trust shall be
cumulative and may be pursued concurrently or
successively. The failure or omission on the part
of Beneficiary to exercise the option for
acceleration of maturity and/or foreclosure
following any default, as aforesaid, or to timely
exercise any other option, right, or remedy
conferred upon the Beneficiary herein, or the
acceptance by Beneficiary of partial payments
hereunder, shall not constitute a waiver of any
such default or the right to exercise any such
option, but such operation shall remain
continuously in force.
4.5.6 Beneficiary may bid and become
the purchaser at any sale under this Deed of
Trust. If Beneficiary is the purchaser at any such
sale, Beneficiary may apply the outstanding
Indebtedness against all or any portion of the
purchase price, including the deposit.
ARTICLE V
MISCELLANEOUS
5.1 TRUSTEE.
5.1.1 ACTIONS OF TRUSTEE. The Trustee
shall be protected in acting upon any notice,
request, consent, demand, statement, note or other
paper or document believed by it to be genuine and
to have been signed by the party or parties
purporting to sign the same. The Trustee shall not
be liable for any error of judgment, nor for any
act done or step taken or omitted, nor for any
mistake of law or fact, nor for anything which it
may do or refrain from doing in good faith nor
generally shall a Trustee have any accountability
hereunder except for its own individual willful
default.
5.1.2 RETENTION OF MONIES. All monies
received by Trustee shall, until used or applied
as herein provided, be held in trust for the
purposes for which they were received, but need
not be segregated in any manner from any other
monies (except to the extent required by law) and
Trustee shall have no liability for interest on
any monies received by it hereunder.
5.1.3 TRUSTEE AS ATTORNEY. The Trustee
may act hereunder and may sell and convey the
Mortgaged Property as herein provided although the
Trustee has been, may now be or may hereafter be,
an attorney or agent of Beneficiary, in respect of
any matter or business whatsoever.
5.1.4 SUCCESSOR TRUSTEE. Trustee may
resign by giving of notice of such resignation in
writing to Beneficiary. If Trustee shall die,
resign or become disqualified from acting in the
execution of this trust or shall fail or refuse to
exercise the same when required by Beneficiary so
to do or if for any reason and without cause
Beneficiary shall prefer to appoint a substitute
trustee to act instead of the original Trustee
named herein, or any prior successor or substitute
trustee, Beneficiary shall have full power to
appoint a substitute trustee and, if preferred,
several substitute trustees in
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succession who shall succeed to all the estates,
rights, powers and duties of the aforenamed
Trustee.
5.1. 5 SUCCESSION INSTRUMENTS. Any new
Trustee appointed pursuant to any of the
provisions hereof shall, without any further act,
deed or conveyance, become vested with all the
estates, property, title, rights, powers,
privileges, discretions, trusts, duties and
obligations of its predecessor or predecessors in
the trust hereunder with like effect as if
originally named as Trustee hereunder but
nevertheless, upon the written request of
Beneficiary or its successor trustee, the Trustee
ceasing to aa shall execute and deliver an
instrument transferring to such successor trustee,
upon the trust herein expressed, all the estates,
properties, rights, powers and trusts of the
Trustee so ceasing to act, and shall duly assign,
transfer and deliver any of the property and
monies held by the 'Trustee to the successor
trustee so appointed in its or his place.
5.1.6 PERFORMANCE OF DUTIES BY AGENT.
Trustee may authorize one or more parties to act
on its behalf to perform the ministerial functions
required of Trustee hereunder, including, without
limitation, the transmittal and posting of any
notices.
5.2 ASSIGNMENT OF BANK ACCOUNTS. Upon the
occurrence of an Event of Default under this Deed
of Trust any funds on deposit with Beneficiary in
the name of Grantor, and any securities and
property given unto or left in the possession of
the Beneficiary by Grantor, whether as collateral
security or held in escrow or otherwise, are
hereby assigned to Beneficiary, shall be held by
it as additional security for the Loan and may be
applied to the payment of any sums due it under
the terms of the Note or the other Loan Documents.
5.3 FUTURE ADVANCES. This Deed of Trust is
given to secure not only the existing Indebtedness
of the Grantor to the Beneficiary evidenced by the
Loan Documents secured hereby, but also such
future advances, plus interest thereon, together
with any disbursements made by Beneficiary for
payment of taxes, insurance or other liens on the
Mortgaged Property, together with interest on such
disbursements at the maximum rate permitted under
Washington law, which advances shall be secured
hereby to the same extent as if such future
advances were made on this date. The total amount
of Indebtedness secured hereby may increase or
decrease from time to time. This Deed of Trust
shall also secure any sums due pursuant to the
Loan Documents as a charge, fee or premium
expressly provided for in the Loan Documents in
the event of acceleration of any monetary
obligations due to a default therein or a
prepayment thereof. The provisions of this Section
shall not be construed to imply any obligation on
Beneficiary to make any future advances, it being
the intention of the parties that any future
advances shall be solely at the discretion and
option of Beneficiary (except as may be otherwise
expressly provided in the Loan Agreement). Any
reference to monetary obligations in this Deed of
Trust shall be construed to reference any future
advances made pursuant to this Section. .
5.4 SUBROGATION. This Deed of Trust, as
additional security, is hereby subrogated to the
lien or liens and to the rights of the owners and
holders thereof of each and every mortgage, lien
or other encumbrance on the Mortgaged Property, or
any part thereof, or any claim or demand which is
paid or satisfied, in whole or in part, out of the
proceeds of the Indebtedness secured hereby and
the respective liens of said mortgages,
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liens and other encumbrances and claims and
demands shall pass to and be held by Beneficiary
as additional security for the Indebtedness to
Beneficiary to the same extent that they would
have been preserved and would have been passed to
and been held by Beneficiary had they each been
duly and regularly assigned, transferred, set over
and delivered to Beneficiary by separate deed of
assignment, notwithstanding the fact the same may
be or may have been satisfied and canceled of
record, it being the intention of the parties
hereto that the same will be satisfied and
canceled of record at or about the time they are
paid or satisfied out of the proceeds of the Loan.
5.5 NOTICES. No notice or other
communication shall be deemed given unless sent in
the manner, and to the persons, specified in this
Section at the addresses or telecopy numbers (or
at such other address or telecopy number for a
party as will be specified by like notice), set
forth in this Section 5.6. All notices and other
communications hereunder shall be in writing and
shall be deemed given (a) upon receipt if
delivered personally or if deposited with the
United States Postal Service as registered or
certified mail, return receipt requested, (b) at
noon on the first Business Day after dispatch if
sent by reputable overnight courier capable of
providing evidence of delivery, or (c) upon the
completion of transmission (which is confirmed
telephonically by the receiving party) if
transmitted by telecopy or other means of
facsimile which provides immediate or near
immediate transmission to compatible equipment in
the possession of the recipient.
If to Grantor: Emeritus Properties In, Inc.
c/o Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: President
Telecopy or Facsimile Number: (206)
301-4500
Confirmation Number: (206) 298-2909
With a copy to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, Washington 98101
Attention: Randi Nathanson, Esq.
Telecopy or Facsimile Number: (206)
623-1138
Confirmation Number: (206) 623-6239
If to Beneficiary: Ocwen Federal Bank FSB
1675 Palm Beach Lakes Boulevard
West Palm Beach, Florida 33401
Attention: Secretary
Telecopy Number: (561) 820-8838
Confirmation Number: (561) 832-2221
Notwithstanding the foregoing, any notice in fact
received shall be effective as of the time of
receipt.
27
<PAGE>
5.6 LEGAL CONSTRUCTION. This Deed of Trust
shall be governed by and construed in accordance
with the laws of the State of Washington
(excluding conflicts of law) and the United States
of America. Pierce County, Washington, shall be a
proper place of venue for all suits to enforce
this Deed of Trust. Grantor and Beneficiary each
hereby irrevocably agree that any legal proceeding
arising out of or in connection with this Deed of
Trust shall be brought in the superior courts of
Pierce County, Washington or the United States
District Court for the Western District of
Washington.
5.7 UNENFORCEABLE PROVISIONS. In the event
any provision of this Deed of Trust is declared or
adjudged to be unenforceable or unlawful by any
Governmental Authority, then such unenforceable or
unlawful provisions shall be excised here from,
and the remainder of this Deed of Trust, together
with all rights and remedies granted thereby,
shall continue and remain in full force and
effect.
5.8 USURY LIMITATIONS. It is the intention
of the parties to conform strictly to applicable
usury laws from time to time in force, and all
agreements between Grantor and Beneficiary,
whether now existing or hereafter arising and
whether oral or written, are hereby expressly
limited so that in no contingency or event
whatsoever, whether by acceleration of maturity of
the Note or otherwise, shall the amount paid or
agreed to be paid to Beneficiary, or collected by
Beneficiary, for the use, forbearance or detention
of the money to be loaned pursuant to the Loan
Agreement, this Deed of Trust or the other Loan
Documents or otherwise, or for the payment or
performance of any covenant or obligation
contained herein or in any other Loan Document, or
in any other document evidencing, securing, or
pertaining to the Indebtedness secured hereby,
exceed the maximum amount permissible under
applicable usury laws (the "HIGHEST LAWFUL RATE").
If under any circumstances whatsoever fulfillment
of any provision hereof or any other Loan
Documents, at the time performance of such
provision shall be due, shall involve an amount or
any portion thereof in excess of the Highest
Lawful Rate, then ipso facto, the payment to be
made or the amount to be delivered to be fulfilled
shall be reduced to the limit of such validity;
and if under any circumstances Beneficiary shall
ever receive an amount deemed interest by
applicable law which would exceed the Highest
Lawful Rate, such amount that would be excessive
interest under applicable usury laws shall be
applied to the reduction of the principal amount
owing under the Note or to other Indebtedness
secured by this Deed of Trust and not to the
payment of interest, or if such excessive interest
exceeds the unpaid balance of principal and other
indebtedness, the excess shall be deemed to have
been a payment made by mistake and shall be
refunded to Grantor or to any other person making
such payment on Grantor's behalf All sums paid or
agreed to be paid to Beneficiary for the use, -
forbearance or detention of the indebtedness of
Grantor evidenced and secured hereby, outstanding
from time to time shall, to the extent permitted
by applicable law, be amortized, prorated,
allocated and spread from the date of disbursement
of the proceeds of the Note until payment in full
of such indebtedness so that the actual rate of
interest on account of such indebtedness is
uniform through the term hereof. The terms and
provisions of this paragraph shall control and
supersede every other provision of all agreements
between Beneficiary and Grantor and any endorser
or guarantor of the Note.
28
<PAGE>
5. 9 RIGHTS OF BENEFICIARY.
5.9.1 RIGHTS NOT LIMITED. The rights,
powers, privileges and discretions (hereinafter
collectively called the "rights") specifically
granted to Beneficiary under this Deed of Trust
are not in limitation of but in addition to those
to which they are entitled under any general or
local law relating to deeds of trust and mortgages
in the State of Washington, now or hereafter
existing.
5.9.2 BENEFIT TO SUCCESSORS AND ASSIGNS.
The rights to which Beneficiary may be entitled
shall inure to the benefit of its successors and
assigns.
5.9.3 RIGHTS CUMULATIVE. All the rights
of Beneficiary are cumulative and not alternative
and may be enforced successively or concurrently.
5.10 NO WAIVER. Failure of Beneficiary to
exercise any of its rights shall not impair any of
its rights nor be deemed a waiver thereof, and no
waiver of any of its rights shall be deemed to
apply to any other such rights, nor shall it be
effective unless in writing and signed by the
party waiving the right. The acceptance by
Beneficiary of any partial payment after default
or an Event of Default, with or without knowledge
of the default or Event of Default, shall not be a
waiver of the default or Event of Default unless
Beneficiary shall specifically state in writing
that the acceptance waives the default or Event of
Default or states further conditions which must be
satisfied to constitute such a waiver. The failure
of Beneficiary to exercise the option for
acceleration of maturity, foreclosure, or either,
following an Event of Default or to exercise any
other option or privilege granted to Beneficiary
hereunder in any, one or more instances, shall
not constitute a waiver of any such default, but
such option or privilege shall remain continuously
in force.
5.11 MUTUAL WAIVER OF JURY TRIAL. GRANTOR AND
BENEFICIARY EACH WAIVE ALL RIGHTS TO TRIAL BY JURY
OF ANY AND ALL CLAIMS, COUNTERCLAIMS, AND DEFENSES
AMONG AND BETWEEN ANY OF THEM ARISING UNDER THIS
DEED OF TRUST OR THE OTHER LOAN DOCUMENTS, OR ANY
OTHER AGREEMENT OR AGREEMENTS BETWEEN OR AMONG ANY
OF THEM AT ANY TIME RELATING TO THE LOAN,
INCLUDING ANY SUCH AGREEMENTS, WHETHER WRITTEN OR
ORAL, MADE OR ALLEGED TO HAVE BEEN MADE AT ANY
TIME PRIOR TO THE DATE HEREOF, AND ALL AGREEMENTS
MADE HEREAFTER OR OTHERWISE. IN MAKING THIS WAIVER
GRANTOR AND BENEFICIARY ACKNOWLEDGE AND AGREE THAT
ANY AND ALL SUCH CLAIMS, COUNTERCLAIMS, AND
DEFENSES SHALL BE HEARD BY A JUDGE OF A COURT OF
COMPETENT JURISDICTION, WITHOUT A JURY. GRANTOR
AND BENEFICIARY ACKNOWLEDGE AND AGREE THAT THIS
WAIVER OF TRIAL BY JURY IS A MATERIAL ELEMENT OF
THE CONSIDERATION FOR THIS DEED OF TRUST. GRANTOR
AND BENEFICIARY ACKNOWLEDGE THAT THIS IS A WAIVER
OF A LEGAL RIGHT AND THAT THIS WAIVER IS MADE
KNOWINGLY AND VOLUNTARY AFTER CONSULTATION WITH,
OR THE OPPORTUNTY TO CONSULT WITH, COUNSEL OF ITS
CHOICE.
29
<PAGE>
5.12 NO PARTNERSHIP. Grantor acknowledges and
agrees that nothing contained in the terms and
conditions of this Deed of Trust or any other Loan
Document shall be deemed to create a partnership,
joint venture or joint enterprise between the
parties hereto, each of which is acting
independently and for its own account and benefit.
The relationship created is that of lender and
borrower. The Beneficiary's commitment to make the
Loan and its financing of the development and
construction of the Project does not create, and
shall not be deemed to create, a partnership,
joint venture or joint enterprise between the
parties.
5.13 BINDING EFFECT. This Deed of Trust shall
be binding upon and inure to the benefit of
Grantor, its successors, and those assigns
consented to in writing by Beneficiary, and upon
Beneficiary, its successors and assigns. Any
assignment attempted by Grantor without the
written consent of Beneficiary shall be void.
Wherever the word "Beneficiary" is used herein it
shall be deemed to include also the successors and
assigns of Beneficiary, and the word "Grantor"
shall include the successors of Grantor and shall
include those assignees of Grantor consented to in
writing by Beneficiary. No consent by Beneficiary
of an assignment by Grantor shall release Grantor
as a party primarily obligated and liable under
the terms of this Deed of Trust unless Grantor
shall be released specifically by Beneficiary in
writing. No consent by Beneficiary to an
assignment shall be deemed to be a waiver of the
requirement of consent by Beneficiary of each and
every further assignment, as a condition precedent
to the effectiveness of such assignment.
5.14 GENDER. Unless the context clearly
indicates to the contrary, words singular or
plural in number shall be deemed to include the
other and pronouns having a neuter, masculine or
feminine gender shall be deemed to include the
others.
5.15 TIME OF ESSENCE. Time is of the essence
of the obligations of Grantor in this Deed of
Trust and each and every term, covenant and
condition made herein by or applicable to Grantor.
5.16 CAPTIONS. The captions used for the
Articles and Sections in this Deed of Trust are
inserted only as a matter of convenience and for
reference and in no way define, limit or describe
the scope or intent of this Deed of Trust or any
Article or Section hereof.
5.17 DRAFTING OF LOAN DOCUMENTS. The parties
hereto acknowledge and agree that the terms,
covenants, and conditions of the Loan Documents
have been drafted, reviewed, negotiated, and
revised by all the parties, with the assistance of
counsel of their choice, and that should any
ambiguities occur herein, such ambiguities shall
not be construed or interpreted against one party
or another by virtue of that party's status as
drafting or reviewing party.
5.18 ORAL AGREEMENTS OR ORAL COMMITMENTS TO
LOAN MONEY EXTEND CREDIT OR TO FORBEAR FROM
ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE
UNDER WASHINGTON LAW.
30
<PAGE>
IN WITNESS WHEREOF, Grantor has caused this
Deed of Trust to be duly executed on its behalf as
of the date first above written.
EMERITUS PROPERTIES III, INC.,
a Washington corporation
By: /s/ Kelly J. Price
- --------------------------------------------
Name: Kelly J. Price
Title: Secretary
31
<PAGE>
STATE OF WASHINGTON )
)
ss.
COUNTY OF KING )
On this 31st day of January, 1997, before me
personally, appeared Kelly J. Price, to me
personally known to be the secretary of Emeritus
Properties III, Inc., 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 mentions, and on
oath stated that (s)he was authorized to execute
said instrument and that the seal affixed, if any,
is the seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed my seal the day and year first
above written.
[SEAL]
/s/ Anthony G. Ross
------------------------------
- ---------
Notary Public in and for the
State of
Washington residing at
Bellevue
Printed Name: Anthony G. Ross
My appointment expires: 2-24-
98
32
<PAGE>
AGREEMENT FOR AMENDMENT OF DOCUMENTS
THIS AGREEMENT FOR AMENDMENT OF
DOCUMENTS is made and entered into this
30th day of January 31, 1997, by and
between EMERITUS PROPERTIES III, INC., a
Washington corporation ("Borrower"), and
OCWEN FEDERAL BANK FSB, a federally
chartered savings bank ("Lender").
RECITALS
Of even date herewith Borrower and
Lender have entered into a Loan Agreement
(the "Loan Agreement") pursuant to which
Lender has agreed to make a loan (the
"Loan") to Borrower in the original
principal amount of Six Million four
Hundred Sixty-Five Thousand and No/100
Dollars ($6,465,000), subject to the terms
and conditions set forth therein, for the
purpose of providing a portion of the
funds necessary to enable Borrower to
acquire the real property situated in
Pierce County, Washington, described
therein and construct and operate a one
hundred (100) unit assisted living
facility thereon.
Lender may desire to assign and
deliver the Loan or interests therein to
prospective purchasers ("Purchaser") in
exchange for mortgage backed securities.
To induce Lender to make the Loan and
enter into the Loan Agreement, Borrower
has agreed to execute this Agreement for
the benefit of Lender and prospective
Purchasers.
NOW, THEREFORE, in consideration of
the making of the Loan, Borrower hereby
agrees as follows:
1. Borrower agrees to cooperate
promptly and fully with Lender and/or
Lender's closing agents to correct any
clerical errors in any documents executed
in connection with the Loan, which
corrections are deemed necessary or
desirable by Lender to enable Lender to
sell, convey, guaranty or market the Loan
to any person or entity, including buy not
limited to any Purchaser (the "Purchaser
Modifications").
2. Failure upon the part of
borrower to make any of the Purchaser
Modifications within ten (10) days after
written notice by lender shall be deemed
to be an Event of Default under the Loan
Agreement and the other Loan Documents
described therein.
3. This Agreement is one of the
Loan Documents described in the Loan
Agreement.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE>
EXECUTED as of the date first set
forth above.
EMERITUS PROPERTIS
III, INC.,
a Washington
corporation
By: /s/ Kelly J.
Price
----------------------
- ----------------------
Name: Kelly J. Price
Its: Secretary
OCWEN FEDERAL BANK
FSB,
a federally chartered
savings bank
By: John W. Halverson
- ------------------------------------------
- --
Name: John W.
Halverson
Its: Vice
President
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS AND CONDENSED 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,274
<SECURITIES> 2,519
<RECEIVABLES> 1,759
<ALLOWANCES> (148)
<INVENTORY> 300
<CURRENT-ASSETS> 43,481
<PP&E> 90,273
<DEPRECIATION> (4,991)
<TOTAL-ASSETS> 159,891
<CURRENT-LIABILITIES> 29,702
<BONDS> 107,285
0
0
<COMMON> 1
<OTHER-SE> 22,699
<TOTAL-LIABILITY-AND-EQUITY> 159,891
<SALES> 0
<TOTAL-REVENUES> 24,502
<CGS> 0
<TOTAL-COSTS> 27,166
<OTHER-EXPENSES> 180
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,155
<INCOME-PRETAX> (3,572)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,572)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,572)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
