<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 SEPTEMBER 30, 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 SEPTEMBER 30, 1997
WASHINGTON 91-1605464
(State or other jurisdiction of (I.R.S. Employer
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 November 13, 1997, there were 11,000,250 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 September 30,
1997............................................. 1
Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended September 30,
1996 and 1997.................................... 2
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 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 2. Changes in Securities............................ 18
Item 5. Other Information................................ 18
Item 6. Exhibits and Reports on Form 8-K................. 19
Signatures....................................... 20
Note: Items 1 and 3-4 of Part II are omitted because
they are not applicable
<PAGE>
EMERITUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1996 and September 30, 1997
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
September 30,
December 31, 1997
1996 (unaudited)
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................... $ 23,039 $ 11,912
Current portion of restricted deposits........ 934 663
Trade accounts receivable..................... 1,713 2,168
Prepaid expenses and other current assets..... 4,561 8,067
Investment securities available for sale...... 2,152 3,509
------------- -------------
Total current assets.................. 32,399 26,319
------------- -------------
Property and equipment, net..................... 97,150 139,846
Property held for development................... 8,796 10,762
Notes receivable from and investments in
affiliates.................................... 2,464 5,948
Lease acquisition costs, net.................... 8,127 8,414
Other assets, net............................... 9,102 12,271
------------- -------------
Total assets.......................... $158,038 $203,560
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings......................... $ -- $ 5,000
Current portion of long-term debt............. 5,816 10,271
Trade accounts payable........................ 3,725 5,334
Construction advances - leased communities.... 6,387 --
Other current liabilities..................... 6,714 10,578
------------- -------------
Total current liabilities............. 22,642 31,183
------------- -------------
Security deposits............................... 1,014 1,067
Other long-term liabilities..................... 3,740 7,357
Deferred gain on sale of communities............ 9,433 12,623
Deferred income................................. 843 480
Convertible debentures.......................... 32,000 32,000
Long-term debt, less current portion............ 60,260 104,698
------------- -------------
Total liabilities..................... 129,932 189,408
------------- -------------
Minority interest............................... 1,918 1,405
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 1,413
Foreign currency translation adjustment........ -- 1
Accumulated deficit............................ (18,618) (33,455)
------------- -------------
Total shareholders' equity............ 26,188 12,747
------------- -------------
Total liabilities and shareholders'
equity.............................. $158,038 $203,560
============= =============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
1
<PAGE>
EMERITUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months and Nine Months Ended September 30, 1996 and 1997
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
--------------------------------- ---------------------------------
1996 1997 1996 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Community revenue............... $17,197 $30,647 $45,037 $ 82,772
Other service fees.............. 376 878 1,109 2,196
--------------- --------------- --------------- ---------------
Total operating revenues..... 17,573 31,525 46,146 84,968
--------------- --------------- --------------- ---------------
Expenses:
Community operations............ 12,908 22,613 32,508 58,755
General and administrative...... 1,835 2,905 4,218 7,859
Depreciation and amortization... 664 1,891 1,969 4,458
Rent............................ 4,264 9,486 9,881 24,353
--------------- --------------- --------------- ---------------
Total operating expenses..... 19,671 36,895 48,576 95,425
--------------- --------------- --------------- ---------------
Loss from operations......... (2,098) (5,370) (2,430) (10,457)
--------------- --------------- --------------- ---------------
Other income (expense):
Interest expense, net........... (560) (2,162) (2,210) (4,616)
Other, net...................... 297 114 175 236
--------------- --------------- --------------- ---------------
Net other expense............ (263) (2,048) (2,035) (4,380)
--------------- --------------- --------------- ---------------
Net loss..................... $(2,361) $(7,418) $(4,465) $(14,837)
=============== =============== =============== ===============
Net loss per share................ $ (0.21) $ (0.67) $ (0.41) $ (1.35)
=============== =============== =============== ===============
Weighted average number of common
shares outstanding.............. 11,000 11,000 11,000 11,000
=============== =============== =============== ===============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
2
<PAGE>
EMERITUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1996 and 1997
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Net cash used in operating activities (including
changes in all operating assets and
liabilities).................................. $ (3,084) $ (5,492)
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment......... (22,903) (15,420)
Acquisition of property held for development.. (947) (20,841)
Proceeds from sale of property and equipment.. 49,757 28,675
Purchase of investment securities............. -- (2,161)
Sale of investment securities................. 259 3,207
Leasehold improvement advances................ (1,824) --
Construction advances leased communities...... -- 18,930
Construction expenditures - leased
communities................................. -- (26,861)
Advances to affiliates........................ (3,027) (1,275)
Acquisition of interest in affiliates......... -- (2,412)
--------- ---------
Net cash provided by (used in) investing
activities.............................. 21,315 (18,158)
--------- ---------
Cash flows from financing activities:
Restricted deposits........................... (6,432) (2,207)
Proceeds from (repayment of) short-term
Borrowings, net............................. (269) 5,000
Debt issue and other financing costs.......... (6,344) (1,106)
Proceeds from long-term borrowings............ 14,531 38,161
Proceeds from issuance of convertible
Debentures.................................. 30,720 --
Repayment of long-term borrow................. (49,855) (27,325)
Other......................................... (122) --
--------- ---------
Net cash provided by (used in) financing
activities.............................. (17,771) 12,523
--------- ---------
Net increase (decrease) in cash........... 460 (11,127)
Cash at the beginning of the period............. 9,507 23,039
--------- ---------
Cash at the end of the period................... $ 9,967 $ 11,912
========= =========
Supplemental disclosure of cash flow information
- cash paid during the period for interest.... $ 1,702 $ 6,883
========= =========
Noncash investing and financing activities:
Acquisition of communities:
Assets acquired.............................. $ -- $ 37,347
Liabilities assumed.......................... -- 36,997
Transfer of property held for development to
property and equipment....................... -- 18,484
Transfer of property and equipment to property
held for sale................................ -- 26,735
Vehicle acquisitions through debt
financing.................................... -- 640
</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 September
30, 1997 and for the three and nine months ended September 30, 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 the 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. CHANGE IN ACCOUNTING ESTIMATES
Effective January 1, 1997, the Company changed the period over which
pre-opening costs on newly opened developments are amortized from 18 months
to one-year. The change did not have a material effect on 1996 results of
operations as the majority of developments were opened late in 1996. The
impact for the three months ended and nine months ended September 30, 1997,
was $(221,000) and $(417,000) or $(0.02) and $(0.04) per share,
respectively.
Effective January 1, 1997, the Company also changed the estimate for
the useful life of acquired buildings. The impact for the three
months ended and nine months ended September 30, 1997, was $118,000 and
$284,000 or $0.01 and $0.03 per share, respectively. The impact for the
three months ended and nine months ended September 30, 1996 would have been
$65,000 and $176,000 or $0.01 and $0.02 per share, respectively, if the
Company had changed the estimate effective January 1, 1996.
3. ACQUISITIONS
During the year ended December 31, 1996 and the nine months ended
September 30, 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:
4
<PAGE>
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<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 2,800 108
Laurel Place (formerly Golden
Park)................ .......... April 25, 1996 2,100 72
Madison Glen (formerly Sunshine
Manor).......................... May 15, 1996 3,842 140
The Hearthstone (2)............... 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
La Casa Communities (3)........... May 1, 1997 33,062 473
-------------- ---------
$72,196 1,449
============== =========
</TABLE>
(1) Refinanced through a sale/leaseback with a REIT.
Lease includes an initial term of 13 years with
four five-year renewal options and annual base
rent of approximately $686,000. The Company has
no continuing involvement outside of operating
the community.
(2) Refinanced through a sale/leaseback with a REIT.
Lease includes an initial term of 11 years 11
months with four five-year renewal options and
annual base rent of approximately $596,000. The
Company has no continuing involvement outside of
operating the community.
(3) Consists of three long-term-care communities
located in Florida.
The foregoing purchases have generally been financed through
borrowings.
During the year ended December 31, 1996 and the nine months ended
September 30, 1997, 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
Communities leased Acquisition Initial Renewal Annual
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
New York Communities (4)..... November 1996 15 years Two five-year 4,975,000 738
Texas Communities (5)........ April 1, 1997 15 years Three five-year 2,174,328 411
---------------- --------
$18,408,004 2,869
================ ========
</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 communities located
in New York.
(5) Consists of 3 long-term-care communities located
in Texas.
5
<PAGE>
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 Nine months ended
September 30, September 30,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue................. $27,419 $31,525 $81,306 $ 89,900
Net loss................ (2,754) (7,418) (6,940) (15,278)
Net loss per share...... $ (0.25) $ (0.67) $ (0.63) $ (1.39)
</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.
4. SUBSEQUENT EVENTS
Subsequent to the third quarter 1997, in October 1997, The Company
announced an investment by NorthStar Capital Partners LLC ("NorthStar"), a
private investment group with financial backing from a Union Bank of
Switzerland Securities affiliate and Quantum Realty Partners, a fund
advised by Soros Fund Management LLC. NorthStar invested $25 million
in the Company through the purchase of preferred stock, representing
approximately 10% ownership in the Company. The preferred stock is
convertible into 1.37 million newly issued shares of the Company's common
stock at $18.20 per share and is exchangeable into convertible debt at the
option of the Company. NorthStar has also agreed to provide an additional
$50 million to the Company and its related entities for use in supporting
future growth initiatives. The Company expects to use the net proceeds to
repay indebtedness on owned assisted-living communities and for ongoing
development and acquisition activity.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Since its 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 nine months ended September 30, 1996 and
1997, the Company generated total operating revenues of $46.1 million and
$85.0 million, respectively, representing an 84% increase. For the three
months ended September 30, 1996 and 1997, the Company generated total
operating revenues of $17.6 million and $31.5 million, respectively,
representing a 79% increase. As of September 30, 1997, the Company's
accumulated deficit was $33.5 million and its total shareholders' equity
was $12.7 million. For the nine months ended September 30, 1996 and 1997,
the Company generated net losses of $4.5 million and $14.8 million,
respectively. For the three months ended September 30, 1996 and 1997, the
Company generated net losses of $2.4 million and $7.4 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 November 7, 1997, the Company holds ownership, leasehold or
management interests in 99 residential communities (the "Operating
Communities") consisting of approximately 8,600 units with a capacity of
over 10,000 residents, located in 25 states. Of the 99 Operating
Communities 19 newly developed communities were opened during 1997; five
commenced operations during the first quarter of 1997, six commenced
operations during the second and third quarters of 1997 and two commenced
operations during the fourth quarter of 1997. Additionally, the Company
completed construction on an expansion to an existing community during the
second quarter of 1997, and during the fourth quarter of 1997 entered into
an agreement with an affiliate to provide administrative services for an
independent-living community located in Washington. In addition, the
Company owns, has a leasehold interest in or has acquired an option to
purchase development sites for 30 new assisted-living communities (the "New
Development Communities"). Eleven of the New Development Communities are
currently under construction, one of which is scheduled to open during the
fourth quarter of 1997. The Company leases 72 of its Operating
Communities, typically from a financial institution such as a Real Estate
Investment Trust ("REIT"), owns 18 communities, manages four communities
and has a joint venture and partnership interest in five communities.
Additionally, the Company holds a 22.4% minority interest in Alert Care
Corporation ("Alert"), an Ontario, Canada based owner and operator of 17
assisted-living communities consisting of approximately 900 units with a
capacity of approximately 940 residents. Assuming completion of the New
Development Communities scheduled to open throughout 1997 and the minority
interest in Alert, the Company will own, lease or manage 117 properties in
25 states and Canada containing an aggregate of approximately 9,600 units
with a capacity of over 11,100 residents. There can be no assurance,
however, that the New 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. The
Company's management of assisted-living communities owned or leased by
others has not been material to the Company's business or revenue.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
The following table sets forth a summary of the Company's property
interests.
<TABLE>
<CAPTION>
As of September 30,
-----------------------------------------------------------------------
1994 1995 1996 1997
----------------- ----------------- ----------------- -----------------
Buildings Units Buildings Units Buildings Units Buildings Units
--------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Owned 6 494 17 1,733 13 1,285 17 1,916
Leased 1 91 2 140 37 3,047 72 5,804
Managed -- -- -- -- -- -- 3 227
Joint Venture/
Partnership -- -- 1 22 2 162 4 380
--------- ------- --------- ------- --------- ------- --------- -------
Sub Total 7 585 20 1,895 52 4,494 96 8,327
Annual Growth --% -- % 186% 224% 160% 137% 85% 85%
Pending 1 80 19 1,370 9 1,119 -- --
Acquisitions
New Developments 10 770 31 2,374 41 3,550 29 2,548
Minority Interest -- -- -- -- -- -- 17 940
--------- ------- --------- ------- --------- ------- --------- -------
Total 18 1,435 70 5,639 102 9,163 142 11,815
--------- ------- --------- ------- --------- ------- --------- -------
Annual Growth --% -- % 289% 293% 46% 63% 39% 29%
</TABLE>
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.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
items of the Company's Condensed Consolidated Statements of Operations as a
percentage of total revenues and the percentage change of the dollar
amounts from period to period.
<TABLE>
<CAPTION>
Period to Period
Percentage Increase
(Decrease)
Percentage of Revenues Three Months Nine Months
Three Months Ended Nine Months Ended Ended Ended
September 30, September 30, September 30, September 30,
------------------ ------------------ ------------- -------------
1996 1997 1996 1997 1996-1997 1996-1997
-------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.......................... 100 % 100 % 100 % 100 % 79 % 84 %
Expenses:
Community operations........... 73 72 70 69 75 81
General and administrative..... 10 9 9 9 58 86
Depreciation and amortization.. 4 6 4 5 185 126
Rent........................... 24 30 21 29 122 146
-------- -------- -------- -------- ------------- -------------
Total operating expenses.... 111 117 104 112 88 96
-------- -------- -------- -------- ------------- -------------
Loss from operations........ (11) (17) (4) (12) 156 330
-------- -------- -------- -------- ------------- -------------
Other income (expense):
Interest expense, net.......... (3) (7) (5) (5) 286 109
Other, net..................... 2 -- -- -- (62) 35
-------- -------- -------- -------- ------------- -------------
Net loss.................... (12)% (24)% (9)% (17)% 214 % 232 %
======== ======== ======== ======== ============= =============
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
REVENUES. Total operating revenues for the nine months ended
September 30, 1997 were $85.0 million, representing a $38.8 million, or
84%, increase over operating revenues of $46.1 million for the comparable
period in 1996. The increase resulted from the opening of new developments
and the acquisition of communities between September 30, 1996 and 1997.
The Company ended with 52 and 96 communities representing approximately
4,500 and 8,300 units as of September 30, 1996 and 1997, respectively, an
increase of 85%. For the nine months ended September 30, 1997, there was a
decline in average occupancy to 70% from 75% for the comparable period in
1996, however, the impact on revenue from the decline in occupancy was
offset by a modification in rate structure at the communities.
COMMUNITY OPERATIONS. Expenses for community operations for the nine
months ended September 30, 1997 were $58.8 million, representing a $26.2
million, or 81% increase over $32.5 million for the comparable period in
1996, primarily due to the Company's opening of new developments and the
acquisition of communities between September 30, 1996 and 1997. The
Company ended with 52 and 96 communities as of September 30, 1996 and 1997,
respectively, an increase of 85%. As a percentage of total operating
revenues, expenses for community operations decreased to 69% for the nine
months ended September 30, 1997, from 70% for the comparable period in
1996. The Company expects community operations to continue to decline as a
percentage of revenue as it continues to fill-up newly developed
communities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for
the nine months ended September 30, 1997 were $7.9 million, representing an
increase of $3.6 million, or 86% from $4.2 million for the comparable
period in 1996. As a percentage of total operating revenues, general and
administrative expenses remained unchanged at 9% for the nine months ended
September 30, 1997 and 1996 while the number of employees located at the
corporate office was 194 and 122 for the nine months ended September 30,
1997 and 1996, respectively. The dollar 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 in line with
revenues and community operations at least through 1997 as the Company
acquires additional existing communities and develops new communities.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
nine months ended September 30, 1997 was $4.5 million, or 5% of total
operating revenues, compared to $2.0 million or 4% of total operating
revenues, for the comparable period in 1996. The increase was due to a
combination of an increase in pre-opening amortization expense and the
opening of new developments and the acquisition of eight communities owned
by the Company net of communities sold in sale/leaseback transactions
between September 30, 1996 and 1997. The Company owned 18%, or 17 of its
96 communities representing approximately 1,900 units at September 30, 1997
compared to 25%, or 13 of its 52 communities representing approximately
1,300 units at September 30, 1996.
RENT. Rent expense for the nine months ended September 30, 1997 was
$24.4 million, representing an increase of $14.5 million, or 146% from rent
expense of $9.9 million for the comparable period in 1996. As a percentage
of total operating revenues, rent expense increased to 29% for the nine
months ended September 30, 1997, from 21% 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 75%, or
72 out of 96 of its residential communities representing approximately
5,800 units as of September 30, 1997 compared to 71%, or 37 out of 52
communities representing approximately 3,100 units as of September 30,
1996. The increase in rent expense as a percentage of revenue can also be
attributed to the opening of newly developed communities operated by the
Company under lease agreements. The Company expects an occupancy fill-up
period of 12 to 24 months for a newly developed community. As the fill-up
of newly developed communities continues, rent expense as a percentage of
revenue is expected to decrease. Rent expense on a dollar basis is
expected to continue to increase as the Company refinances owned
communities through sale/leaseback transactions and acquires additional
communities through lease financing transactions.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
INTEREST EXPENSE, NET. Interest expense, net, for the nine months
ended September 30, 1997 was $4.6 million on long-term debt of $115.0
million compared to $2.2 million on long-term debt of $66.1 million for the
comparable period in 1996, remaining unchanged as a percentage of total
operating revenue at 5% for the nine months ended September 30, 1997 and
1996. The dollar increase was primarily due to the acquisition of four
communities through mortgage financing bearing interest at rates between 8%
and 18% and the opening of five developments owned by the Company. This
was offset by the repayment of $16.3 million existing mortgage debt having
interest rates between 9.3% and 13.2% with convertible debenture proceeds
having an interest rate of 6.25% in 1996.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
REVENUES. Total operating revenues for the three months ended
September 30, 1997 were $31.5 million, representing a $14.0 million, or
79%, increase over operating revenues of $17.6 million for the comparable
period in 1996. The increase resulted from the opening of new
developments and the acquisition of communities between September 30, 1996
and 1997. The Company ended with 52 and 96 communities representing
approximately 4,500 and 8,300 units as of September 30, 1996 and 1997,
respectively, an increase of 85%. For the three months ended September 30,
1997, there was a decline in average occupancy to 71% from 79% for the
comparable period in 1996, however, the impact on revenue from the decline
in occupancy was offset by a modification in rate structure at the
communities.
COMMUNITY OPERATIONS. Expenses for community operations for the three
months ended September 30, 1997 were $22.6 million, representing a $9.7
million, or 75% increase over $12.9 million for the comparable period in
1996, primarily due to the Company's opening of new developments and the
acquisition of communities between September 30, 1996 and 1997. The
Company ended with 52 and 96 communities as of September 30, 1996 and 1997,
respectively, an increase of 85%. As a percentage of total operating
revenues, expenses for community operations decreased to 72% for the three
months ended September 30, 1997, form 73% for the comparable period in 1996.
The Company expects community operations to continue to decline as a
percentage of revenue as it continues to fill-up newly developed
communities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for
the three months ended September 30, 1997 were $2.9 million, representing
an increase of $1.1 million, or 58% from $1.8 million for the comparable
period in 1996. As a percentage of total operating revenues, general and
administrative expenses decreased to 9% for the three months ended
September 30, 1997, from 10% for the comparable period in 1996 while the
number of employees located at the corporate office was 194 and 122 for the
three months ended September 30, 1997 and 1996, respectively. The dollar
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 in line with revenues and community operations 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 September 30, 1997 was $1.9 million, or 6% of total
operating revenues, compared to $664,000 or 4% of total operating revenues,
for the comparable period in 1996. The dollar increase was due to a
combination of an increase in pre-opening amortization expense and the
opening of new developments and the acquisition of eight communities owned
by the Company net of communities sold in sale/leaseback transactions
between September 30, 1996 and 1997. The Company owned 18%, or 17 of its
96 communities representing approximately 1,900 units at September 30, 1997
compared to 25%, or 13 of its 52 communities representing approximately
1,300 units at September 30, 1996.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
RENT. Rent expense for the three months ended September 30, 1997 was
$9.5 million, representing an increase of $5.2 million, or 122% from rent
expense of $4.3 million for the comparable period in 1996. As a percentage
of total operating revenues, rent expense increased to 30% for the three
months ended September 30, 1997, from 24% 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 75%, or
72 out of 96 of its residential communities representing approximately
5,800 units as of September 30, 1997 compared to 71%, or 37 out of 52
communities representing approximately 3,100 units as of September 30,
1996. The increase in rent expense as a percentage of revenue can also be
attributed to the opening of newly developed communities operated by the
Company under lease agreements. The Company expects an occupancy fill-up
period of 12 to 24 months for a newly developed community. As the fill-up
of newly developed communities continues, rent expense as a percentage of
revenue is expected to decrease. Rent expense on a dollar basis 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 September 30, 1997 was $2.2 million on long-term debt of $115.0
million compared to $560,000 on long-term debt of $66.1 million for the
comparable period in 1996, increasing as a percentage of total operating
revenues to 7% for the three months ended September 30, 1997 from 3% for
the comparable period in 1996. The dollar increase was primarily due to the
acquisition of four communities through mortgage financing bearing interest
at rates between 8% and 18% and the opening of five developments owned by
the Company.
SAME COMMUNITY COMPARISON
The Company operated 40 communities ("Same Community") on a comparable
basis during both the three months ended September 30, 1996 and 1997. The
Same Communities represented 54% of the Company's total revenue for the
quarter. Same Community average occupancy was unchanged at 82% for the
respective three month periods while net operating margins increased by
$902,000 to 32% on revenue of $17.0 million as compared to 28% on revenue
of $16.0 million for the three months ended September 30, 1996. The
increase in revenue can be attributed to monthly rate increases and greater
services offered at the communities. Same Community pre-tax income, before
corporate overhead, increased by $685,000 from $(289,000) to $396,000
compared to the comparable period last year. In addition, average revenue
per occupied unit increased approximately 7%, from $1,974 to $2,116, during
the third quarter 1996 and 1997, respectively.
The following table sets forth a comparison of Same Community results
of operations before corporate overhead for the three months ended
September 30, 1996 and 1997.
<TABLE>
<CAPTION>
Three Months Ended September 30,
(In thousands)
Dollar Percentage
1996 1997 Change Change
--------- --------- -------- ----------
<S> <C> <C> <C> <C>
Revenue........................... $15,995 $16,986 $991 6 %
Community operating expense....... 11,474 11,563 89 1
--------- --------- -------- ----------
Community operating income... 4,521 5,423 902 20
--------- --------- -------- ----------
Depreciation and amortization..... 460 501 41 9
Rent.............................. 3,896 4,203 307 8
--------- --------- -------- ----------
Operating income............. 165 719 554 336
--------- --------- -------- ----------
Interest income (expense), net.... (572) (525) 47 (8)
Other income, net................. 118 202 84 71
--------- --------- -------- ----------
Pre-tax income (loss)........ $ (289) $ 396 $685 237 %
========= ========= ======== ==========
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
<TABLE>
<CAPTION>
Three months ended
September 30,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
OTHER SAME COMMUNITY INFORMATION:
Communities.................... 40 40
Total units.................... 3,283 3,283
Average occupancy.............. 82% 82%
Revenue per occupied unit...... $1,974 $2,116
</TABLE>
The 37 Same Communities as reported for the quarter ending June 30,
1997 had an average occupancy of 86% and 80%, reported revenue of 15.3
million and $15.2 million, community operating expenses of $9.8 million and
$10.1 million and pre-tax income of $1.0 million and $893,000 for the
three months ended June 30, 1997 and September 30, 1997, respectively.
STABILIZED (GROUP ONE) AND START-UP/REPOSITIONED (GROUP TWO) COMMUNITY
COMPARISON
For the three months ended September 30, 1997, the Company had 52
communities that had achieved average occupancy of at least 90% during one
quarter in the last 12 months ("Group One Communities") and 44 communities
that had average occupancy of less than 90%, which includes 34 newly opened
developments and/or communities with significant ongoing repositioning
and/or refurbishment activity ("Group Two Communities").
The following table sets forth a comparison of Group One and Group Two
Community results of operations for the three months ended September 30,
1997.
<TABLE>
<CAPTION>
Three Months Ended September 30, 1997
(In thousands)
Start-Up/
Stabilized Repositioned
Communities Communities
(Group One) (Group Two) Overhead Total
----------- ------------- -------- ---------
<S> <C> <C> <C> <C>
Revenue........................... $22,352 $ 9,168 $ 5 $31,525
Community operating expense....... 14,170 8,443 -- 22,613
----------- ------------- -------- ---------
Community operating income... 8,182 725 5 8,912
----------- ------------- -------- ---------
General and administrative........ -- -- 2,905 2,905
Depreciation and amortization..... 379 1,401 111 1,891
Rent.............................. 5,926 3,451 109 9,486
----------- ------------- -------- ---------
Operating income (loss)...... 1,877 (4,127) (3,120) (5,370)
----------- ------------- -------- ---------
Interest income (expense), net.... (510) (1,608) (44) (2,162)
Other income (expense)............ 27 179 (92) 114
----------- ------------- -------- ---------
Net income (loss)............ $ 1,394 $(5,556) $(3,256) $(7,418)
=========== ============= ======== =========
OTHER GROUP ONE AND GROUP TWO INFORMATION:
Communities..................... 52 44 96
Total units..................... 4,176 4,151 8,327
Average Occupancy............... 90% 48% 70%
Revenue per occupied unit....... $ 1,987 $ 1,636 $ 1,871
</TABLE>
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Group One Communities ended the third quarter with an average
occupancy of 90% compared to 94% for the three months ended September 30,
1996 while net operating margins increased by $4.2 million to 37% on
revenue of $22.4 million as compared to 31% on revenue of $12.6 million for
the three months ended September 30, 1996. Group One Community pre-tax
income, before corporate overhead, increased by 116% to $1.4 million
compared to the comparable period last year. The total number of Group One
Communities increased by 24 compared to the third quarter of 1996 due to a
combination of acquisitions and communities achieving an occupancy of at
least 90%.
Group Two Communities ended the third quarter with an average
occupancy of 48% compared to 56% for the three months ended September 30,
1996 while net operating margins increased by $16,000 to 8% on revenue of
$9.2 million as compared to 14% on revenue of $5.0 million for the three
months ended September 30, 1996. Group Two Community pre-tax loss, before
corporate overhead, increased by 285% to $5.6 million compared to the
comparable period last year. The total number of Group Two Communities had
a net increase of 20 compared to the third quarter of 1996 due primarily to
the opening of new developments.
The following tables set forth a comparison of Group One and Group Two
Community results of operations before corporate overhead for the three
months ended September 30, 1996 and 1997.
<TABLE>
<CAPTION>
Stabilized Communities (Group One)
Three Months Ended September 30,
(In thousands)
Dollar Percentage
1996 1997 Change Change
--------- --------- -------- ----------
<S> <C> <C> <C> <C>
Revenue........................... $12,583 $ 22,352 $9,769 78 %
Community operating expense....... 8,627 14,170 5,543 64
--------- --------- -------- ----------
Community operating income...... 3,956 8,182 4,226 107
--------- --------- -------- ----------
Depreciation and amortization..... 228 379 151 66
Rent.............................. 2,819 5,926 3,107 110
--------- --------- -------- ----------
Operating income............... 909 1,877 968 106
--------- --------- -------- ----------
Interest income (expense), net.... (265) (510) (245) 92
Other income, net................. -- 27 27 --
--------- --------- -------- ----------
Pre-tax income............... $ 644 $ 1,394 $ 750 116 %
========= ========= ======== ==========
OTHER GROUP ONE INFORMATION:
Communities.................... 28 52
Total units.................... 2,189 4,176
Average occupancy.............. 94% 90%
Revenue per occupied unit...... $2,037 $1,987
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
<TABLE>
<CAPTION>
Start-Up/Repositioned Communities (Group Two)
Three Months Ended September 30,
(In thousands)
Dollar Percentage
1996 1997 Change Change
---------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Revenue........................... $ 4,990 $ 9,168 $ 4,178 84 %
Community operating expense....... 4,281 8,443 4,162 97
---------- ---------- --------- ------------
Community operating income...... 709 725 16 2
---------- ---------- --------- ------------
Depreciation and amortization..... 356 1,401 1,045 294
Rent.............................. 1,360 3,451 2,091 154
---------- ---------- --------- ------------
Operating loss.................. (1,007) (4,127) (3,120) 310
---------- ---------- --------- ------------
Interest income (expense), net.... (510) (1,608) (1,098) 215
Other income, net................. 75 179 104 139
---------- ---------- --------- ------------
Pre-tax loss.................... $(1,442) $(5,556) $(4,114) 285 %
========== ========== ========= ============
OTHER GROUP TWO INFORMATION:
Communities.................... 24 44
Total units.................... 2,305 4,151
Average occupancy.............. 56% 48%
Revenue per occupied unit...... $1,387 $1,636
</TABLE>
Group One Communities for the three months ended September 30, 1997 and
June 30, 1997, consisted of 52 communities and 48 communities,
respectively. Average Occupancy remained unchanged at 90% for both the
second and third quarter of 1997. Revenue increased $2.8 million, or 14%
to $22.4 million for the three months ended September 30, 1997 from $19.6
million for the three months ended June 30, 1997. Community operating
expenses for the third quarter 1997 were $14.2 million, representing an
increase of $2.2 million, or 19% over $11.9 million for the second quarter
1997. Pre-tax income decreased $354,000, or 20% to $1.4 million for the
three months ended September 30, 1997 from $1.7 million for the three
months ended June 30, 1997. The changes between second quarter 1997 and
third quarter 1997 are primarily a result of the increase in communities
between the two quarters contributing revenue of $2.5 million, operating
expenses of $1.9 million and a pre-tax loss of $118,000.
Group Two Communities for the three months ended September 30, 1997
and June 30, 1997, consisted of 44 communities and 42 communities,
respectively, representing 29 and 22 newly developed communities,
respectively. Average Occupancy decreased to 48% for the three months
ended September 30, 1997 from 53% for the three months ended June 30,
1997. Revenue decreased $204,000, or 2% to $9.2 million for the three
months ended September 30, 1997 from $9.4 million for the three months
ended June 30, 1997. Community operating expenses for the third quarter
1997 were $8.4 million, representing an increase of $1.1 million, or 15%
over $7.3 million for the second quarter 1997. Pre-tax loss increased $2.5
million, or 81% to $5.6 million for the three months ended September 30,
1997 from $3.1 million for the three months ended June 30, 1997.
The changes between second quarter 1997 and third quarter 1997 are
primarily a result of newly opened developments. The Company expects an
occupancy fill-up period of 12 to 24 months for a newly developed community
at which time the Company expects newly developed communities to begin
showing positive operating results. Among the 42 Group Two Communities, 22
were newly developed communities representing $3.6 million in revenue for
the three months ended September 30, 1997 compared to $2.4 million for the
three months ended June 30, 1997, $3.9 million in community operating
expenses for the third quarter 1997 compared to $2.5 million for the second
quarter 1997 and pre-tax loss of $3.9 million for the third quarter 1997
compared to pre-tax loss of $2.5 million for the second quarter 1997.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1996 and 1997, net cash used
in operating activities was $3.1 million and $5.5 million, respectively.
During the nine months ended September 30, 1997, the Company obtained $27.0
million in proceeds from the sale of communities in sale/leaseback
financing transactions and repaid related mortgage indebtedness of $12.3
million as well as $15.0 million of unrelated mortgage indebtedness
including refinancing $5.6 million in long-term debt on two assisted-living
communities and repaying $2.1 million in long-term debt on an assisted-
living community located in Arizona. The Company obtained $1.7 million
in proceeds from the sale of land in Maryland. The Company also incurred
additional long-term debt of $38.2 million and purchased additional property
and equipment and property held for development of $36.3 million. As a
result of these acquisition and financing transactions the Company decreased
its cash position by approximately $11.1 million. During the nine months
ended September 30, 1996, the Company obtained $49.8 million in proceeds
from the sale of communities in sale/leaseback financing transactions and
repaid related mortgage debt of $33.7 million as well as $16.2 million of
unrelated mortgage debt. The Company also incurred additional long-term debt
of $45.3 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 $23.9 million.
As of September 30, 1997, the Company had a working capital deficit of $4.9
million compared to working capital of $9.8 million as of December 31,
1996. The Company's working capital deficit is a result of $7.8 million
in long-term mortgages on two assisted-living communities which are due
within the next twelve months and are expected to be refinanced with
additional long-term borrowings. Excluding the $7.8 million of long-term
debt due, the Company would have working capital of $3.0 million.
In October 1997, the Company received an investment by NorthStar
Capital Partners LLC ("NorthStar"), of $25.0 million with an additional
$50.0 million to potentially be received in the future for use in supporting
future growth initiative. The Company expects to use the net proceeds to
repay indebtedness on owned assisted-living communities and for ongoing
development and acquisition activity. See "Recent Events".
In July 1997, the Company commenced operations on three newly
developed communities aggregating 222 units. Eastman Estates and
Meadowlands Terrace both located in Texas and Bellaire Place located in
South Carolina had completed construction during the second quarter of
1997. Bellaire Place is operated by the Company pursuant to an operating
lease agreement with a REIT. The lease consists of an initial term of
twelve years nine months with four five-year renewal options and annual
base rent of approximately $555,000. Eastman Estates and Meadowlands
Terrace were refinanced in September 1997 with a REIT. The transaction
consisted of $7.3 million in construction indebtedness refinanced through a
sale/leaseback and a mortgage financing transaction. Eastman Estates is
operated by the Company pursuant to a lease agreement consisting of an
initial term of 11 years seven months with four five-year renewal options
and annual base rent of approximately $510,000. Meadowlands Terrace is
owned and operated by the Company. The Company purchased an additional $1.6
million (Cdn) of preferred stock in Alert. This latest transaction has
resulted in the Company having now subscribed for a total of 6,888,466
preferred shares with a total investment of $3.7 million (US) representing
on an as-if-converted basis approximately 22.4% of the outstanding common
and Class A nonvoting shares taken together. This represents approximately
39.6% of the common shares (assuming no Class A nonvoting shares are
converted into common shares) and approximately 34.1% of the Class A
nonvoting shares (assuming no common shares are converted into Class
A nonvoting shares).
In August 1997, the Company commenced operations on two newly
developed communities aggregating 158 units, Lakeridge Place in Texas and
Ridgeland Court in Mississippi. Both communities are operated by the
Company pursuant to operating lease agreements with a REIT. The leases
consist of initial terms of thirteen years eight months and thirteen years
for Lakeridge Place and Ridgeland Court, respectively, each with four five-
year renewal options and annual base rent aggregating approximately $1.2
million. With respect to Ridgeland Court, the Company entered into an
agreement with Mississippi Baptist Health Systems, Inc. ("MBHS"), a non
profit corporation located in Mississippi. Under this agreement, the
Company has the right to use MBHS's name, tradename and certain trademarks
("Marks") and any copyrights ("Related Rights") relating to the Marks for
the purpose of developing, marketing, operating and maintaining Ridgeland
Court in exchange for a 50% economic interest in the community. The Company
intends to enter into additional agreements like this one with MBHS on
future developments in Mississippi.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
In September 1997, the Company completed $16.4 million in lease
financing on two to-be-constructed assisted-living communities located in
Ohio and Delaware aggregating 200 units. Construction on the developments
commenced during the third quarter 1997. The communities will be
constructed and operated by the Company pursuant to operating leases and
leasehold improvement agreements with a REIT. Additionally, the Company
entered into an agreement ("Management/Lease-Up Agreement") with an
independent third party on a to-be-constructed 101 unit assisted-living
community located in Illinois. Under the Management Lease-Up Agreement,
the Company will provide management services for a period of two years
commencing on the date that the first resident occupies one of the units in
the community. The Company will receive a management fee equal to 5% of
gross revenues payable monthly over the term of the agreement. Commencing
on the earlier date to occur (a) two years after commencement of the
management agreement or (b) the first month in which the community is cash
flow even, the Company will lease the community from the independent third
party under an operating lease agreement with an initial term of 10 years
and three five-year renewal options.
RECENT EVENTS
Subsequent to the third quarter 1997, in October 1997, The Company
announced an investment by NorthStar, a private investment group with
financial backing from a Union Bank of Switzerland Securities affiliate and
Quantum Realty Partners, a fund advised by Soros Fund Management LLC.
NorthStar invested $25 million in the Company through the purchase of
preferred stock, representing approximately 10% ownership in the
Company. The preferred stock is convertible into 1.37 million newly issued
shares of the Company's common stock at $18.20 per share and is
exchangeable into convertible debt at the option of the Company. NorthStar
has also agreed to provide an additional $50 million to the Company and its
related entities for use in supporting future growth initiatives. The
Company expects to use the net proceeds to repay indebtedness on owned
assisted-living communities and for ongoing development and acquisition
activity.
Additionally, subsequent to the third quarter of 1997, the Company
commenced operations on a 101 unit newly developed community located in
Washington and an 80 unit newly developed community located in
Massachusetts. The community located in Washington is owned and operated
by the Company and the community located in Massachusetts is 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 aggregating
approximately $798,000. The Company entered into an agreement with Columbia
House LLC, an affiliate of the Company to provide administrative and
accounting services for a 100 unit independent-living community located in
Washington. Under the agreement the Company shall receive an
administrative services fee of $3,000 payable monthly for the first year
and $4,000 payable monthly for the remaining three years.
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.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
FINANCIAL ACCOUNTING STANDARDS NO. 128
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (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.
17
PART II OTHER INFORMATION
Item 1 is not applicable.
Item 2: CHANGES IN SECURITIES
On October 24, 1997 the Company sold 25,000 shares of Series A
Convertible Exchangeable Redeemable Preferred Stock (the "Series A
Preferred Stock") to Merit Partners, LLC for an aggregate purchase price of
$25 million. There were no underwriters involved and no underwriting
commissions or discounts were paid. The Series A Preferred Stock was
offered and sold in reliance upon the exemption from registration provided
by Section 4(2) of the Securities Act of 1933 and Regulation D Rule 504
thereunder. The purchaser is composed of sophisticated financial
institutions and their advisers.
Each share of Series A Preferred Stock is convertible into that number
of shares of the Company's Common Stock equal to the liquidation value of a
share of Series A Preferred Stock ($1,000) divided by the conversion price
of $18.20 per share. Currently the Series A Preferred Stock is convertible
into an aggregate of 1,373,626 shares of Common Stock. The conversion
price is subject to adjustment in the event of stock dividends, stock
subdivisions and combinations, and extraordinary distributions.
Items 3-4 are not applicable.
Item 5: OTHER INFORMATION
On October 13, 1997, the Company announced its proposed merger of the
Company with ARV Assisted Living, Inc. ("ARV"), an assisted-living company
located in Costa Mesa, California. The all-cash offer of $16.50 per share
for all the outstanding common stock of ARV, represents a 45% premium over
ARV's closing price of $11.38 on July 14, 1997, the day before ARV
announced its intention to sell 49.9% of its common stock to Prometheus
Assisted Living L.L.C. ("Prometheus"), an affiliate of Lazard Freres Real
Estate Investors LLC ("Lazard")for $14 per share.
On October 14, 1997, ARV announced that the company is not for sale
and that it intends to continue its commitment to its transaction with
Prometheus and not pursue negotiations with the Company. On October 15,
1997, ARV announced that Gary L. Davidson resigned from his offices as
Chairman, Chief Executive Officer and President of the company and as a
director of the company.
On October 31, 1997, ARV announced that it issued $60 million of 6.75%
Convertible Subordinated Notes (the "Notes") due 2007 to Prometheus. The
Notes are convertible into approximately 3.5 million shares of ARV's common
stock at $17.25 per share. This transaction, in conjunction with
Prometheus earlier purchase of 1.9 million common shares of $26.9 million,
replaces a previous agreement which called for Prometheus to purchase up to
$135 million of ARV common shares. Lazard currently owns 1.9 million
shares of common shares of ARV. The 1.9 million share position represents
approximately a 16.6% ownership in ARV. If the Notes were to be converted
in full, Lazard would have, on a fully diluted basis, a 28.2% ownership in
ARV.
The Company intends to continue to seek to negotiate with the ARV with
respect to the acquisition of ARV by the Company. If such negotiations
result in a definitive merger agreement between ARV and the Company, the
consideration to be received by holders of shares could include or consist
of securities, cash or any combination thereof. As of November 11, 1997,
the Company holds a 9.3% interest in ARV.
The Company and ARV are two of the leading companies in the senior
housing services business. The company currently holds interests in 116
communities representing capacity of 11,000 residents in 25 states and
Canada. ARV currently owns and/or operates 49 assisted-living facilities
with approximately 6,300 units in 11 states. Together, the strategic
business combination of our two companies would create a powerful critical
mass, positioning the combined enterprise well for its rapid growth both
internally and through acquisitions, providing the finest living facilities
for its thousands of senior citizen residents, and building value for its
employees, business partners, communities and, in turn, investors.
18
<PAGE>
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
4.1 Preferred Stock Purchase Agreement (including Designation
of Rights and Preferences of Series A Convertible
Exchangeable Redeemable Preferred Stock of Emeritus
Corporation Agreement, Registration of Rights Agreement and
Shareholders Agreement) dated October 24, 1997 between the
registrant ("Seller") and Merit Partners, LLC
("Purchaser").
10.1 RIDGELAND COURT IN RIDGELAND, MISSISSIPPI
10.1.1 Master Agreement and Subordination Agreement dated
September 5, 1997 between the registrant, Emeritus
Properties I, Inc., and Mississippi Baptist health
Systems, Inc.
10.1.2 License Agreement dated September 5, 1997 between the
registrant and its subsidiary and affiliated
corporations and Mississippi Baptist health Systems,
Inc.
10.1.3 Economic Interest Assignment Agreement and
Subordination Agreement dated September 5, 1997
between the registrant, Emeritus Properties I, Inc.,
and Mississippi Baptist Health Systems, Inc.,
10.2 DEVELOPMENT PROPERTY IN URBANA, ILLINOIS.
10.2.1 Lease Agreement dated September 10, 1997 between ALCO
IV, L.L.C. ("Lessor") and the registrant ("Lessee").
10.2.2 Management Agreement dated September 10, 1997 between
the registrant ("Manager" and ALCO IV, L.L.C.
("Owner").
10.3 EASTMAN ESTATES IN LONGVIEW, TEXAS
10.3.1 Lease Agreement dated September 30, 1997 between
Meditrust Acquisition Corporation I ("Lessor") and ESC
I, L.P. ("Lessee").
10.4 MEADOWLANDS TERRACE IN WACO, TEXAS
10.4.1 Loan Agreement dated September 30, 1997 between
Meditrust Mortgage Investments, Inc. ("Lender") and
ESC I, L.P. ("Borrower").
10.4.2 Promissory Note dated September 30, 1997 in the amount
of $4,288,000 between Meditrust Mortgage Investments,
Inc. ("Lender") and ESC I, L.P. ("Borrower").
10.5 Development Properties in Middleburg Heights, Ohio and
Newark, Delaware. The following agreements are
representative of those executed in connection with these
properties.
10.5.1 Lease Agreement dated September, 1997 between Emeritus
Properties I, Inc., ("Lessee") and Meditrust
Acquisition Corporation I, ("Lessor").
10.5.2 Leasehold Improvement Agreement dated September, 1997
between Emeritus Properties I, Inc., ("Lessee") and
Meditrust Acquisition Corporation I, ("Lessor").
10.6 VAN VISTA IN VANCOUVER, WASHINGTON
10.6.1 Agreement to provide Accounting and Administrative
Services dated October 1, 1997 between Acorn Service
Corporation ("Administrator") and Vancouver Housing,
L.L.C., ("Manager")
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K/A Amendment No. 1 with the
Securities and Exchange Commission on July 14, 1997, which is incorporated
herein by reference, reported under Item 2, the Company's acquisition of
the La Casa Communities and Item 7, the Company's Financial Statements of
Business Acquired and Pro Forma Financial Information with respect to the
acquisition of the La Casa Communities.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 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 (Principal Accounting Officer)
20
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
By and Among
EMERITUS CORPORATION
as Seller,
and
MERIT PARTNERS, LLC,
as Purchaser.
Dated as of October 24, 1997
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT,
dated as of October 24, 1997, by and among
EMERITUS CORPORATION, a Washington corporation
(the "Company"), as seller, and Merit Partners,
LLC, a New York limited liability company
("Purchaser"), as purchaser.
RECITALS:
A. The Company proposes to issue and
sell to the Purchaser for cash 25,000 shares (the
"Preferred Shares") of its 9% Cumulative
Convertible Exchangeable Redeemable Preferred
Stock, par value $.0001 per share (the "Preferred
Stock").
B. The Preferred Shares will be issued
pursuant to and subject to the terms and
conditions of this Agreement (the term "this
Agreement" as used herein or in any Exhibit or
Schedule hereto shall mean this Agreement and the
Exhibits and Schedules hereto individually and
collectively as they may from time to time be
modified or amended).
AGREEMENT:
The parties hereto agree as follows:
ARTICLE I
DEFINITION
Section 1.1. DEFINITIONS. As used in
this Agreement, unless the context requires a
different meaning, the following terms have the
meanings indicated:
"Affiliate" means, with respect to any
Person, either (i) any Subsidiary of such Person,
or (ii) any other Person that, directly or
indirectly, controls, is controlled by or is under
common control with such Person. For the purposes
of this definition, "control" (including, with
correlative meanings, the terms "controlled by"
and "under common control with") shall mean the
possession, directly or indirectly, of the power
to direct or cause the direction of the management
and policies of such Person, whether through the
ownership of voting securities or by contract or
otherwise.
"Agreement" has the meaning set forth in
the preamble of this Agreement.
"AMEX" is defined in Section 3.1 (g) of
this Agreement.
"Business Day" means any day except
Saturday, Sunday and any day that is a legal
holiday or on which banking institutions in the
State of New York are authorized or required by
law or other government action to close.
"Closing" has the meaning provided
therefor in Section 2.1 of this Agreement.
"Closing Date" means the date that the
Closing actually occurs.
"Company" has the meaning set forth in
the first paragraph of this Agreement.
"Designation" means that certain
statement of designation of rights and preferences
and other characteristics of the Series A
Convertible Exchangeable Redeemable Preferred
Stock of Seller, annexed hereto as Exhibit A,
pursuant to which the Preferred Stock was
authorized by the Company.
"Exchange Act" means the Securities
Exchange Act of 1934, as
2
<PAGE>
amended, and the rules and regulations promulgated
thereunder.
"Lien" means, with respect to any asset,
any mortgage, lien, pledge, encumbrance, charge or
security interest of any kind in or on such asset
or the revenues or income thereon or therefrom.
"Losses" means all damages, losses,
penalties, fines, settlement payments, obligations
to third parties, claims, costs or expenses
actually suffered or incurred by such Person
excluding any consequential, special or punitive
damages.
"Operating Agreement" means the
operating agreement of Purchaser, dated as of
October 24, 1997, by and between Merit Operating,
LLC and Merit Investor, LLC.
"Person" means an individual or a
corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited
liability company, joint stock company, government
(or an agency or political subdivision thereof) or
other entity of any kind.
"Preferred Shares" has the meaning set
forth in the preamble of this Agreement.
"Preferred Stock" has the meaning set
forth in the preamble of this Agreement.
"Purchaser" has the meaning set forth in
the first paragraph of this Agreement.
"Registration Rights Agreement" means
the certain registration rights agreement annexed
hereto as Exhibit B.
"SEC" means the Securities and Exchange
Commission.
"SEC Documents" is defined in Section
3.1(1) of this
Agreement.
"Securities Act" means the Securities
Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"Shareholders' Agreement" means that
certain shareholders' agreement annexed hereto as
Exhibit C.
"Subsidiary" means, with respect to any
Person, (i) a corporation, a majority of whose
capital stock with voting power, under ordinary
circumstances, to elect directors is at the time,
directly or indirectly, owned by such Person, by a
Subsidiary of such Person or by such Person and a
Subsidiary thereof or (ii) any other Person (other
than a corporation) in which such Person, a
Subsidiary thereof or such Person and a Subsidiary
thereof, directly or indirectly, at the date of de
termination thereof has at least a
majority ownership interest.
"Transaction Documents" is defined in
Section 3.1 (d) of this Agreement.
Section 1.2. CONSTRUCTION. When used
herein the words "herein", "hereunder", "hereby",
"hereof" and similar words refer to this Agreement
as a whole. All references to a party's
"knowledge" refer to actual knowledge and not to
any constructive or imputed knowledge.
3
<PAGE>
ARTICLE II
PURCHASE OF SHARES
Section 2.1. PURCHASE OF SHARES: THE
CLOSING.
(a) On the terms and subject to the
conditions herein set forth, the Company shall
sell to Purchaser and Purchaser shall purchase
from the Company on the Closing Date the Preferred
Shares for a purchase price of $25,000,000.
(b) The purchase and sale of the
Preferred Shares shall take place at a closing
(the "Closing") to be held at the offices of
Cahill Gordon & Reindel, 80 Pine Street, New York,
New York 10005, at 10:00 a.m. local time, on the
date hereof.
(c) Delivery of the Preferred Shares
shall be made at the Closing by delivery to
Purchaser, against payment of the purchase price
therefor provided in Section 2.1(a), of a stock
certificate representing the Preferred Shares duly
registered in the name of Purchaser.
(d) Payment of the purchase price to the
Company for the Preferred Shares shall be made by
wire transfer of same day funds pursuant to the
Company's written instructions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
In order to induce Purchaser to purchase
the Preferred Shares, the Company hereby
represents and warrants to, and agrees with,
Purchaser and its successors, endorsees and
assigns that:
(a) STATEMENT OF DESIGNATION. The
Company has filed the Designation with the
Secretary of State of the State of Washington. The
Designation and the resolutions of the Company's
Board of Directors contained therein are in full
force
and effect.
(b) ORGANIZATIONAL DOCUMENTS. The
Company has delivered to Purchaser an accurate and
complete copy of (a) its Restated Articles of
Incorporation and all amendments thereto,
certified by the Secretary of State of the State
of Washington, and (b) its Amended and Restated By
laws and all amendments thereto, certified by its
Secretary or Assistant Secretary.
(c ) EXISTENCE AND QUALIFICATION. The
Company is a corporation duly organized, validly
existing and in good standing under the laws of
the State of Washington. The Company is duly
qualified to do business and in good standing as a
foreign corporation in each jurisdiction where
standing to so qualify or be in good standing as a
foreign corporation could reasonably be expected
to have a material adverse effect on its business,
operations, properties or condition (financial or
otherwise), or its ability to perform its
obligations hereunder.
(d) POWER AND AUTHORITY. The Company has
all corporate power and authority necessary to
own, operate or lease its properties and assets
and to conduct its business as now conducted by
it. The Company has all corporate power and
authority necessary to issue the Preferred Shares
pursuant to the Designation, and to execute, de
liver, and perform its obligations under this
Agreement, the Registration Rights Agreement and
the Shareholders' Agreement (collectively, the
"Transaction
4
<PAGE>
Documents").
(e) CORPORATE ACTION. The Company has
taken all corporate action required to authorize
the issuance of the Preferred Shares pursuant to
the Designation and the execution, delivery and
performance of the Transaction Documents.
(f ) DUE EXECUTION AND DELIVERY. The
Company has duly executed and delivered each of
the Transaction Documents. The certificates
representing the Preferred Shares have been duly
and properly authorized, executed and delivered
pursuant to the Designation.
(g) CONSENTS; GOVERNMENTAL APPROVALS. No
consent or approval of any person, firm or
corporation, and no consent, license, approval or
authorization of, or registration, filing or
declaration with, any governmental authority is
required to b F obtained or made by or on behalf
of the Company in connection with the offer,
issuance and sale of the Preferred Shares, the
execution, delivery or performance of any of the
Transaction Documents or the completion of the
transactions contemplated thereby, except for (i)
the approval of the Board of Directors of the
Company, (ii) the filing of the Designation in the
state of Washington, and (iii) filings with the
SEC, the American Stock Exchange ("AMEX") and
under state securities laws that may be required;
in the cases of (i) and (ii) above, each of which
shall have been obtained or made prior to or
simultaneously with the closing of the sale of
Preferred Shares on the Closing Date.
(h) BINDING EFFECT. Each of the
Transaction Documents is a legal, valid and
binding obligation of the Company, enforceable
against the Company in accordance with its terms,
except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the
enforcement of creditors' rights generally or
limitations on the availability of equitable
remedies and except as rights to indemnification
and contribution may be limited under federal and
state securities laws.
(i) ABSENCE OF CONFLICTS. The issuance
of the Preferred Shares and the execution,
delivery and performance of the Transaction
Documents by the Company do not and will not (i)
conflict with or violate any provision of the
Restated Articles of Incorporation or Amended and
Restated By-laws of the Company, (ii) conflict
with or result in a violation, breach or default
by the Company under (x) any provision of any
existing statute, law, rule or regulation binding
on it or any order, judgment, award, decree,
license or authorization of any court or govern
mental instrumentality, authority, bureau or
agency binding on it, or (y) any material
provision of any mortgage, indenture, lease or
other contract, agreement, instrument or
undertaking to which it is a party or will be a
party immediately after the Closing, or by which
or to which it or any of its property or assets is
now or immediately after the Closing will be bound
or subject, or (iii) result in the creation or
imposition of any lien, encumbrance or other
charge on any of its properties or assets.
(j) NO DEFAULTS. None of the Company or
its Subsidiaries is, or immediately after the
Closing will be, in default under or in violation
of (i) its Restated Articles of Incorporation or
Amended and Restated By-laws, (ii) any agreement
or instrument to which it is a party relating to
its indebtedness for borrowed money, (iii) any
other agreement or instrument to which it is a
party, (iv) any statute, rule, writ, injunction,
judgment, decree, order or regulation of any court
or governmental authority having jurisdiction over
it, or (v) any license, permit, certification or
approval requirement of any customer, supplier,
governmental authority or other person, in any way
that could reasonably be expected to have a
material adverse effect on the business,
operations, properties, assets or condition
(financial or otherwise) of the Company or the
Company's ability to perform its obligations under
any of the Transaction Documents.
5
<PAGE>
(k) CAPITALIZATION AND STOCKHOLDERS.
The entire authorized, issued and outstanding
capital stock of the Company was as set forth in
the SEC Documents, on and as of the dates
indicated therein. Immediately after the Closing,
all outstanding shares of capital stock will be
duly and validly issued and after the Closing,
except as described in the SEC Documents and other
public announcements by the Company, and except
for the Preferred Shares, there will be no
options, warrants or other rights outstanding or
proposed involving the issuance of any additional
shares of capital stock of the Company, and except
for (i) the Registration Rights Agreement, (ii)
that certain registration rights agreement, dated
as of February 8, 1996, between the Company and
holders of its 6.25% Convertible Subordinated
Debentures due 2006 and (iii) that certain
shareholder agreement, dated as of April 17, 1995,
between Assisted Living of America, Inc. and
various other parties, there will be no agreements
or other instruments providing registration rights
to stockholders or holders of other securities of
the Company.
(l) SEC DOCUMENTS. (i) The Common Stock
of the Company is registered pursuant to Section
12(b) of the Exchange Act and the Company has
filed all reports, schedules, forms, statements
and other documents required to be filed by it
with the SEC pursuant to the reporting re
quirements of the Exchange Act, including material
filed pursuant to Section 13(a) or 15(d), in
addition to one or more registration statements
and amendments thereto heretofore filed by the
Company with the SEC. The Company has delivered or
made available to the Purchaser true and complete
copies of (i) its annual reports on Form 10-K and
quarterly reports on Form 10-Q for its 1995 and
1996 fiscal years, (ii) proxy statements,
information and solicitation materials filed by
the Company with the SEC since January 1, 1996,
and (iii) each other report, registration
statement, proxy statement and other document
filed with the SEC since the filing of its most
recent Form 10-K (all of the foregoing,
collectively, the "SEC Documents"). The Company
has not provided to the Purchaser any information
which, according to applicable law, rule or
regulation, should have been disclosed publicly by
the Company but which has not been so disclosed,
other than with respect to the transactions
contemplated by this Agreement.
(ii) As of their respective dates, the
SEC Documents complied in all material respects
with the requirements of the Exchange Act and
other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and
none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a
material fact required to be stated therein or
necessary in order to make the statements therein,
in light of the circumstances under which they
were made, not misleading.
(m) FINANCIAL STATEMENTS. The financial
statements of the Company included in the SEC
Documents comply as to form in all material
respects with applicable accounting requirements
and the published rules and regulations of the SEC
or other applicable rules and regulations with
respect thereto. Such financial statements have
been prepared in accordance with generally
accepted accounting principles applied on a
consistent basis during the periods involved
(except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii)
in the case of unaudited interim statements, to
the extent they may not include footnotes or may
be condensed or summary statements) and fairly
present in all material respects the financial
position of the Company as of the dates thereof
and the results of operations and cash flows for
the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit
adjustments).
(n) NO MATERIAL ADVERSE CHANGE. Since
June 30, 1997, the date through which the most
recent quarterly report of the Company on Form 10-
Q has been prepared and filed with the SEC, a copy
of which is included in the SEC Documents, there
has been no material adverse change in the
businesses, properties, prospects, operations or
financial condition of the Company and its
Subsidiaries, except as otherwise disclosed or
reflected in other SEC Documents, or otherwise
disclosed in writing to the Purchasers on or
before the Closing Date.
6
<PAGE>
(o) NO UNDISCLOSED EVENTS OR
CIRCUMSTANCES. No
event or circumstance has occurred or exists with
respect to the Company or its Subsidiaries, or
their respective businesses, properties,
operations or financial condition, which, under
applicable law, rule or regulation, requires
public disclosure or announcement by the Company
and which has not been so publicly disclosed or
announced, or otherwise disclosed in writing to
the Purchasers on or before the Closing Date.
(p) NO GENERAL SOLICITATION. Neither
the Company, nor any of its affiliates, or, to its
knowledge, any person acting on its or their
behalf has engaged in any form of general
solicitation or general advertising (within the
meaning of Regulation D under the Securities Act)
in connection with the offer or sale of the
Preferred Shares.
(q) NO INTEGRATED OFFERING. Neither the
Company, nor any of its Affiliates, nor any Person
acting on its or their behalf has, directly or
indirectly, made any offers or sales of any
security or solicited any offers to buy any
security, under circumstances that would require
registration of the Preferred Shares under the
Securities Act.
(r) BROKERS. The Company represents and
warrants that it has employed no brokers, agents
or finders in carrying on the negotiations
relating to this Agreement or to the transactions
herein contemplated.
(s) UNTRUE OR MISLEADING STATEMENTS.
Neither this Agreement nor any other Transaction
Document or other agreement, certificate,
instrument or written statement furnished by or on
behalf of the Company to the Purchaser in
connection with the transactions contemplated by
this Agreement, (including the SEC Documents but
excluding any financial forecasts or projections
furnished to or reviewed by the Purchaser), when
taken together, contains any untrue statement of a
material fact or omits a material fact necessary
to make the statements contained therein not
misleading in light of the circumstances in which
such statement were made.
(t) RESERVATION OF COMMON STOCK. As of
the Closing, the Company shall have reserved for
issuance, and will at all times keep available, a
sufficient number of shares of Common Stock to
permit the conversion of all Preferred Shares into
Common Stock. Such Common Stock when issued upon
such conversion will be duly authorized, fully
paid and non-assessable.
(u) STATUS OF SHARES. The Preferred
Shares, upon issuance by the Company following
receipt of the consideration provided for herein
and satisfaction of the other conditions set forth
herein, will be duly authorized, fully paid and
non-assessable.
(v) GOVERNMENT REGULATION. The Company
is not (i) an "investment company" as defined in
or subject to regulation under the Investment
Company Act of 1940, as amended, or controlled by
an "investment company", or (ii) subject to
regulation under the Public Utility Holding
Company Act of 1935.
Section 3.2. REPRESENTATIONS AND
WARRANTIES OF PURCHASER. Purchaser represents and
warrants to the Company, as of the date hereof, as
follows:
(a) INVESTMENT INTENT. The Preferred
Shares to be acquired hereunder are being acquired
for its own account with no intention of
distributing or reselling such Preferred Shares or
any part thereof or interest therein in any
transaction that would be in violation of the
securities laws of the United States or any State.
It is understood that the certificates evidencing
the Preferred Shares may bear one or more legends,
including a legend substantially as follows:
7
<PAGE>
The securities evidenced by this certificate
have not been registered under the Act, or
applicable state securities law, and no
interest therein may be sold, distributed,
assigned, offered, pledged or otherwise
transferred unless (i) there is an effective
registration statement under the Act and
applicable state securities laws covering any
such transaction involving said securities,
(ii) this corporation receives an opinion of
legal counsel for the holder of these
securities reasonably satisfactory to this
corporation stating that such transaction is
exempt from registration, or (iii) this
corporation otherwise satisfies itself that
such transaction is exempt from registration.
(b) TRANSFER RESTRICTIONS. Purchaser
acknowledges that the Preferred Shares are subject
to restrictions on transfer and represents and
warrants that it has reviewed and is familiar with
the provisions of the Designation and the Transac
tion Documents which impose such restrictions.
(c ) PURCHASER STATUS. Purchaser is an
" accredited investor" as defined in Rule 501(a)
under the Exchange Act, has such knowledge,
sophistication and experience in business and
financial matters so as to be capable of
evaluating the merits and risks of the prospective
investment in the Preferred Shares to be acquired
hereunder, has so evaluated the merits and risks
of such investment and is able to bear the
economic risk of such investment and, at the
present time, is able to afford a complete loss of
such investment.
(d) AUTHORIZATION; EXECUTION. The
purchase of the Preferred Shares to be acquired
hereunder has been duly and properly authorized by
the Purchaser by all necessary action and the
Transaction Documents have been duly executed and
delivered by it and neither the purchase of the
Preferred Shares to be acquired hereunder nor the
execution and performance of the Transaction
Documents conflicts with or violates its operating
agreement or any law, regulation or court order
applicable to it or any other agreement to which
it is subject.
(e) PURCHASER ' S INVESTIGATION.
Purchaser has made such examination, review and
investigation of facts and circumstances necessary
to evaluate the purchase of the Preferred Shares
to be acquired hereunder as it has deemed
necessary or appropriate and has made its own
investment determination and analysis based upon
such information as Purchaser deemed sufficient to
enter into this Agreement and not based on any
statements or representations by the Company.
(f) ORGANIZATION; ORGANIZATIONAL
DOCUMENTS. Purchaser is a limited liability
company duly organized, validly existing and in
good standing under the laws of the State of New
York. Purchaser has all requisite power and
authority to own and lease its properties and to
carry on its business as presently conducted
except where a lack of such power would not
reasonably be expected to have a material adverse
effect upon the financial condition, business, or
results of operations of Purchaser. Purchaser has
all the power and authority necessary to execute,
deliver and perform its obligations under the
Transaction Documents. Purchaser has delivered to
the Company an accurate and complete copy of (i)
its Articles of Organization, certified by the
Secretary of State of the State of New York and
(ii) the Operating Agreement.
(g) CONSENTS; GOVERNMENTAL APPROVALS.
No consent or approval of any person, firm or
corporation, and no consent, license, approval or
authorization of, or registration, filing or
declaration with, any governmental authority is
required to be obtained or made by or on behalf of
Purchaser in connection with the purchase of the
Preferred Shares, the execution, delivery or
performance by the Purchaser of any of the Transac
tion Documents or the completion of the
transactions contemplated thereby, except for the
approval of Merit Operating, LLC, a New York
limited liability company and the managing member
of Purchaser; such approval shall have been
obtained or made to or simultaneously with the
closing of the sale of Preferred Shares on the
Closing Date.
8
<PAGE>
(h) BINDING EFFECT. Each of the
Transaction Documents is a legal, valid and
binding obligation of Purchaser, enforceable
against Purchaser in accordance with its terms, ex
cept as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the
enforcement of creditors' rights generally or
limitations on the availability of equitable
remedies and except as rights to indemnification
and contribution may be limited under federal and
state securities laws.
ARTICLE IV
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligation of Purchaser to purchase
Preferred Shares hereunder on the Closing Date
shall be subject to the satisfaction of each of
the following conditions precedent on the Closing
Date:
Section 4.1. REPRESENTATIONS. All
representations and warranties made in this
Agreement, any other Transaction Document and in
any other agreement, certificate or instrument
furnished to Purchaser in connection herewith
shall be true and correct in all material respects
with the same force and effect as though such
representations and warranties had been made at
the time of, and immediately after giving effect
to, the sale of Preferred Shares.
Section 4.2. NO MATERIAL ADVERSE
CHANGE. Purchaser shall be satisfied that no
event, circumstance or condition shall have
occurred and be continuing that could reasonably
be expected to have a material adverse effect on
the Company's business, operations, prospects,
properties or condition (financial or otherwise),
or its ability to perform its obligations
hereunder.
Section 4.3. SUSPENSION OF TRADING.
Trading in the Company's Common Stock shall not
have been suspended by the SEC or any exchange on
which it is listed for trading (except for any
suspension of trading of limited duration agreed
to by the Company solely to permit dissemination
of material information regarding the Company),
and trading in securities generally as reported by
such exchange(s) shall not have been suspended or
limited.
Section 4. 4. REGISTRATION RIGHTS
AGREEMENT. The Company shall have executed and
delivered to Purchaser a Registration Rights
Agreement substantially in the form of Exhibit B
attached hereto.
Section 4.5. SHAREHOLDERS' AGREEMENT.
The Company shall have executed and delivered to
Purchaser a Shareholders' Agreement substantially
in the form of Exhibit C attached hereto.
Section 4.6. LEGAL OPINION. The Company
shall have delivered to Purchaser the executed
legal opinion of counsel to the Company, dated the
Closing Date, in form and substance reasonably
satisfactory to the Purchaser and their counsel.
Section 4.7. ADDITIONAL DOCUMENTS.
Purchaser shall have received all such agreements,
documents, instruments, approvals, certificates,
legal opinions and information as the Purchaser
shall reasonably request in connection with this
Agreement, the Preferred Shares and the
transactions herein and therein contemplated, all
of which shall be in form and in substance
reasonably satisfactory to Purchaser and its
counsel.
Section 4.8. ADDITIONAL MATTERS. All
other documents and legal matters in connection
with the transactions contemplated by this
Agreement shall be reasonably satisfactory to
Purchaser.
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Section 4.9. NO GOVERNMENTAL PROCEEDING
OR LITIGATION. At the Closing Date, no order,
injunction, decree or judgment of any court or
administrative agency shall be in effect which
restrains or prohibits the transactions
contemplated hereby, and no suit, action,
investigation, inquiry or proceeding by any
governmental body, or legal or administrative pro
ceeding by any governmental body shall have been
instituted, or threatened in writing, which
questions the validity or legality of the
transactions contemplated hereby.
ARTICLE V
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligations of the Company under
this Agreement to consummate the sale of the
Preferred Shares to be acquired by Purchaser
hereunder and the other transactions contemplated
hereby shall be subject to the satisfaction, on or
before the Closing Date, of the following
conditions:
Section 5.1. REPRESENTATIONS AND
WARRANTIES TRUE. The representations and
warranties contained in Section 3.2 hereof are
true and accurate in all material respects as of
the date when made (or with respect to those
representations stated to be as of a different
date, as of such date).
Section 5.2. PERFORMANCE OF COVENANTS.
Purchaser shall have performed and complied, in
all material respects, with each and every
covenant, agreement and condition required by this
Agreement to be performed or complied with by it
prior to or on the Closing Date.
Section 5.3. NO GOVERNMENTAL PROCEEDING
OR LITIGATION. At the Closing Date, no order,
injunction, decree or judgment of any court or
administrative agency shall be in effect which
restrains or prohibits the transactions
contemplated hereby, and no suit, action,
investigation, inquiry or proceeding by any
governmental body, or legal or administrative pro
ceeding by any governmental body shall have been
Instituted, or threatened in writing, which
questions the validity or legality of the
transactions contemplated hereby.
Section 5.4. SHAREHOLDERS' AGREEMENT.
Purchaser shall have executed and delivered to the
Company a Shareholders' Agreement substantially in
the form of Exhibit C attached hereto.
Section 5.5 LEGAL OPINION Purchaser
shall have delivered to the Company the executed
legal opinion of counsel to Purchaser, dated the
Closing Date, in form and substance reasonably
satisfactory to the Company and their counsel.
Section 5.6 ADDITIONAL DOCUMENTS. The
Company shall have received all such agreements,
documents, instruments, approvals, certificates,
legal opinions and information as the Company
shall reasonable request in connection with this
Agreement, the Preferred Shares and the
transactions herein and therein contemplated, all
of which shall be in form and in substance
reasonably satisfactory to the Company and its
counsel.
Section 5.7 ADDITIONAL MATTERS. All
other documents and legal matters in connection
with the transactions contemplated by this
Agreement shall be reasonably satisfactory to the
Company.
ARTICLE VI
ADDITIONAL COVENANTS OF THE COMPANY
The Company covenants and agrees that:
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Section 6.1. REGISTRATION AND LISTING.
The Company will use its best efforts to cause its
Common Stock to continue to be registered under
Sections 12(b) or 12(g) of the Exchange Act, will
comply in all respects with its reporting and
filing obligations under the Exchange Act, will
comply with all requirements related to any
registration statement filed pursuant to this
Agreement and will not take any action or file any
document (whether or not permitted by the
Securities Act or the Exchange Act or the rules
thereunder) to terminate or suspend such
registration or to terminate or suspend its
reporting and filing obligations under such Acts.
The Company will use its best efforts to continue
the listing or trading of its Common Stock on the
AMEX or Nasdaq National Market and comply in all
respects with the Company's reporting, filing and
other obligations under the bylaws or rules of
such exchange or Nasdaq, as the case may be.
Section 6.2. FINANCIAL STATEMENTS AND
INFORMATION.
The Company will furnish or cause to be furnished
to the Purchaser the following financial
statements and information:
(a) All reports and other written
communications delivered by the Company to
its stockholders as such, and all
registration statements (when available to
the public) and periodic reports filed by the
Company with the SEC or any securities
exchange, pursuant to the Securities Act, the
Exchange Act, or the rules of such securities
exchange.
(b) With reasonable promptness, (i) all
financial statements or reports (including
comment letters to management) furnished to
the Company by its independent certified
public accountants, and (ii) all press
releases other than press releases dealing
with the sale of its products in the usual
and ordinary course of its business.
Section 6.3. USE OF PROCEEDS. The
Company will use the proceeds received from the
sale of Preferred Shares (a) for general corporate
purposes and real estate and corporate acqui
sitions and (b) to fund the legal and other
reasonable expenses of the transactions
contemplated by this Agreement and all other
agreements delivered in connection herewith and
therewith.
Section 6.4. EXPENSES. The Company will
pay all reasonable out-of-pocket expenses of
Purchaser in connection with this Agreement and
the transactions contemplated hereby.
Section 6.5. PUBLIC ANNOUNCEMENTS;
CONFIDENTIALITY.
Except as agreed by the Company and the Purchaser
and except for such disclosures as may be required
by law, legal process or regulatory authority;
neither party hereto shall issue any press release
or otherwise make any announcement or disclosure
concerning the transactions herein contemplated
unless such information is already in the public
domain.
Section 6.6. SALES AND TRANSFER TAXES.
All transfer taxes incurred in connection with
this Agreement and the transactions contemplated
hereby shall be borne by the Company.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
Section 7.1. SURVIVAL OF AGREEMENTS. The
representations and warranties of the Company and
of Purchaser set forth in Article III hereof shall
survive the Closing until the second anniversary
of the date of this Agreement.
Section 7.2. INDEMNIFICATION BY THE
COMPANY. The
Company shall indemnify and hold harmless
Purchaser from and against any and all Losses
suffered or incurred by. Purchaser as a result of
the breach or incorrectness of any
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representation and warranty of the Company set
forth in Section 3.1 of this Agreement. Purchaser
shall promptly notify the Company in writing of
the occurrence of any event, or of its discovery
of any facts, which in Purchaser's opinion entitle
or may entitle it to indemnification hereunder.
Purchaser's failure to do so shall not preclude it
from seeking indemnification hereunder from the
Company unless such failure has materially
prejudiced the Company's ability to defend as
provided herein. With respect to any threatened or
asserted claims of third parties, the Company
shall have the right to defend such claims by coun
sel of their choosing and to direct or control the
defense and settlement thereof. Purchaser shall
cooperate in all reasonable respects with such
counsel. In no event shall the indemnification
obligations of the Company exceed the aggregate
sale price of the Preferred Shares sold by the
Company pursuant to this Agreement, plus
reasonable legal fees and expenses.
Section 7. 3. INDEMNIFICATION OF
PURCHASER. Purchaser shall indemnify and hold
harmless the Company from and against any and all
Losses suffered or incurred by the Company as a
result of the breach or incorrectness of any
representation and warranty of the Company set
forth in Section 3.2 of this Agreement. The
Company shall promptly notify Purchaser in writing
of the occurrence of any event, or of its
discovery of any facts, which in the Company's
opinion entitle or may entitle it to
indemnification hereunder. The Company's failure
to do so shall not preclude it from seeking
indemnification hereunder from Purchaser unless
such failure has materially prejudiced Purchaser's
ability to defend as provided herein. With respect
to any threatened or asserted claims of third
parties, Purchaser shall have the right to defend
such claims by counsel of its choosing and to
direct or control the defense and settlement
thereof. The Company shall cooperate in all
reasonable respects with such counsel. In no event
shall the indemnification obligations of the
Purchaser exceed the aggregate purchase price of
the Preferred Shares purchased by the Purchaser
pursuant to this Agreement. Notwithstanding the
foregoing, no representation, warranty, covenant
or acknowledgment made herein by the Purchaser
shall in any manner be deemed to constitute a
waiver of any rights granted to it under the
Exchange Act or state securities laws.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. NO WAIVER;, MODIFICATIONS
IN WRITING. (a) No failure or delay on the part
of the Company or Purchaser in exercising any
right, power or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy
preclude any other or further exercise thereof or
the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be
available to the Company or Purchaser at law or in
equity. No waiver of or consent to any departure
by the Company or Purchaser from any provision of
this Agreement shall be effective unless in
writing and signed by the party entitled to the
benefit thereof. No amendment, modification or
termination of any provision of this Agreement
shall be effective unless in writing and signed by
or on behalf of the Company and Purchaser. Any
amendment, supplement or modification of or to any
of this Agreement, any waiver of any provision of
this Agreement, and any consent to any departure
from the terms of any provision of this Agreement,
shall be effective only in the specific instance
and for the specific purpose for which made or
given.
Section 8.2. NOTICES. All notices and
demands provided for hereunder shall be in
writing, and shall be given by registered or
certified mail, return receipt requested, tele
copy, courier service or personal delivery, and,
if to Purchaser, addressed to Purchaser at:
Merit Partners, LLC
299 Park Avenue, 33rd Floor
New York, New York 10022
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<PAGE>
Attention: Richard J. Sabella
With a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attention: Jonathan I. Mark, Esq.
Telephone: (212) 701-3000
Telecopy: (212) 269 - 5420
or to such other address as Purchaser may
designate to the Company in writing and, if to the
Company, addressed to the Company at :
Emeritus Corporation
3131 Elliot Avenue
Suite 500
Seattle, Washington 98121
Attention: Kelly J. Price
Telephone: (206) 298-2909
Telecopy: (206) 301-4500
With a copy to:
Perkins & Coie
1201 Third Avenue
Seattle, Washington 98101
Attention: Michael E. Stansbury, Esq.
Telephone: (206) 583-8771
Telecopy: (206 ) 583 - 8500
or to such other address as the Company may
designate in writing. All such notices and demands
shall be deemed given when received.
Section 8.3. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of
counterparts and by different parties hereto on
separate counterparts, each of which counterparts,
when so executed and delivered, shall be deemed to
be an original and all of which counterparts,
taken together, shall constitute but one and the
same Agreement.
Section 8.4. BINDING EFFECT; ASSIGNMENT.
The rights of Purchaser or the Company under this
Agreement may not be assigned to any other Person
except with the prior written consent of the other
parties hereto. This Agreement shall not be
construed so as to confer any right or benefit
upon any Person other than the parties to this
Agreement, and their respective successors and
permitted assigns. This Agreement shall be binding
upon the Company and Purchaser, and their
respective successors and permitted assigns.
Section 8.5. GOVERNING LAW. (a) THIS
AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE
UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR
ALL PURPOSES SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
(b) THE COMPANY HEREBY EXPRESSLY WAIVES
ANY RIGHT IT MAY HAVE NOW OR HEREAFTER TO A JURY
TRIAL IN ANY SUIT,
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ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OF THE PREFERRED SHARES OR
THE SECURITIES INTO WHICH THEY MAY BE CONVERTED OR
FOR WHICH THEY MAY BE EXCHANGED.
(c) Upon breach or default by the
Company with respect to any obligation hereunder,
under the Preferred Shares or the Securities into
which they may be converted or for which they may
be exchanged, the Purchaser (or its agents) shall
be entitled to protect and enforce their rights at
law, or in equity or by other appropriate
proceedings for specific performance of such
obligation, or for an injunction against such
breach or default, or in aid of the exercise of
any power or remedy granted hereby or thereby or
by law.
Section 8.6. SEVERABILITY OF PROVISIONS.
Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without
invalidating the remaining provisions hereof or
affecting the validity or enforceability of such
provision in any other jurisdiction.
Section 8.7. HEADINGS. The Article and
Section headings used or contained in this
Agreement are for convenience of reference only
and shall not affect the construction of this
Agreement.
Section 8.8. NO RELIANCE. Each party
hereto acknowledges that it has obtained separate
advice with respect to the legal, tax and
accounting consequences of the transactions con
templated by this Agreement, and that it has
neither sought nor relied upon any such advice
from any other party hereto or its Affiliates.
Section 8.9. ENTIRE AGREEMENT. This
Agreement and agreements executed
contemporaneously herewith constitute the entire
agreement among the parties with respect to the
purchase and sale of the Preferred Shares to be
acquired by Purchaser hereunder, and, as of the
date hereof, there are no promises or undertakings
with respect thereto relative to the subject mat
ter hereof not expressly set forth or referred to
herein.
Section 8.10. FURTHER ASSURANCES. Each
of the Company and the Purchaser will execute and
deliver or cause to be executed and delivered such
further instruments and do or cause to be done
such further acts as may be reasonably necessary
to carry out its obligations under this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto
have caused this Agreement to be executed as of
the date first above written.
EMERITUS CORPORATION
By: /s/ Kelly J. Price
------------------------
Name: Kelly J. Price
Title: Vice President of Finance
MERIT PARTNERS, LLC
By: MERIT OPERATING, LLC
By: NORTHSTAR OPERATING, LLC
By: /s/ David Hamamoto
-------------------------
Name: David Hamamoto
Title: Authorized Signatory
<PAGE>
DESIGNATION
OF RIGHTS AND PREFERENCES
OF
SERIES A CONVERTIBLE EXCHANGEABLE REDEEMABLE
PREFERRED STOCK OF
EMERITUS CORPORATION
A series of Preferred Stock of Emeritus
Corporation (the "Company") is hereby designated
with the rights, preferences, privileges and
limitations set forth below.
l. DESIGNATION AND AMOUNT.
The shares of such series shall be
designated "Series A Convertible Exchangeable
Redeemable Preferred Stock" (the
"Series A Preferred Stock"), $.0001 par value,
with a stated value of $1,000 per share and the
number of shares constituting the Series A
Preferred Stock shall be 25,000.
2. DIVIDENDS.
(a) RATE AND PAYMENT. The holders of
record of shares of the Series A Preferred Stock,
when and as declared by the Board of Directors out
of any assets legally available therefor, shall be
entitled to receive cumulative dividends at the
rate per annum and per share equal to the Accrual
Rate (as defined below) of the stated value per
share of the Series A Preferred Stock. Such
dividends shall be payable quarterly in arrears on
January 1, April l, July 1 and October 1 of each
year ( "Dividend Payment Dates " ) commencing
January 1, 19 9 8, until the earlier to occur of
(i) the date of any conversion, exchange or
redemption of the Series A Preferred Stock (but
only with respect to those shares of Series A
Preferred Stock so converted, exchanged or
redeemed) or (ii) October 24, 2004 (the "Maturity
Date"). Dividends on outstanding Series A
Preferred Stock shall accrue from the date of
original issuance of such Series A Preferred
Stock. If the holders of record of shares of the
Series A Preferred Stock do not receive on a
Dividend Payment Date the full dividends provided
for above, such dividends shall cumulate, whether
or not earned or declared. Whenever, at any tire
or times, cash dividends shall be in arrears in an
amount equal to six (6) full consecutive quarterly
dividends, accrued and unpaid dividends shall be
compounded quarterly (retroactive to the date on
which dividends were last paid) commencing at the
time such sixth quarterly dividend is due and
payable and ending when the number of unpaid
dividends has been reduced below six by payment of
some or all of the dividends in arrears. The
amount of any dividends "accrued" on any share of
the Series A Preferred Stock at any date shall be
calculated as the amount of any unpaid dividends
accumulated to and including the date as of which
the calculation is made, compounded as set forth
above, whether or not earned or declared. "Accrual
Rate" means 9% per annum unless the Company shall
be in default in payment of dividends or
performance of its obligations hereunder, in which
case and for which periods such rate shall be 11%
per annum.
(b) RESTRICTED PAYMENT; DIVIDEND
ARREARAGES. So long as any of the shares of
Series A Preferred Stock are outstanding, no
dividends shall be paid or declared, nor any dis
tribution be made, on the Company's Common Stock,
par value $.0001 per share ("Common Stock"), nor
shall any shares of Common Stock, or any other
security junior to the Series A Preferred Stock,
be acquired by the Company for consideration other
than consideration constituting capital stock of
the Company, unless all dividends then payable on
the Series A Preferred Stock shall have been paid
or declared and payment thereof provided for.
3. LIQUIDATION RIGHTS.
(a) In the event of any liquidation,
dissolution or winding up of the Company, either
voluntary or involuntary (a "Liquidation"), the
holders of the Series A Preferred Stock shall be
entitled to receive a preferential amount equal to
$1,000 for each
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share of Series A Preferred Stock then held by
them (subject to adjustment in the event of any
stock dividend, stock split, stock distribution or
combination with respect to such shares) (the
"Liquidation Preference") plus an amount equal to
any accrued but unpaid dividends, prior and in
preference to any such distribution to the holders
of the Common Stock or any other class or series
of the Company's capital stock ranking junior as
to liquidation rights to the Series A Preferred
Stock; provided, however, that such rights shall
accrue to the holders of Series A Preferred Stock
only in the event that the Company's payments with
respect to the liquidation preferences of the
holders of capital stock of the Company, if any,
ranking senior as to liquidation rights to the
Series A Preferred Stock are fully met. Upon
receipt of such amount, the holders of the Series
A Preferred Stock shall have no further rights to
participate in any remaining assets of the
Company. If upon the occurrence of such event the
assets and funds thus distributed among the
holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders
of the full aforesaid preferential amount, then
the entire assets of the Company legally available
for distribution shall be distributed among the
holders of the Series A Preferred Stock in
proportion to the full preferential amount each
such holder is otherwise entitled to receive.
(b) A reorganization, consolidation or
merger of the Company with or into any other
corporation or corporations, or a sale of all or
substantially all of the assets of the Company,
shall not be deemed to be a liquidation,
dissolution or winding up within the meaning of
this Section 3.
4. REDEMPTION.
(a) MANDATORY REDEMPTION. The Company
shall be obligated to redeem on the Maturity Date
(to the extent such redemption shall not violate
any applicable provisions of the laws of the State
of Washington), at a price per share equal to the
Liquidation Preference thereof, together with any
accrued but unpaid dividends, all of the shares of
Series A Preferred Stock. If the Company is unable
on the Maturity Date to redeem the Series A
Preferred Stock because such redemption would vio
late the applicable laws of the State of
Washington, then the Company shall redeem such
shares as soon thereafter as redemption would not
violate such laws.
(b ) OPTIONAL REDEMPTION.
(i) At any time on or after October 24,
2001, the Company may redeem all, or any portion,
of the Series A Preferred Stock then outstanding,
if the Sale Price (as defined below) of the Common
Stock in its principal trading market is at least
130% of the then effective Conversion Price (as de
fined below) in effect for any 20 Trading Days out
of any 40 consecutive Trading Days ending not more
than five Trading Days prior to the date the
notice of redemption is mailed at the redemption
price per share equal to 105% of the Liquidation
Preference, together with any accrued and unpaid
dividends on such shares. The Company shall effect
each such redemption pro rata according to the
number of shares of Series A Preferred Stock held
by each holder thereof.
(ii) For purposes of this statement of
designation, the date of any redemption pursuant
to subsection 4(b)(i) is hereinafter referred to
as an "Optional Redemption Date." For purposes of
this statement of designation, "Trading Day" means
a day on which the principal national securities
exchange on which the Common Stock is listed is
open for the transaction of business or, if the
Common Stock is not listed or admitted to trading
on any national securities exchange, a day on
which any New York Stock Exchange member firm is
open for the transaction of business; the "Sale
Price" of Common Stock shall be the reported
closing price of the Common Stock on the principal
national securities exchange on which the Common
Stock is listed or admitted to trading or, if the
Common Stock is not listed or admitted to trading
on any national securities exchange, the last
reported sale price of the Common Stock on the
National Association
of Securities Dealers Automated Quotation System
("NASDAQ"), or, in the case no such sale price is
so reported on such day, the closing bid price
quotation therefor on the
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<PAGE>
NASDAQ, or, in case no such quotation is
available, the price determined in the good faith
judgment of the Board of Directors of the Company
(irrespective of the accounting treatment
thereof).
(c) REDEMPTION PROCEDURES.
(i) For purposes of this statement of
designation,
"Redemption Date" shall refer to the Maturity Date
or any Optional Redemption Date, and the
applicable redemption price per share as at such
Redemption Date is hereinafter referred to as the
"Redemption Price." At least 20 but not more than
60 days prior to any Redemption Date, written
notice shall be mailed, first class, postage
prepaid, to each holder of record of Series A
Preferred Stock to be redeemed, at his or its post
office address last shown on the records of the
Company, notifying such holder of the number of
shares so to be redeemed, calling upon such holder
to surrender to the Company, in the manner and at
the place designated, its certificate or certifi
cates representing the shares to be redeemed (such
notice is hereinafter referred to as the
"Redemption Notice") and stating the Redemption
Price for such shares to be redeemed. On or prior
to each Redemption Date, each holder of Series A
Preferred Stock to be redeemed shall surrender its
certificate or certificates representing such
shares to the Company, in the manner and at the
place designated in the Redemption Notice, and
thereupon the Redemption Price of such shares,
together with any accrued but unpaid dividends on
such shares to the Redemption Date, shall be
payable to the order of the person whose name
appears on such certificate or certificates as the
owner thereof and each surrendered certificate
shall be canceled. In the event less than all the
shares represented by any such certificate are
redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after
the Redemption Date, unless there shall have been
a default in payment of the Redemption Price, all
rights of the holders of the Series A Preferred
Stock designated for redemption in the Redemption
Notice as holders of Series A Preferred Stock of
the Company (except the right to receive the
Redemption Price without interest upon surrender
of their certificate or certificates) shall cease
with respect to such shares, and such shares shall
not thereafter be transferred on the books of the
Company or be deemed to be outstanding for any
purpose whatsoever.
(ii) Neither failure to mail a
Redemption Notice, nor any defect therein or in
the mailing thereof, to any particular holder
shall affect the sufficiency of the notice or the
validity of the proceedings for redemption with
respect to any other holder. Any Redemption Notice
mailed in the manner herein provided shall be
conclusively presumed to have been duly given
whether or not the holder receives the notice.
(iii) If the Redemption Notice has been
given pursuant to this Section 4 and any holder of
shares of Series A Preferred Stock to be redeemed
shall, prior to the close of business on the
Redemption Date, give written notice to the
Company pursuant to Section 7(c) of the conversion
of any or all of the shares to be redeemed held by
the holder, then the redemption shall not become
effective as to the shares to be converted and the
conversion shall become effective as provided in
Section 7(c), whereupon any funds deposited by the
Company, or on its behalf, with a paying agent or
segregated and held in trust by the Company for
the redemption of such shares shall (subject to
any right of the holder of such shares to receive
the dividend payable thereon as provided in
Section 7 below) immediately upon such conversion
be returned to the Company or, if then held in
trust by the Company, shall be discharged from the
trust.
(d) NO OTHER PERMITTED REDEMPTIONS; NO
DEFAULTS; RETIREMENT.
(i) Except as expressly provided in
paragraphs (a) and (b) of this Section 4 and in
Section 5(a), the Company shall have no right to
redeem or exchange the shares of Series A
Preferred Stock.
(ii) No redemption, purchase or exchange
shall be effected pursuant to
4
<PAGE>
Sections 4 or 5 if the effect of same would to
cause an event of default (or which, with notice,
lapse of time or both would constitute an event of
default) under the
terms of any Indebtedness of the Company. For
purposes of this statement of designation,
"Indebtedness" of the Company as of any date shall
mean and include all material recourse indebted
ness for money borrowed of the Company or
evidenced by notes, bonds, debentures or similar
evidences of indebtedness of the Company.
5. EXCHANGE.
(a) Subject to the restrictions in
Section 5(e) below, shares of the Series A
Preferred Stock shall be exchangeable at the
option of the Company, in whole only, at any time,
in redemption of and in exchange for the shares of
the Series A Preferred Stock, for the Company's 9%
Convertible Debentures (the "Debentures") in the
manner provided in this Section 5. The Debentures
will be subject to the terms and conditions of an
indenture (the "Indenture") with an independent
institutional trustee meeting the qualification
requirements under the Trust Indenture Act of
1939, as amended, in customary form with terms and
conditions substantially equivalent to those of
the Series A Preferred Stock. The Debentures shall
be convertible into Common Stock at the Conversion
Price (as defined below).
(b) The Debentures will be issued solely
in redemption of and in exchange for shares of the
Series A Preferred Stock at the rate of $1,000
principal amount of Debentures for each share of
Series A Preferred Stock on the Debenture Exchange
Date (as defined below).
(c) Not less than 30 nor more than 60
days prior to each date fixed for the issue of
Debentures in redemption of and in exchange for
shares of the Series A Preferred Stock pursuant to
this Section 5, a notice shall be given by first-
class mail, postage prepaid, to the holders of
record of the shares of Series A Preferred Stock
to be exchanged for Debentures at their respective
addresses as the same shall appear on the books of
the transfer agent for the Series A Preferred
Stock, specifying the effective date of the
exchange for the Debentures (the "Debenture
Exchange Date") and the place where certificates
for such shares are to be surrendered for
Debentures and stating that dividends on such
shares will cease to accrue on the Debenture
Exchange Date. Neither failure to mail such
notice, nor any defect therein or in the mailing
thereof, to any particular holder shall affect the
sufficiency of the notice or the validity of the
proceedings for redemption and exchange with
respect to any other holder. Any notice mailed in
the manner herein provided shall be conclusively
presumed to have been duly given whether or not
the holder receives the notice.
(d) If notice of redemption and
exchange has been given pursuant to this Section 5
then (unless the Company shall default in issuing
the Debentures in redemption of and in exchange
for shares of the Series A Preferred Stock or
shall fail to pay or set aside accrued and unpaid
dividends on shares of the Series A Preferred
Stock as provided in Section 5(e) and
notwithstanding that any certificates for shares
of the Series A Preferred Stock have not been
surrendered for exchange), on the Debenture
Exchange Date, the holders of such shares shall
cease to be shareholders with respect to the
shares and shall have no interest in or claims
against the Company by virtue thereof (except the
right to receive Debentures in exchange therefor
and such accrued and unpaid dividends thereon to
the Debenture Exchange Date), shall have no
voting, conversion or other rights with respect to
such shares, and such shares shall no longer be
outstanding. Upon the surrender (and endorsement,
if required by the Company) of the certificates
for shares of the Series A Preferred Stock in
accordance with such notice, such certificates
shall be exchanged for Debentures and such accrued
and unpaid dividends in accordance with this
Section 5. If notice of redemption and exchange
has been given pursuant to this Section 5 and any
holder of shares of Series A Preferred Stock to be
exchanged for Debentures shall, prior to the close
of business on the Debenture Exchange Date, give
written notice to the Company pursuant to Section
7(c) of the conversion of any or all of the shares
to be redeemed and exchanged held by the holder,
then the redemption and
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<PAGE>
exchange shall not become effective as to the
shares to be converted and the conversion shall
become effective as provided in Section 7(c),
whereupon any funds deposited by the Company, or
on its behalf, with a paying agent or segregated
and held in trust by the Company for the
redemption and exchange of such shares shall
(subject to any right of the holder of such shares
to receive the dividend payable thereon as
provided in Section 7 below) immediately upon such
conversion be returned to the Company or, if then
held in trust by the Company, shall be discharged
from the trust.
(e) Prior to giving notice of intention
to exchange, the Company and the Trustee shall
execute and deliver the Indenture, with such
changes therein as may be required by law, or the
rules of any securities exchange on which the
Debentures are to be listed, if any. The Company
will cause the Debentures to be authenticated on
or before the first Debenture Exchange Date.
Additionally, prior to giving the first notice of
intention to exchange, the Company shall (i)
register the Debentures for trading through The
Depository Trust Company, (ii) list the Debentures
for inclusion in the principal trading market in
which the shares of the Series A Preferred Stock
were trading, if any, immediately prior to such
exchange, and (iii) arrange for the qualification
of the Debentures under applicable securities and
blue sky laws, to the extent necessary under such
laws. If on the Debenture exchange Date the
Company has failed to pay or set aside, separate
and apart from its other funds, in trust for the
pro rata benefit of the holders of shares of the
Series A Preferred Stock, all dividends accrued
and unpaid on the shares of the Series A Preferred
Stock to such Debenture Exchange Date then no
shares of the Series A Preferred Stock shall be
redeemed or exchanged for Debentures.
(f) Prior to or upon the consummation of
any exchange pursuant to this Section 5, the
holders shall have received an opinion from
Company counsel, in form and substance reasonably
satisfactory to the holders, that the Indenture
(i) has been duly authorized, executed and
delivered by the Company and (ii) constitutes a
valid and binding agreement of the Company,
enforceable against the Company in accordance with
its terms.
(g) The Company agrees to indemnify and
hold harmless each holder of Preferred Stock
against any tax liabilities or other tax
detriments occasioned by an exchange of the Series
A Preferred Stock for Debentures.
6. VOTING RIGHTS.
(a) Each issued and outstanding share
of Series A Preferred Stock shall be entitled to
receive notice of each meeting of the shareholders
of the Company and at each such meeting shall be
entitled to the number of votes equal to (i) $500,
divided by (ii) the then effective Conversion
Price with respect to any and all matters
presented to the shareholders of the Company for
their action or consideration. Except as provided
by law or by the provisions of subsections (b) and
(c) below, holders of Series A Preferred Stock
shall vote together with the holders of Common
Stock as a single voting group.
(b) (i) Whenever, at any time or times,
cash dividends shall be in arrears in an amount
equal to six full consecutive quarterly dividends,
the holders of the outstanding Series A Preferred
Stock shall have the exclusive right, voting
separately as a class, to elect one director of
the Company at any meeting of shareholders of the
Company called for the purpose of electing
directors; provided, that if the number of di
rectors on the Board of Directors shall be
increased, such number of directors of the Company
which the holders of Series A Preferred Stock
shall have the right to elect shall be that number
of directors (rounded downward, in the case of a
non-integer result, to the then existing integer),
and the replacements and any successors thereto,
to the Board of Directors of the Company so that
at all times the number of directors so elected
shall be equal to the product obtained by
multiplying (x) the number of directors
constituting the Board of Directors of the Company
at such time by (y) 1/7. Upon the vesting of such
right of the holders of the Series A Preferred
Stock, any applicable number of directors of
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<PAGE>
the Company set forth in the Restated Articles of
Incorporation or Restated By-Laws of the Company,
as determined pursuant thereto, shall
automatically be increased by one and the vacancy
so created shall be filled immediately by vote of
the holders of the outstanding Series A Preferred
Stock as hereinabove set forth. Such right of the
holders of the Series A Preferred Stock, voting
separately as a class, to elect one member of the
Board of Directors of the Company as aforesaid
shall continue until such time as all dividends
accumulated on the Series A Preferred Stock shall
have been paid in full, at which time such right
shall terminate, subject to revesting in the event
of each and every subsequent default of the
character above mentioned.
(ii) Upon any termination of the right
of the holders of the Series A Preferred Stock as
a class to vote for directors as herein provided,
the term of office of any director then in office
elected by the holders of Series A Preferred Stock
voting pursuant to this Section 6 as a class shall
terminate immediately.
(iii) If the office of any director
elected by the holders of the Series A Preferred
Stock voting as a class becomes vacant by reason
of death, resignation, retirement, dis
qualification, removal from office or otherwise,
the holders of the Series A Preferred Stock voting
separately as a class may elect a successor who
shall hold office for the unexpired term in
respect of which such vacancy occurred. Whenever
the term of office of the director elected by the
holders of the Series A Preferred Stock voting as
a class shall end and the special voting powers
vested in the holders of the Series A Preferred
Stock as herein provided shall have expired, the
number of directors shall be such a number as may
be provided for in the Restated Articles of
Incorporation or Restated By-Laws of the Company,
or determined pursuant thereto, irrespective of
any increase made pursuant to the foregoing
provisions.
(c) The Company shall not amend, alter
or repeal the preferences, special rights or other
powers of the Series A Preferred Stock so as to
affect adversely the Series A Preferred Stock,
without the written consent or affirmative vote of
the holders of a least a majority of the then
outstanding aggregate number of shares of Series A
Preferred Stock, given in writing or by vote at a
meeting, consenting or voting (as the case may be)
separately as a voting group.
7. CONVERSION. The holders of the Series
A Preferred Stock shall have conversion rights as
follows (the
"Conversion Rights " ) :
(a) OPTIONAL CONVERSION. Each share of
Series A Preferred Stock may be converted at
any time, and from time to time, at or prior
to the Maturity Date, at the option of the
holder thereof, in the manner hereinafter pro
vided, into such number of shares of fully-
paid and non-assessable shares of Common
Stock as shall equal (i) the Liquidation
Preference per share of Series A Preferred
Stock divided by (ii) the then effective
Conversion Price (as defined below);
provided, however, that upon any redemption
of any Series A Preferred Stock or any
liquidation of the Company, the right of
conversion, if not sooner exercised, shall
terminate at the close of business on the
business day preceding the date fixed for
such redemption or for the payment of any
amounts distributable on liquidation to the
holders of Series A Preferred Stock;
provided, further, that if the initial sale
and issuance by the Company of the Series A
Preferred Stock shall be subject to the
provisions of the HSR Act, no shares of Se
ries A Preferred Stock may be converted at
the option of the holder thereof until the
required approval or waiver of waiting
periods under the HSR Act shall have been ob
tained.
(b) CONVERSION PRICE. The initial
conversion price (the "Conversion Price")
shall be equal to $18.20 per share, subject
to adjustment as provided in Section 8.
7
<PAGE>
(c) CONVERSION MECHANICS.
(i) In order to exercise the conversion
privilege, the holder of any Series A
Preferred Stock to be converted shall
surrender his or its certificate or
certificates therefor to the principal office
of the transfer agent for the Series A
Preferred Stock (or if no transfer agent is
at the time appointed, then the Company at
its principal office), and shall give written
notice to the Company at such office that the
holder elects to convert the Series A
Preferred Stock represented by such
certificates, or any number thereof. Such
notice shall also state the name or names
(with address) in which the certificate or
certificates for shares of Common Stock which
shall be issuable on such conversion shall be
issued, subject to any restriction on
transfer relating to shares of the Series A
Preferred Stock or shares of Common Stock
upon conversion thereof. If so required by
the Company, certificates surrendered for
conversion shall be endorsed or accompanied
by written instrument or instruments of
transfer, in form satisfactory to the
Company, duly authorized in writing. The
"Conversion Date" for any such conversion
shall be the date of receipt by the transfer
agent (or by the Company if the Company
serves as its own transfer agent) of the
certificates and notice of conversion. As
soon as practicable after receipt of such
notice and the surrender of the certificate
or certificates for Series A Preferred Stock
as aforesaid, the Company shall cause to be
issued and delivered at such office to such
holder, or on his or its written order, a
certificate or certificates for the number of
full shares of Common Stock issuable on such
conversion in accordance with the provisions
hereof and cash as provided in paragraph (ii)
of this Section 7(c) in respect of any
fraction of a share of Common Stock otherwise
issuable upon such conversion.
(ii) The Company shall not issue
fractions of shares of Common Stock upon
conversion of Series A Preferred Stock or
scrip in lieu thereof. If any fraction of a
share of Common Stock would, except for the
provisions of this paragraph (ii), be
issuable upon conversion of any Series A
Preferred Stock, the Company shall in lieu
thereof pay to the person entitled thereto an
amount in cash equal to the current value of
such fraction, calculated to the nearest one-
thousandth (1/1000) of a share, to be
computed (1) if the Common Stock is listed on
any national securities exchange on the basis
of the last closing price of the Common Stock
on such exchange (or the quoted closing bid
price if there shall have been no sales) on
the Conversion Date, or (2) if the Common
Stock shall not be listed, on the basis of
the last reported sale price of the Common
Stock as reported by NASDAQ, or its
successor, on the Conversion Date and if
there is not such a last reported sale price,
on the basis of the fair market value per
share as determined by the Board of Directors
of the Company.
(iii) From and after the Initial Issuance
Date, the Company shall at all times when the
Series A Preferred Stock shall be outstanding
reserve and keep available out of its
authorized but unissued stock, for the
purposes of effecting the conversion of the
Series A Preferred Stock, such number of its
duly authorized shares of Common Stock as
shall from time to time be sufficient to
effect the conversion of all outstanding
Series A Preferred Stock. For the purposes of
this statement, "Initial Issuance Date" shall
mean October 24, 1997.
(iv) All shares of Series A Preferred
Stock which shall have been surrendered for
conversion as herein provided shall no longer
be deemed to be outstanding and all rights
with respect to such shares, including the
rights, if any, to receive notices, to vote
and to receive accrued and unpaid dividends,
shall forthwith cease and terminate except
only the right of the holder thereof to
receive shares of Common Stock in exchange
therefor.
8. ANTI-DILUTION PROVISIONS. The
Conversion Price shall be subject to adjustment
from time to time as follows:
8
<PAGE>
(a) STOCK DIVIDENDS. In case shares of
Common Stock are issued after the Initial
Issuance Date as a dividend or other
distribution on any class of capital stock of
the Company, the Conversion Price shall be
reduced by multiplying the Conversion Price
by a fraction of which the numerator shall be
the number of shares of Common Stock out
standing at the close of business on the date
fixed for such determination and the
denominator shall be the sum of such number
of shares and the total number of shares con
stituting such dividend or other
distribution.
(b) SUBDIVISIONS AND COMBINATIONS. In
case outstanding shares of Common Stock shall
be subdivided into a greater number of shares
of Common Stock or combined into a smaller
number of shares of Common Stock, the
Conversion Price shall be reduced (in the
event of a subdivision) or increased (in the
event of a combination), by multiplying the
Conversion Price by a fraction of which the
numerator shall be the number of shares of
Common Stock outstanding at the close of
business on the date immediately preceding the
effective date of such subdivision or
combination and the denominator shall be the
number of shares of Common Stock outstanding
immediately after such subdivision or
combination becomes effective.
(c) EXTRAORDINARY DIVIDENDS, ETC. In
case the Company distributes, as dividends or
otherwise, to any holders of its capital
stock evidences of its indebtedness or assets
(excluding any dividend or distribution which
is permitted by Section 2(b) hereof and
excluding regular quarterly cash dividends on
the Common Stock not in excess of $1.64 per
share per annum), the Conversion Price shall
be reduced, effective immediately after the
record date for the determination of
shareholders entitled to receive such
distribution, by multiplying the Conversion
Price by a fraction of which the numerator
shall be (x) the Fair Market Value per share
of the Common Stock less (y) the Fair Market
Value of such distribution, and the denomina
tor shall be the Fair Market Value per share
of the Common Stock.
As used in this Section 8, "Fair Market
Value" means:
(i) in the case of securities for which
a public market exists, the average, computed
over the 30 trading days preceding the date
as of which valuation is required, of (A)
each day's closing price regular way for such
securities as reported by the principal
national securities exchange on which such
securities are listed, (B) if such securities
are not traded on a national securities ex
change, each day's mean of the closing bid
and ask prices for such securities as
reported by the NASDAQ National Market
System, (C) if such securities are not traded
over such exchange or System, each day's mean
of the closing bid and ask prices for such
securities as reported by NASDAQ, and (D) if
such securities are not traded on any such
exchange or System or reported by NASDAQ,
each day's mean of the closing bid and ask
prices as reported by the National Quotation
Bureau; and
(ii) in the case of securities for which
no public market exists and in all other
cases, as determined in the good faith
judgment of the Board of Directors of the Com
pany (irrespective of the accounting
treatment thereof).
(d) REORGANIZATION, RECLASSIFICATION,
MERGER AND CONSOLIDATION. In case of any
capital reorganization or any
reclassification of the capital stock of the
Company (other than a subdivision or
combination of its outstanding shares of
Common Stock) or in case of the consolidation
or merger of the Company with another
corporation or the sale of all or
substantially all of the assets of the
Company, each share of Series A Preferred
Stuck shall thereafter be convertible into
the number of shares of stock or other
9
<PAGE>
securities or property of the Company, or of
the successor corporation resulting from such
consolidation or merger, as the case may be,
to which the Common Stock deliverable upon
conversion of such share of Series A
Preferred Stock would have been entitled upon
such capital reorganization, reclassification
of capital stock, consolidation or merger or
sale of assets; and, in any such case,
appropriate adjustments (as determined by the
Board of Directors of the Company) shall be
made in the application of the provisions
herein set forth with respect to rights and
interests thereafter of the holders of the
Series A Preferred Stock, to the end that the
provisions set forth herein (including the
specified changes in and other adjustments of
the Conversion Price) shall thereafter be
applicable, as near as reasonably may be, in
relation to any shares or other property
thereafter deliverable upon the conversion of
the Series A Preferred Stock.
(e) NOTICE OF ADJUSTMENTS. Whenever the
Conversion Price is adjusted as provided in
this Section 8, the Company shall forthwith
file with the transfer agent for the Common
Stock a statement signed by the chief
financial officer for the Company stating
that the Conversion Price shall be the price
as adjusted pursuant to Section 8. Such
statement shall include a statement of the
then current total amount of Fully Diluted
Common Shares and the total amount of Fully
Diluted Common Shares issued after the
Closing Date. Whenever the Conversion Price
is so adjusted, the Company shall cause
written notice thereof to be mailed to the
holders of record of the outstanding Series A
Preferred Stock within 30 days of such
adjustment.
(f) NOTICE OF EVENTS. In case:
(i) the Company shall declare any
dividend payable in stock upon its Common
Stock or make any distribution (other than
cash dividends or distributions) to the hold
ers of its Common Stock;
(ii) the Company shall offer for
subscription pro rata to the holders of its
Common Stock any additional shares of stock
of any class or any other rights;
(iii) of any capital reorganization or
reclassification of the capital stock of the
Company (other than a subdivision or
combination of its outstanding shares of
Common Stock), or of any consolidation or
merger to which the Company is a party and
for which approval of any shareholders of the
Company is required or of the sale of all or
substantially all of the assets of the
Company; or
(iv) of the Liquidation or voluntary or
involuntary dissolution of the Company, then,
and in any one of said cases, the Company
shall cause at least ten days' prior notice
to be mailed to the holders of record of the
outstanding Series A Preferred Stock as of
the date on which the books of the Company
shall close, or a record be taken for such
stock dividend, distribution or subscription
rights or the date on which such
reorganization, reclassification,
consolidation, merger, sale, Liquidation or
dissolution is expected to become effective.
Such notice shall also specify the date as of
which holders of Common Stock of record shall
participate in said dividend, distribution or
subscription rights, or the date as of which
it is expected that holders of capital stock
shall be entitled to exchange their shares
for securities or other property deliverable
upon such reorganization, reclassification,
consolidation, merger, sale, Liquidation or
dissolution.
9. SPECIAL RIGHT OF REDEMPTION UPON
CHANGE IN CONTROL.
(a) If a Change in Control (as defined
below) should occur with
10
<PAGE>
respect to the Company, each holder of shares of
the Series A Preferred Stock shall have the right,
at the holder's option, for a period of 45 days
after the mailing of a notice by the Company that
a Change in Control has occurred, to require the
Company to repurchase all, or any portion, of such
holder's shares of the Series A Preferred Stock
for a price per share equal to 101% of the
Liquidation Preference thereof (the
"Repurchase Price"), together with any accrued and
unpaid dividends on such shares.
(b) If a Change in Control shall occur,
then, as soon as practicable and in any event
within 30 days after the occurrence of such Change
in Control, the Company shall mail to each
registered holder of a share of Series A Preferred
Stock a notice setting forth details regarding the
special right of the holders to have their shares
of Series A Preferred Stock repurchased as a
result of such Change in Control ( the " Special
Right Notice"). A holder of a share of Series A
Preferred Stock must exercise such repurchase
right within the 45 day period after the mailing
of the Special Right Notice by the Company or such
special right shall expire. The repurchase date
for shares so repurchased shall be the 45th day
after the mailing of the Special Right Notice.
Exercise of such repurchase right shall be
irrevocable and no dividend on the shares of Se
ries A Preferred Stock tendered for repurchase
shall accrue from and after the repurchase date.
(c) The Special Right Notice shall
state: (i) the event constituting the Change in
Control, (ii) the last date upon which holders may
submit shares of Series A Preferred Stock for
repurchase, (iii) the Repurchase Price, (iv) the
Conversion Price then in effect under Section 7
and the continuing conversion rights, if any,
under Section 7, (v) the name and address of any
paying agent and conversion agent, (vi) that ex
ercise of such conversion right shall be
irrevocable and no dividends on shares of Series A
Preferred Stock tendered for conversion shall
accrue from and after the conversion date and
(vii) that the consideration to be received shall
be delivered within five business days after the
last date upon which holders may submit Series A
Preferred Stock for conversion.
(d) As used herein, a "Change in
Control" means (i) the acquisition by any person,
entity or "group", within the meaning of Section
13 (d) (3) or 14 (d) (2) of the Securities
Exchange Act of 1934 (the "Exchange Act")
(excluding, for this purpose, Daniel R. Baty or
any person or entity controlled by Daniel R. Baty)
of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of
securities that would entitle such person, entity
or group to appoint or elect a majority of the
Board of Directors of the Company; or (ii)
individuals, who, as of the Initial Issuance Date,
constitute the Board (as of the date hereof the
"Incumbent Board") cease for any reason to
constitute at least a majority of the Board,
provided that any person becoming a director
subsequent to the Initial Issuance Date whose
election, or nomination for election by the
Company's shareholders, was approved by a vote of
at least a majority of the directors then
comprising the Incumbent Board shall be, for
purposes of this definition, considered as though
such person were a member of the Incumbent Board;
or (iii) the sale of all or substantially all of
the assets of the Company which does not also
result in the continued operation or management of
such assets by the Company.
10. NO REISSUANCE OF SERIES A PREFERRED
STOCK. All shares of Series Preferred Stock
acquired by the Company by reason of redemption,
exchange, conversion, purchase or other wise shall
be retired as Series A Preferred Stock (and the
number of authorized shares of Series A Preferred
Stock shall be decreased to reflect such
retirement) and the retired shares shall resume
the status which they had prior to the adoption of
this resolution fixing the number of shares of
Series A Preferred Stock.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the
"Agreement"), dated as of October 24, 1997, is
made and entered into by and among Emeritus
Corporation, a Washington corporation (the
"Company"), and the holders (collectively,
together with their assigns, the "Holders") of the
Preferred Stock (as defined herein).
WHEREAS, concurrently with the issuance
of the Preferred Stock the Company is entering
into this Agreement to define the rights which
exist among the Holders, on the one hand, and the
Company, on the other, with respect to the
Registrable Securities (as defined herein);
NOW, THEREFORE, in consideration of the
mutual premises, agreements and covenants
hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the
following terms shall have the following
respective meanings (each such meaning to be
equally applicable to the singular and plural
forms thereof):
"Agreement" means this Registration
Rights Agreement.
"Commission" shall mean the Securities
and Exchange Commission, and any other
similar or successor agency of the federal
government at the time administering the Secu
rities Act or the Securities Exchange Act.
"Common Stock" means the Company's
voting Common
Stock, par value $.0001 per share.
"Company" has the meaning assigned such
term in the preamble hereto.
"Convertible Debentures" means the
Company's 9% Convertible Debentures due 2004.
"Holders" has the meaning assigned such
term in the preamble hereto.
"Holders of Registrable Securities"
shall mean a person who owns Registrable
Securities or has the right to acquire such
Registrable Securities, whether or not such
acquisition has actually been effected and
disregarding any legal restrictions upon the
exercise of such right.
"NASD" means the National Association of
Securities Dealers, Inc.
"Preferred Stock" means the Company's
Series A Convertible Exchangeable Redeemable
Preferred Stock, $.0001 par value per share,
issued to the Holders pursuant to a Preferred
Stock Purchase Agreement, dated as of the
date hereof, between the Company, as seller,
and the Holders as purchaser.
,
"Prospectus" means the prospectus
included in any Registration Statement, as
amended or supplemented by any prospectus
supplement with respect to the terms of the
offering, registering for sale any of the
Registrable Securities and all other
amendments and supplements to the Prospectus,
including post-effective amendments, and all
material incorporated by reference in such
Prospectus.
"Registrable Securities" means each
share of Preferred Stock or if the Preferred
Stock has been exchanged for Convertible
Debentures, each
2
<PAGE>
Convertible Debenture, each share of Common
Stock issuable upon conversion of such
Preferred Stock or Convertible Debenture
and, if such Preferred Stock or Convertible
Debenture has been converted, each share of
Common Stock issued in connection with such
conversion; provided, that any security's
status as a Registrable Security shall cease
when the registration rights with respect to
such security shall have terminated pursuant
to Section 2.6.
"Registration Statement" means any
registration statement of the Company which
registers for sale any of the Registrable
Securities pursuant to the provisions of this
Agreement, including the Prospectus,
amendments and supplements to such
Registration Statement, including post-
effective amendments, all exhibits and all
material incorporated by reference in such
Registration Statement.
"Requisite Holders" means the holders,
at any time, of the outstanding Registrable
Securities representing more than 50% of the
aggregate of Registrable Securities at the
time outstanding.
"Rule 144" means Rule 144 under the
Securities Act , as such Rule may be amended
from time to time, or any similar rule or
regulation hereafter adopted by the Com
mission.
"Securities Act" shall mean the
Securities Act of 1933, as amended, or any
similar federal statute, and the rules and
regulations of the Commission thereunder, all
as the same shall be in effect at the time.
"Securities Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules
and regulations of the Commission thereunder,
all as the same shall be in effect at the
time.
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1 REGISTRATION ON DEMAND.
2.1.1 DEMAND. At any time following
October 24, 1998, upon the written request (each,
a "Demand"; collectively, "Demands") of the
Requisite Holders (the "Demand Holders") that the
Company effect the registration under the
Securities Act of the number of Registrable
Securities specified by the Demand Holders, the
Company shall, subject to the provisions hereof,
use its best efforts to effect, as soon as
practicable and in any event within 120 days after
the Demand is received from the Demand Holders,
the registration under the Securities Act of the
Registrable Securities which the Company has been
so requested to register by the Demand Holders;
provided, however, that no more than two (2)
Demands may be made pursuant to this Section
2.1.1.
2.1.2 SHELF REGISTRATION. At any time
that the Company is eligible to use a short-form
registration statement for registering securities
for sale to the public at large, the Demand
Holders may, at their option, request (the "Shelf
Demand") that any registration statement effected
pursuant to a Demand pursuant to Section to 2.1.1
be effected on a delayed or continuous basis,
pursuant to Rule 415 under the Securities Act (the
"Shelf Registration"). The Company agrees to keep
effective such registration statement (the "Shelf
Registration Statement") until the earlier of (i)
such date as of which all the Registrable
Securities under the Shelf Registration Statement
have been disposed of in the manner described i Ii
such registration statement, and (ii) one year
after the date on which such Shelf Registration
Statement is declared effective.
2.1.3 REGISTRATION STATEMENT FORM.
Registrations under this Section 2.1 shall be on
such appropriate registration form of the
Commission as shall
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be selected by the Company. The Company shall
include in any such registration statement all
information which, in the opinion of counsel to
the Company, is required to be included.
2.1.4 EFFECTIVE REGISTRATION STATEMENT.
A registration requested pursuant to this Section
2.1 shall not be deemed to have been effected (i)
unless a registration statement with respect
thereto has become effective, (ii) if after it has
become effective, such registration is interfered
with by any stop order, injunction or other order
or requirement of the Commission or other
governmental agency or court for any reason not
attributable to the Holders and has not thereafter
become effective, or (iii) if the conditions to
closing specified in the underwriting agreement,
if any, entered into in connection with such
registration are not satisfied or waived, other
than by reason of a failure on the part of the
Holders or (iv) if a Shelf Registration Statement,
if such registration statement has not been kept
effective until the earlier of (i) such date as of
which all of the Registrable Securities under such
Shelf Registration Statement have been disposed of
in the manner described in such registration
statement and (ii) one year after the date on
which such Shelf Registration Statement is
declared effective.
2.1.5 LIMITATIONS ON REGISTRATION ON
DEMAND, SHELF REGISTRATIONS. The Company shall not
be required to prepare and file a registration
statement pursuant to this Section 2.1 which would
become effective within 120 days following the ef
fective date of a registration statement (other
than pursuant to registrations on Form S-4 or Form
S-8 or any successor form or other forms not
available for registering securities for sale to
the public at large) filed by the Company with the
Commission pertaining to an underwritten public
offering of convertible debt securities or equity
securities for cash for the account of the Company
or another holder of securities of the Company.
Notwithstanding anything in this Section 2.1 to
the contrary, in no event shall the Company be
required to effect in the aggregate, more than two
registrations pursuant to this Section 2.1.
2.1.6 HOLDERS' ABILITY TO WITHDRAW
REGISTRATION STATEMENT. The Holders of a majority
of the Registrable Securities to be included in
such registration shall have the right to request
that the Company not have a registration statement
filed pursuant to a Demand declared effective. If
the Demand Holders elect to pay or reimburse the
Company for the Company's out-of-pocket expenses
incurred in connection with such registration,
such withdrawn registration statement shall not be
counted for purposes of the requests for
registration to which such Demanding Holder is
entitled pursuant to Section 2.1.5 hereof.
2.1. 7 SELECTION OF UNDERWRITER. If a
registration under this Section 2.1 is an
underwritten offering, the Holders of a majority
of the Registrable Securities to be included in
such registration shall select a managing
underwriter or underwriters of recognized national
standing reasonably acceptable to the Company to
administer the offering.
2.1.8 REGISTRATION OF OTHER SECURITIES.
A registration statement filed pursuant to the
request of the Demand Holders may, subject to the
provisions of Section 2.5 hereof, include (i)
Registrable Securities of Holders not making a de
mand pursuant to this Section 2.1 and (ii) other
securities of the Company with respect to which
registration rights have been granted and may
include securities of the Company being sold for
the account of the Company.
2.1.9 SUSPENSION. The Company may delay,
suspend or withdraw the registration of the
Registrable Securities required pursuant to this
Section 2.1 or the preparation or furnishing of a
supplemental or amended prospectus pursuant to
Section 2.3(i) for a period not exceeding 90 days
if the Company shall in good faith determine that
any such registration would require the Company to
include disclosure that would reasonably be
expected to have a detrimental effect on any pro
posal, negotiations or plan by the Company or any
of its subsidiaries to engage in any acquisition
or disposition of
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assets or any merger, consolidation, tender offer,
reorganization or similar transaction, or any
other material corporate event contemplated by the
Company. In addition, the Company shall not be
required to register Registrable Securities on a
date on which, under the general rules and
regulations of the Commission as advised by
counsel, the inclusion therein, by incorporation
or by reference, of financial statements of the
Company contained in the annual or quarterly
report of the Company most recently filed with the
Commission would not be permitted, provided that
this exception shall not permit delay or
suspension of registration beyond the filing of
the next required annual or quarterly filing under
the Securities Exchange Act.
SECTION 2.2 INCIDENTAL REGISTRATION. If
the Company, at any time or any one or more
occasions after the date of this Agreement,
proposes to register (other than pursuant to
Section 2.1) any of its equity securities under
the Securities Act for sale to the public, whether
for its own account or for the account of other
security holders or both (other than pursuant to
registrations on Form S-4 or Form S-8 or any
successor form or other forms not available for
registering securities for sale to the public at
large), the Company shall give not less than 15
days' nor more than 90 days' prior written notice
to each Holder of Registrable Securities of its
intention to do so. Upon the written request of
any Holder of Registrable Securities given within
15 days after receipt of such notice from the
Company, the Company will use its best efforts to
cause the Registrable Securities requested to be
registered to be so registered under the
Securities Act. A request pursuant to this Section
2.2 shall state the number of Registrable
Securities requested to be registered and the
intended method of distribution thereof. In
connection with any registration subject to this
Section 2.2, the Holders shall enter into such
underwriting, lock-up and other agreements, and
shall execute and complete such questionnaires and
other documents, as are reasonably requested by
the representative of the underwriters. The
Company shall have the right to terminate or
withdraw any registration initiated by it under
this Section 2.2 prior to the effectiveness of
such registration whether or not any Holder has
elected to include any securities in such
registration. Notwithstanding any other provision
of this Agreement, if the representative of the
underwriters advises the Company in writing that
marketing factors require a limitation on the
number of shares to be underwritten, the number of
shares to be included in the underwriting or
registration shall be allocated as set forth in
Section 2.5 hereof.
No registration effected under this
Section 2.2 shall relieve the Company of its
obligation to effect the registration required
under Section 2.1.
SECTION 2.3 REGISTRATION PROCEDURES. In
connection with the registration of any
Registrable Securities in accordance with this
Section 2, the Company shall effect such regis
trations to permit the sale of such Registrable
Securities in accordance with the intended method
or methods of disposition thereof, and pursuant
thereto the Company shall as expeditiously as
possible:
(a ) prepare and file with the
Commission within the time limits prescribed
herein a Registration Statement with respect
to such securities and use its best efforts
to cause such Registration Statement to
become effective and remain effective as
provided herein;
(b) prepare and file with the Commission
such amendments and post-effective amendments
to each Registration Statement as may be
necessary and use its best efforts to keep
such Registration Statement continuously
effective; cause the related Prospectus to be
supplemented by any required Prospectus
supplement, and as so supplemented to be
filed pursuant to Rule 424 (or any similar
provisions then in force) under the
Securities Act; and comply with the
provisions of the Securities Act, the
Securities Exchange Act and the rules and
regulations of the Commission promulgated
thereunder applicable to it with respect to
the disposition of all securities covered by
such Registration Statement as so amended or
in such Prospectus as so supplemented; the
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<PAGE>
Company shall not be deemed to have used its
best efforts to keep a registration statement
effective during a period if it voluntarily
takes any action that results in
participating Holders not being able to sell
such Registrable Securities during such
period, unless such action (i) is required
under applicable law or (ii) is determined in
good faith by the Board of Directors of the
Company to be in the Company's best interest;
(c) notify the Holders of Registrable
Securities and underwriters, if any, promptly
(but in any event within two business days),
and confirm such notice in writing, (i) when
a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and,
with respect to a Registration Statement or
any post-effective amendment, when the same
has become effective, (ii) of the issuance
(or, to the Company's best knowledge, the
threat or contemplation) by the Commission of
any stop order suspending the effectiveness
of such Registration Statement or of any
order preventing or suspending the use of any
preliminary prospectus or the initiation of
any proceedings for that purpose, and (iii)
of the receipt by the Company of any
notification with respect to the suspension
of the qualification or exemption from
qualification of a Registration Statement or
any of the Registrable Securities for offer
or sale in any jurisdiction, or the initia
tion or threatening of any proceeding for
such purpose;
(d) use every reasonable effort to
prevent the issuance of any order suspending
the effectiveness of a Registration Statement
or of any order preventing or suspending the
use of a Prospectus or suspending the
qualification (or exemption from
qualification) of any of the Registrable
Securities for sale in any jurisdiction, and,
if any such order is issued, to obtain the
withdrawal of any such order at the earliest
possible moment;
(e) furnish to each seller and to each
duly authorized broker or underwriter of each
seller such number of authorized copies of a
Prospectus, including copies of a preliminary
Prospectus, in conformity with the require
ments of the Securities Act, and such other
customary documents as such seller, broker or
underwriter may reasonably request in order
to facilitate the public sale or other
disposition of the Registrable Securities
owned by such seller;
(f) use its best efforts to register or
qualify (and to keep each such registration
and qualification effective, including
through new filings, renewals or amendments,
during the period such registration statement
is required to be kept effective) the
securities covered by such Registration
Statement under such securities or blue sky
laws of such jurisdictions as each seller
shall reasonably request, and do any and all
other reasonable acts and things which may be
necessary under such securities or blue sky
laws to enable such seller to consummate the
public sale or other disposition in such
jurisdictions of the Registrable Securities
to be sold by such seller, except that the
Company shall not for any such purpose be re
quired to qualify to do business as a foreign
corporation, or to consent to the
jurisdiction of any court or subject itself
to suit in any jurisdiction wherein it is not
qualified;
(g) before filing the Registration
Statement or Prospectus or amendments or
supplements thereto, furnish to counsel for
the Holders of Registrable Securities
included in such Registration Statement
copies of all such documents proposed to be
filed, all of which shall be subject to the
review and comment of such counsel in the
exercise of their reasonable judgment;
(h) use its best efforts to cause such
Registrable Securities covered by such
Registration Statement to be registered with
or approved by such other governmental
agencies or authorities exercising
jurisdiction over the Company as may be
necessary to enable the seller or sellers
thereof to consummate the disposition of such
Registrable Securities;
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<PAGE>
(i) notify each seller of any such
Registrable Securities covered by such
Registration Statement, at any time when a
Prospectus relating thereto is required to be
delivered under the Securities Act, of the
Company's becoming aware that the Prospectus
included in such Registration Statement, as
then in effect, includes an untrue statement
of a material fact or omits to state any mate
rial fact required to be stated therein or
necessary to make the statements therein, in
the light of the circumstances under which
they were made, not misleading, and, at the
written request of any such seller, promptly
prepare and furnish to such seller and each
underwriter a reasonable number of copies of
a Prospectus supplemented or amended
(whereupon all previous versions of the Pro
spectus shall not be used by such seller or
underwriter and shall be promptly returned to
the Company or destroyed) so that, as
thereafter delivered to the purchasers of
such Registrable Securities, such Prospectus
shall not include an untrue statement of a
material fact or omit to state a material
fact required to be stated therein or
necessary to make the statements therein, in
the light of the circumstances under which
they were made, not misleading;
(j) comply with all applicable rules and
regulations of the Commission, and make
generally available to its security holders,
as soon as reasonably practicable, an
earnings statement covering the period of at
least twelve consecutive months beginning
with the first day of the Company's first
calendar quarter after the effective date of
the Registration Statement, which earnings
statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule
158 thereunder;
(k) use its best efforts to cause all
such Registrable Securities covered by such
Registration Statement to be listed or quoted
on the principal securities exchange
(including NASDAQ) on which similar
securities issued by the Company are then
listed or quoted, if the listing or quoting
of such Registrable Securities is then
permitted under the rules of such exchange;
(l) provide a transfer agent, registrar
and/or trustee, as applicable, for all such
Registrable Securities covered by such
Registration Statement not later than the
effective date of such Registration
Statement;
(m) cooperate with the selling holders
of Registrable Securities and the
underwriters, if any, to facilitate the
timely preparation and delivery of
certificates representing Registrable
Securities to be sold, which certificates
shall not bear any restrictive legends; and
enable such Registrable Securities to be in
such denominations and registered in such
names as the underwriters, if any, or holders
may reasonably request at least two business
days prior to any sale of Registrable
Securities in a firm commitment underwritten
public offering, or at least ten business
days prior to any other such sale;
(n) enter into such reasonable and
customary agreements (including an
underwriting agreement in customary form) and
take such other reasonable and customary
actions as the Requisite Holders shall
reasonably request in order to expedite or
facilitate the registration and disposition
of such Registrable Securities;
(o) provide copies of any opinions from
the Company's counsel and "cold comfort"
letters from the Company's independent public
accountants delivered to the underwriters, if
any;
(p) upon execution and delivery of such
confidentiality agreements as the Company
shall reasonably request (which agreement
shall not restrict any such person's ob
ligations under applicable securities laws),
make available for inspection by any seller
of such Registrable Securities covered by
such Registration Statement, by any
underwriter participating in any disposition
to be
7
<PAGE>
effected pursuant to such Registration
Statement and by any attorney, accountant or
other agent retained by any such seller or
any such underwriter, pertinent financial and
other records, pertinent corporate documents
and properties of the Company, and cause the
Company's officers, directors and employees
to supply all information reasonably
requested by any such seller, underwriter,
attorney, accountant or agent in connection
with such Registration Statement, all as
necessary to conduct a reasonable inves
tigation within the meaning of Section 11 of
the Securities Act; and
If any such Registration Statement
refers to any Holder by name or otherwise as the
holder of any securities of the Company, then such
Holder shall have the right to require (i) the
insertion therein of language, in form and
substance satisfactory to such Holder, to the
effect that the holding by such Holder of such
securities is not to be construed as a rec
ommendation by such Holder of the investment
quality of the Company's securities covered
thereby and that such holding does not imply that
such Holder will assist in meeting any future
financial requirements of the Company, or (ii) in
the event that such reference to such Holder by
name or otherwise is not in the judgment of the
Company, as advised by counsel, required by the
Securities Act or any similar federal statute or
any state "blue sky" or securities law then in
force, the deletion of the reference to such
Holder.
SECTION 2.4 EXPENSES. All expenses
incurred in effecting the registrations (whether
or not such registrations are consummated)
provided for in this Article II, including without
limitation all registration and filing fees,
printing expenses, fees and disbursements of
counsel for the Company, expenses of any audits
incident to or required by any such registration
(including the costs of any comfort letters) and
expenses of complying with the securities or blue
sky laws of any jurisdictions pursuant to
Subsection 2.3(f) hereof, the costs and expenses
associated with the filing required to be made by
the NASD, transfer taxes, fees of transfer agents,
registrars and trustees, costs of insurance (but
excluding underwriting discounts and commissions
to the extent they relate to Registrable
Securities), duplicating fees, delivery expenses,
expenses incurred with the listing of the
securities on any securities exchange, shall be
paid by the Company; provided, however, that such
expenses shall be paid by the Company with respect
to only one (1) of the two (2) registrations
provided for in Section 2.1.1 and shall otherwise
be paid by the Holders of Registrable Securities
whose Registrable Securities are included, pro
rata in proportion to such shares included.
SECTION 2.5 MARKETING RESTRICTIONS. If
(i) any Holder of Registrable Securities requests
registration of Registrable Securities under
Section 2.1 or 2.2, (ii) the offering proposed to
be made is to be an underwritten public offering
and (iii) the managing underwriters of such public
offering furnish a written opinion that the total
amount of securities to be included in such
offering would exceed the maximum amount of
securities (the "Maximum Amount") (as specified in
such opinion) which can be marketed at a price
reasonably related to the then current market
value of such securities and without materially
and adversely affecting such offering, then the
rights of the Company, the Holders of Registrable
Securities and the holders of other securities
such securities in such registration offering
shall be as follows:
If such registration shall have been
proposed by the Company, (i) the Company
shall be entitled to participate in such
registration first; and (ii) then Holders of
Registrable Securities and other holders of
securities of the Company shall be entitled
to participate in such registration (pro rata
based on the number of shares of Common Stock
held by each Holder and other holders of
securities (on an as converted basis) and in
accordance with other relative priorities, if
any, as shall exist among them). If such
registration shall have been requested by the
Demand Holders of Registrable Securities
pursuant to Section 2.1 hereof, (i) the
Holders of Registrable Securities shall be
entitled to participate in such registration
(pro rata based on the number of Registrable
Securities held by each) first; and (ii) then
the Company and other security holders of the
Company
8
<PAGE>
entitled to participate will be entitled to
participate in such registration (with the
holders of such securities being entitled to
participate in accordance with the relative
priorities, if any, as shall exist among
them), in each case with further pro rata al
locations to the extent any such person has
requested registration of fewer securities
than such person is entitled to have
registered so that the number of securities
to be included in such registration will not
exceed the Maximum Amount. If such
registration shall have been requested by the
holders of other securities pursuant to a
right granted by the Company to request such
registration, (i) the holders requesting such
registration shall be entitled to participate
in such registration (with such holders being
entitled to participate in accordance with
the relative priorities, if any, as shall
exist among them) first; and (ii) then the
Holders of Registrable Securities, the
Company and other holders of securities of
the Company shall be entitled to participate
in such registration (pro rata based on the
number of shares of Common Stock held by each
Holder, the Company and other holders of
securities (on an as converted basis) and in
accordance with the other relative
priorities, if any, as shall exist among
them), in each case with further pro rata al
locations to the extent any such person has
requested registration of fewer securities
than such person is entitled to have
registered so that the number of securities
to be included in such registration will not
exceed the Maximum Amount;
and no securities (issued or unissued) other
than those registered and included in the
underwritten offering shall be offered for
sale or other disposition in a transaction
which would require registration under the
Securities Act (but excluding any issuance of
shares pursuant to registrations on Form S-4
or Form S-8 or any successor form or other
forms not available for registering capital
stock for sale to the public at large) until
the expiration of 90 days after the effective
date of the Registration Statement in which
Registrable Securities were included pursuant
to Section 2.2 or such shorter period as may
be acceptable to the Company and the Holders
of a majority of the Registrable Securities
who may be participating in such offering.
SECTION 2. 6 TERMINATION OF RIGHTS.
Notwithstanding the foregoing provisions of this
Article II, the rights to registration shall
terminate as to any particular Registrable Se
curities when (a) a Registration Statement
covering such Registrable Securities has been
declared effective and such Registrable Securities
have been disposed of in accordance with such
effective Registration Statement, (b) written
opinion(s), to the effect that such Registrable
Securities may be sold without registration under
the Securities Act or applicable state law and
without restriction as to the volume and timing of
such sale, shall have been received from counsel
for the Company reasonably acceptable to the
Holders of a majority of such Registrable
Securities, or (c) such Registrable Securities
have been sold through a broker, dealer or
underwriter in a public distribution or a public
securities transaction in which the transferee
receives a certificate without a restrictive
legend.
SECTION 2.7 RULE L44. The Company shall
file the reports required to be filed by it under
the Securities Act and the Securities Exchange Act
and the rules and regulations promulgated
thereunder (or, if the Company is not required to
file such reports, it will, upon the written
request of any Holder of Registrable Securities as
soon as practicable, make publicly available other
information so long as such information is nec
essary to permit sales under Rule 144), and will
take such further actions as any Holder of
Registrable Securities may reasonably request, all
to the extent required from time to time to enable
such Holder to sell Registrable Securities without
registration under the Securities Act within the
limitation of the exemption provided by Rule 144.
Upon the request of any Holder of Registrable
Securities, the Company shall deliver to such
Holder a written statement as to whether it has
complied with such requirements.
SECTION 2. 8 INDEMNIFICATION. (a) In
the event of any registration of any Registrable
Securities under the Securities Act pursuant to
this
9
<PAGE>
Agreement, the Company will, and hereby does,
indemnify and hold harmless, to the fullest extent
permitted by law, the seller of any Registrable
Securities covered by such Registration Statement,
its directors and officers or general and limited
partners (and the directors and officers thereof)
(each, a "Person"), each person who participates
as an underwriter or qualified independent
underwriter/pricer ("independent underwriter"), if
any, in the offering or sale of such securities,
each officer, director or partner of such un
derwriter or independent underwriter, and each
other Person, if any, who controls such seller or
any such underwriter within the meaning of the
Securities Act, against any and all losses,
claims, damages or liabilities, joint or several,
and expenses (including fees of counsel and any
amounts paid in any settlement approved by the
Company (which such approval shall not be
unreasonably withheld or delayed)) to which such
seller, any such director or officer or general or
limited partner or any such underwriter or
independent underwriter, such officer, director or
partner of such underwriter or independent under
writer or controlling person may become subject
under the Securities Act, common law or otherwise,
insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof), or
expenses arise out of or are based upon (i) any
untrue statement or alleged untrue statement of a
material fact contained in any Registration
Statement under which such securities were regis
tered under the Securities Act or the omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make
the statements therein not misleading, (ii) any
untrue statement or alleged untrue statement of a
material fact contained in any preliminary, final
or summary Prospectus (together with the documents
incorporated by reference or filed with the
Commission) and any amendment thereof or
supplement thereto, or the omission or alleged
omission to state therein a material fact required
to be stated therein or necessary in order to make
the statements therein, in the light of the
circumstances under which they were made, not
misleading or (iii) any violation by the Company
of any federal or state rule or regulation
applicable to the Company and relating to action
required of or inaction by the Company in
connection with any such registration, and the
Company will reimburse as incurred such seller and
each such director, officer, general or limited
partner, underwriter, independent underwriter,
director, or officer or partner of such
underwriter or independent underwriter and
controlling person for any legal or any other
expenses incurred by any of them in connection
with investigating or defending any such loss,
claim, liability, action or proceeding; provided,
that the Company shall not be liable to any such
seller or any such director, officer, general or
limited partner, underwriter, independent under
writer, director or officer or partner of such
underwriter or independent underwriter or
controlling person in any such case to the extent
that any such loss, claim, damage, liability (or
action or proceeding, whether commenced or
threatened, in respect thereof) or expense arises
out of or is based upon (a) any untrue statement
or alleged untrue statement or omission or alleged
omission made in such Registration Statement or
amendment thereof or supplement thereto or in any
such preliminary, final or summary Prospectus in
reliance upon and in conformity with information
furnished to the Company in writing by or on
behalf of any such seller or any such director,
officer, general or limited partner, underwriter,
independent underwriter, director or officer or
partner of such underwriter or independent
underwriter or controlling person, expressly for
use in the preparation thereof or (b) the failure
of any such seller or any such director, officer,
general or limited partner, underwriter,
independent underwriter or controlling person, to
comply with any legal requirement applicable to
him to deliver a copy of a Prospectus or any
supplements or amendments thereto after the
Company has made such documents available to such
Persons. Such indemnity and reimbursement of
expenses shall remain in full force and effect
following the transfer of such securities by such
seller.
(b) The Company, as a condition to
including any Registrable Securities in any
Registration Statement filed in accordance with
this Agreement, shall have received an undertaking
reasonably satisfactory to it from the prospective
seller of such Registrable Securities and any
underwriter or independent underwriter, to
indemnify and hold harmless (in the same manner
and to the same extent as set forth in paragraph
(a) of this Section 2.8) the Company and its
directors and officers and all other
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<PAGE>
prospective sellers and their directors, officers,
general and limited partners and respective
controlling Persons (within the meaning of the
Securities Act) with respect to any statement or
alleged statement in or omission or alleged
omission from such Registration Statement, any
preliminary, final or summary Prospectus contained
therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission
or information has been furnished in writing to
the Company or its representative by or on behalf
of such seller or underwriter expressly for use in
the preparation of such Registration Statement,
preliminary, final or summary Prospectus or
amendment or supplement; provided, however, that
the aggregate amount which any such seller or
prospective seller shall be required to pay
pursuant to such undertaking shall be limited to
the amount of the net proceeds received by such
Person upon the sale of the Registrable Securities
pursuant to the Registration Statement giving rise
to such claim. Such indemnity shall remain in full
force and effect following the transfer of such
securities by such seller.
(c) As soon as possible after receipt
by an indemnified party hereunder of written
notice of the commencement of any action or
proceeding with respect to which a claim for in
demnification may be made pursuant to this Section
2.8, such indemnified party will, if a claim in
respect thereof is to be made against an
indemnifying party, give written notice to the
latter of the commencement of such action;
provided, that the failure of any indemnified
party to give notice as provided herein shall not
relieve the indemnifying party of its obligations
under the preceding paragraphs of this Section
2.8, except to the extent that the indemnifying
party is actually and materially prejudiced by
such failure to give notice. If any such claim or
action shall be brought against an indemnified
party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled
to participate therein, and, to the extent that it
wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the
indemnified party. After notice from the
indemnifying party to such indemnified party of
its election to assume the defense of such claim
or action, the indemnifying party shall not be
liable to the indemnified party under this Section
2.8 for any legal or other expenses subsequently
incurred by the indemnified party in connection
with the defense thereof unless the indemnifying
party has failed to assume the defense of such
claim or to employ counsel reasonably satisfactory
to such indemnified party; provided that the
indemnified parties shall have the right to employ
one counsel (in each case together with
appropriate local counsel) (such counsel to be
selected by the Holders of a majority of the
Registrable Securities included in such regis
tration) to represent such indemnified parties if,
in such indemnified parties' reasonable judgment,
a conflict of interest between the indemnified
parties and the indemnifying parties exists or may
exist in respect of such claim, and in that event
the fees and expenses of such separate counsel
shall be paid as incurred by the indemnifying
party. No indemnifying party will consent to entry
of any judgment or enter into any settlement which
does not include as an unconditional term thereof
the giving by the claimants or plaintiffs to such
indemnified party of an unconditional release from
all liability in respect to such claim or
litigation. No indemnifying party will be liable
for any settlement effected without its prior
written consent, which consent will not be
unreasonably withheld or delayed.
(d) Indemnification similar to that
specified in the preceding paragraphs of this
Section 2.8 (with appropriate modifications) shall
be given by the Company and each seller of
Registrable Securities with respect to any
required registration or other qualification of
securities under any state securities and "blue
sky" laws.
(e) If the indemnification provided for
in this Section 2.8 is unavailable or insufficient
to hold harmless an indemnified party under
Section 2.8(a) or (b) of this Agreement, then each
indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a
result of the losses, claims, damages or
liabilities referred to in Section 2.8(a) or (b)
in such proportion as is appropriate to reflect
the relative fault of the indemnifying party on
the one hand and the indemnified party on
11
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the other hand in connection with statements or
omissions which resulted in such losses, claims,
damages or liabilities, as well as any other
relevant equitable considerations. The relative
fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue
statement of a material fact or other omission or
alleged omission to state a material fact relates
to information supplied by the indemnifying party
or the indemnified party and the parties' relative
intent, knowledge, access to information and
opportunity to correct or prevent such untrue
statements or omission. The parties hereto agree
that it would not be just and equitable if
contributions pursuant to this Section 2.8(e) were
to be determined by pro rata allocation or by any
other method of allocation which does not take
account of the equitable considerations referred
to in the first sentence of this Section 2.8(e).
The amount paid by an indemnified party as a
result of the losses, claims, damages or
liabilities referred to in the first sentence of
this Section 2.8(e) shall be deemed to include any
legal or other expenses reasonably incurred by
such indemnified party in connection with
investigating or defending any action or claim
(which shall be limited as provided in Section
2.8(c) if the indemnifying party has assumed the
defense of any such action in accordance with the
provisions thereof) which is the subject of this
Section 2.8(e). No person guilty of fraudulent
misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of
such fraudulent misrepresentation. Promptly after
receipt by an indemnified party under this Section
2.8(e) of notice of the commencement of any action
against such party in respect of which a claim for
contribution may be made against an indemnifying
party under this Section 2.8(e), such indemnified
party shall notify the indemnifying party in writ
ing of the commencement thereof if the notice
specified in Section 2.8(c) has not been given
with respect to such action; provided that the
omission so to notify the indemnifying party shall
not relieve the indemnifying party from any
liability which it may have to any indemnified
party otherwise under this Section 2.8(e), except
to the extent that the indemnifying party is
actually and materially prejudiced by such failure
to give notice. Notwithstanding anything in this
Section 2.8(e) to the contrary, no indemnifying
party (other than the Company) shall be required
pursuant to this Section 2.8(e) to contribute any
amount in excess of the net proceeds received by
such indemnifying party from the sale of
Registrable Securities in the offering to which
the losses, claims, damages or liabilities of the
indemnified parties relate.
(f) The provisions of this Section 2.8
shall be in addition to any other rights to
indemnification or contribution which any
indemnified party may have pursuant to law or con
tract and shall remain in full force and effect
following the transfer of the Registrable
Securities by any such party.
SECTION 2. 9 AGREEMENTS OF HOLDERS. (a)
Each Holder of Registrable Securities shall advise
the Company of the dates on which any disposition
of Registrable Securities hereunder is expected to
commence and terminate, the number of Registrable
Securities expected to be sold, the method of
disposition, and such other information as the
Company may reasonably request in order to
supplement the Prospectus in accordance with the
rules and regulations of the Commission.
(b) Each Holder of Registrable
Securities agrees by acquisition of such
Registrable Securities that, upon receipt of a
notice from the Company under Section 2.3(i) of
the Company's becoming aware that the Prospectus
included in the Registration Statement, as then in
effect, includes an untrue statement of a material
fact or omits to state any material fact required
to be stated therein or necessary to make the
statements therein, in the light of the
circumstances under which they were made, not
misleading, such Holder shall not dispose of, sell
or offer for sale Registrable Securities under the
Registration Statement until such Holder receives
(i) copies of the supplemented or amended
Prospectus or until counsel for the Company shall
have determined that such disclosure is not
required due to subsequent events, (ii) notice in
writing (the "Advice") from the Company that the
use of the Prospectus may be resumed, and (iii)
copies of any additional or supplemental filings
that are incorporated by reference in the
Prospectus.
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(c) If so directed by the Company in
connection with a notice under Section 2.3(i),
each Holder will deliver to the Company (at the
Company's expense) all copies, other than per
manent file copies then in such Holder's
possession, of the Prospectus covering such
Registrable Securities that was current
immediately prior to the time of receipt of such
notice. In the event the Company shall give any
such notice, the time period regarding the
effectiveness of the Registration Statement set
forth in this Article II shall be extended by the
number of days during the period from and
including the date of the giving of such notice to
and including the date when each selling Holder
covered by the Registration Statement shall have
received the copies of the supplemented or amended
Prospectus, the Advice and any additional or
supplemental filings that are incorporated by
reference in the Prospectus.
ARTICLE III
CHANGES IN REGISTRABLE SECURITIES
If, and as often as, there is any change
in the Registrable Securities by way of a
combination or reclassification, or through a
merger, consolidation, reorganization or
recapitalization, or by any other means,
appropriate adjustment shall be made in the
provisions hereof so that the rights and
privileges granted hereby shall continue with
respect to the Registrable Securities as so
changed.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to
the Holders of the Registrable Securities as of
the date of this Agreement as follows:
(a) DUE AUTHORIZATION. The execution,
delivery and performance of this Agreement by
the Company has been duly authorized by all
requisite action.
(b) BINDING OBLIGATION. This Agreement
has been duly executed and delivered by the
Company and constitutes the legal, valid and
binding obligation of the Company.
(c) NO VIOLATION. The execution,
delivery and performance of this Agreement,
and the consummation of the transactions
contemplated herein, by the Company does not
violate any provision of law, any order of
any court or other agency of government, any
organizational document of the Company or any
provision of any material indenture,
agreement or other instrument to which the
Company or any of its properties or assets is
bound, or conflict with, result in a breach
of or constitute (with due notice or lapse of
time or both) a default under any such
indenture, agreement or other instrument or
result in the creation or imposition of any
lien, charge or encumbrance of any nature
whatsoever upon any of the properties or
assets of the Company which violation,
conflict, breach or default or lien, charge,
restriction or encumbrance would have a
material adverse effect on the business,
condition (financial or otherwise) of the
Company taken as a whole.
(d) GOVERNMENT ACTION. No action has
been taken and no statute, rule or regulation
or order has been enacted, no injunction,
restraining order or order of any nature has
been issued by a federal or state court of
competent jurisdiction and no action, suit or
proceeding is pending against or affecting or
threatened against, the Company before any
court or arbitrator or any governmental body,
agency or official which, if adversely
determined, would in any manner draw into
question the validity of this Agreement.
Other than filings required with the Commis
sion and under state securities laws, no
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action or approval by, or filing or
registration with, any court or governmental
agency or body is required for the consumma
tion of the transactions contemplated by this
Agreement by the Company.
ARTICLE V
BENEFITS OF AGREEMENT
The obligations of the Company under
this Agreement shall inure to the benefit of, and
be enforceable by, the initial Holders and their
successors and assigns without any further action
on the part of any party hereto.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 NOTICES. All notices,
requests, consents and other communications
provided for herein shall be in writing and shall
be effective upon delivery in person, faxed or
telecopied, or mailed by certified or registered
mail, return receipt requested, postage pre-paid,
addressed as follows:
(i) if to the Company, 3131 Elliot
Avenue , Suite 500, Seattle, Washington
98121, Attention: Kelly J. Price; with a copy
to Perkins & Coie, 1201 Third Avenue,
Seattle, Washington 98101, Attention: Michael
E. Stansbury, Esq.
(ii) if to an initial Holder of
Registrable Securities, at such address as
may have been furnished to the Company in
writing by such Holder;
or, in any case, at such other address or
addresses as shall have been furnished in
writing to the Company (in the case of a
holder of Registrable Securities) or to the
Holders of Registrable Securities (in the
case of the Company) in accordance with the
provisions of this paragraph.
SECTION 6.2 WAIVERS; AMENDMENTS. No
failure or delay of any Holder of Registrable
Securities or the Company in exercising any power
or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise
of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or
power, preclude any other or further exercise
thereof or the exercise of any other right or
power. The rights and remedies of such Holder and
the Company are cumulative and not exclusive of
any rights or remedies which it would otherwise
have. The provisions of this Agreement may be
amended, modified or waived with (and only with)
the written consent of the Company and a majority
of the Holders of Registrable Securities
outstanding (exclusive of Registrable Securities
then owned by the Company or any subsidiary
thereof). No notice or demand on the Company in
any case shall entitle the Company to any other or
further notice or demand in similar or other
circumstances.
SECTION 6.3 GOVERNING LAW. This
Agreement shall be construed in accordance with
and governed by the laws of the State of New York
without regard to principles of conflicts of law.
SECTION 6.4 SURVIVAL OF AGREEMENTS;
REPRESENTATIONS AND WARRANTIES, ETC. All
warranties, representations and covenants made by
the Company herein or in any certificate or other
instrument delivered by it or on its behalf in
connection with this Agreement shall be considered
to have been relied upon by the Holders of
Registrable Securities and shall continue in full
force and effect so long as this Agreement is in
effect regardless of any investigation made by
such Holders. All statements in any such
certificate or other instrument shall constitute
representations and warranties hereunder.
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<PAGE>
SECTION 6.5 COVENANTS TO BIND SUCCESSORS
AND ASSIGNS. All the covenants, stipulations,
promises and agreements in this Agreement
contained by or on behalf of the parties hereto
shall bind their successors and assigns, whether
so expressed or not.
SECTION 6.6 SEVERABILITY. In case any
one or more of the provisions contained in this
Agreement shall be invalid, illegal or
unenforceable in any respect, the validity,
legality and enforceability of the remaining
provisions contained herein and therein shall not
in any way be affected or impaired thereby. The
parties shall endeavor in good faith negotiations
to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic
effect of which comes as close as possible to that
of the invalid, illegal or unenforceable
provisions.
SECTION 6.7 SECTION HEADINGS. The
section headings used herein are for convenience
of reference only, are not part of this Agreement
and are not to affect the construction of or be
taken into consideration in interpreting this
Agreement.
SECTION 6.8 COUNTERPARTS. This Agreement
may be executed in any number of counterparts,
each of which shall be deemed an original, but all
of which together shall constitute one and the
same instrument.
SECTION 6.9 TERMINATION. The obligations
of the Company to register the Registrable
Securities hereunder shall terminate in accordance
with the terms of this Agreement.
SECTION 6.10 COMPLETE AGREEMENT. This
document and the documents referred to herein
contain the complete agreement between the parties
and supersede any prior understandings, agreements
or representations by or between the parties, writ
ten or oral, which may have related to the subject
matter hereof in any way, and any other agreements
or understandings as to securities registration or
similar rights among the parties hereto are hereby
terminated.
SECTION 6.11 NO MORE FAVORABLE
AGREEMENTS. The Company has not previously, and
will not hereafter, enter into any agreement with
respect to its securities with any person which
grants such person rights that are, taken as a
whole, more favorable than the rights granted to
the Holders in this Agreement.
SECTION 6.12 SUBMISSION TO
JURISDICTION; VENUE.
(a) Any legal action or proceeding with respect to
this Agreement may be brought in the courts of the
State of New York or of the United States for the
Southern District of New York, and, by execution
and delivery of this Agreement, the Company hereby
irrevocably accepts for itself and in respect of
its property, generally and unconditionally, the
non-exclusive jurisdiction of the aforesaid
courts. The Company further irrevocably consents
to the service of process out of any of the
aforementioned courts in any such action or
proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to
CT Corporation Systems at its address at 1633
Broadway, New York, New York 10019, such service
to become effective 30 days after such mailing.
Nothing herein shall affect the right of any
Holder to serve process in any other manner
permitted by law or to commence legal proceedings
or otherwise proceed against the Company in any
other jurisdiction.
(b) The Company hereby irrevocably
waives any objection which it may now or hereafter
have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or
in connection with this Agreement brought in the
courts referred to in clause (a) above and hereby
further irrevocably waives and agrees not to plead
or claim in any such court that any such action or
proceeding brought in any such court has been
brought in an inconvenient forum.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have
entered into this Agreement as of the date first
set forth above.
EMERITUS CORPORATION
By: /s/ Kelly J. Price
--------------------
Name: Kelly J. Price
Title: Vice President of Finance
HOLDERS:
MERIT PARTNERS, LLC
By: MERIT OPERATING, LLC
By: NORTHSTAR OPERATING, LLC
By: /s/ David Hamamoto
-----------------------
Name: David Hamamoto
Title: Authorized Signatory
<PAGE>
SHAREHOLDERS' AGREEMENT
SHAREHOLDERS' AGREEMENT, dated as of
October 24, 1997, by and among Emeritus
Corporation, a Washington corporation (the
"Company"), Daniel R. Baty and B.F., Limited
Partnership (collectively, "Baty") and Merit
Partners, LLC, a New York limited liability
company ( "Northstar" ).
RECITALS:
A. The Company and Northstar are parties
to a Preferred Stock Purchase Agreement, dated as
of the date hereof, between the Company, as
seller, and Northstar, as purchaser (the "Purchase
Agreement"), pursuant to which the Company is
issuing and Northstar is acquiring 25,000 shares
of the Company's Series A Convertible Exchangeable
Redeemable Preferred Stock, par value $.0001 per
share (the "Preferred Stock").
B. The parties hereto desire to provide
for, among other things, certain matters relating
to the management of the Company, the ownership
and transfer of the Preferred Stock and the rights
and remedies of Northstar.
AGREEMENT:
The parties agree as follows:
ARTICLE I
DEFINITIONS
DEFINITIONS. The following terms, as
used herein, have the following meanings:
"Affiliate" means, as to any Person, any
other Person directly or indirectly Controlling,
Controlled by or under direct or indirect common
Control with such Person.
Agreement.
"Baty" is defined in the first paragraph
of this
"Capital Stock" means the Preferred
Stock and any Common Stock into which the
Preferred Stock or Convertible Debentures are
convertible.
"Change of Control" means, as to any
Person, a change, shift or transfer of Control
with respect to such Person (including any change
in the Control of any entity Controlling such
Person).
"Common Stock" means the common stock,
par value $.0001 per share, of the Company.
"Company" is defined in the first
paragraph of this Agreement.
"Control" means the 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
securities, partnership interests or by contract,
assignment or otherwise. The terms "Controlling"
and
"Controlled" shall have meanings
correlative to the foregoing.
"Convertible Debenture" means the
Company ' s 9% Convertible Debentures due 2004.
"Designation" means that certain
statement of rights and preferences
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<PAGE>
and other characteristics of the Preferred Stock
pursuant to which the Preferred Stock was
authorized by the Company.
"Initial Northstar Director" shall mean
David Hamamoto.
"1933 Act" means the Securities Act of
1993, as amended.
"1934 Act" means the Securities Exchange
Act of 1934, as amended.
Agreement.
"Northstar" is defined in the first
paragraph of this
"Northstar Director" shall mean the
Initial Northstar
Director and any person chosen by Northstar and
reasonably acceptable to the Company to be added
to the Company's Board of Directors as provided
for herein.
"Person" means an individual, a
corporation, a partnership, an association, a
trust or any other entity or organization,
including a government or political subdivision or
an agency or instrumentality thereof.
"Preferred Stock" is defined in Recital
A of this
Agreement.
"Restricted Period"' is defined in
Section 2.1 (b) of this Agreement.
"Restricted Person" is defined in
Section 2.1 (c) of this Agreement.
"Right of First Refusal" is defined in
Section 2. l (c) of this Agreement.
"Right of First Refusal Notice" is
defined in Section 2.1(d) of this Agreement.
"Tag-Along Sale" is defined in Section
2. 2 (a) of this Agreement.
"Tag-Along Sale Date" is defined in
Section 2. 2 (b) of this Agreement.
"Transfer" means any direct or indirect
transfer , sale, conveyance, pledge, hypothecation
or other disposition, including, without
limitation, any of the foregoing which occurs by
virtue of any Change of Control.
ARTICLE II
SECTION 2.1. TRANSFERS BY NORTHSTAR. (a)
Northstar shall not Transfer any Capital Stock
owned by it except as expressly permitted in this
Section 2.1.
(b) Northstar agrees that for a period
of twelve (12) months from the date hereof (the
"Restricted Period"), it will not Transfer any or
all of the Capital Stock.
(c) After the Restricted Period,
Northstar may Transfer any or all of the Capital
Stock to any Person and on any terms without the
consent of the Company; provided, however, that in
the event of any Transfer to any Person that at
the time of the Transfer is, or would become upon
acquisition of any Capital Stock, required to file
under Section 13(d) of the 1934 Act (such Person,
a "Restricted Person"), the Company shall have a
right of first refusal ("Right of First Refusal"')
in respect of any such Transfer as provided in
paragraph (d) below.
(d) In the event Northstar at any time
after the Restricted Period receives and
determines to accept an offer from a Restricted
Person to purchase any or all
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<PAGE>
of the Capital Stock held by Northstar, Northstar
shall deliver a written notice to the Company (a
"Right of First Refusal Notice") of such offer
which sets forth the number of shares of Capital
Stock to be sold, the price at which they are to
be sold and any other terms and conditions of the
offer. The Company shall have seven (7) days
following its receipt of the Right of First Re
fusal Notice to elect to exercise its Right of
First Refusal to purchase the Capital Stock on the
same terms, conditions and provisions set forth in
the Right of First Refusal Notice (the actual date
of exercise, the "Exercise Date"). If the Company
shall so elect to exercise its Right of First
Refusal, the Company shall, within 21 days of the
Exercise Date, (i) enter into a binding agreement
with Northstar to consummate the purchase upon
substantially the same terms and conditions as set
forth in the Right of First Refusal Notice and
(ii) pay to Northstar an amount equal to 25% of
the aggregate purchase price, it being understood
that the balance of the purchase price shall be
paid by the Company to Northstar, with interest at
a rate of 9%, within 90 days of the Exercise Date.
(e) Failure by the Company so to
exercise its Right of First Refusal shall
constitute a waiver of the Company's Right of
First Refusal as to that offer, and Northstar
shall have the right to consummate the transaction
set forth in the Right of First Refusal Notice on
substantially the terms and at a purchase price
equal to or greater than the purchase price
therein set forth, and, upon closing of such
transaction, the Company's Right of First Refusal
shall terminate with respect to such Right of
First Refusal Notice. If (A) the closing under the
Right of First Refusal Notice shall not occur
within 45 days of the earlier of (x) the
expiration of the seven-day period specified in
paragraph (d) above for the exercise of the Right
of First Refusal and (y) the date upon which the
Company shall notify Northstar in writing that the
Company does not elect to purchase the Capital
Stock pursuant to the terms set forth in the Right
of First Refusal Notice or (B) Northstar intends
to sell the Capital Stock to a Restricted Person
with terms, conditions or provisions not
substantially as set forth in the Right of First
Refusal Notice or at a purchase price less than
the purchase price set forth in the Right of First
Refusal Notice, then in any such event, Northstar
shall again comply with the provisions set forth
in Section 2(d).
(f) In the event that such Restricted
Person acquires Capital Stock from Northstar, such
Restricted Person, as a condition to closing such
acquisition, shall enter into an agreement
reasonably satisfactory to the Company to be bound
by the provisions of Section 2.1 (excluding,
however, Section 2.1(b) hereof) and Article IV of
this Agreement.
SECTION 2.2. TAG-ALONG PROVISIONS. (a)
If at any time Baty shall receive and determine to
accept any offer from any Person to purchase or
otherwise transfer for value, in one transaction
or a series of related transactions, shares of
Common Stock representing 50% or more of the
Common Stock owned by Baty (a "Tag-Along Sale"),
then Baty shall afford Northstar the opportunity
to participate in such Tag-Along Sale in the
manner set forth in this Section 2.2.
(b) Baty shall provide Northstar with
written notice of the proposed Tag-Along Sale
which sets forth the number of shares of Common
Stock proposed to be sold, the price at which they
are to be sold, and any other terms or conditions
of the offer, not more than 60 days nor less than
30 days before the proposed date of the Tag-Along
Sale (the "Tag-Along Sale Date " ).
(c) Northstar shall have the right to
cause Baty to condition the Tag-Along Sale on the
simultaneous purchase by the purchaser of such
number of shares of Common Stock owned by
Northstar as Northstar shall designate in a
written notice to Baty no less than 20 days after
the notice given in accordance with Section
2.2(b); provided, however, that Northstar may not
so designate for purchase a number of shares of
Common Stock greater than the number owned by
Northstar, multiplied by a fraction the numerator
of which is the number of shares of Common Stock
then outstanding and owned by Baty which are
subject to the Tag-Along Sale and the denominator
of which is
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<PAGE>
the total number of shares of Common Stock then
outstanding and owned by Baty. The purchase price
for each share of the Company's Common Stock to be
sold by Northstar at the Tag-Along Sale and the
terms of such purchase shall be the same as those
applicable to Baty.
SECTION 2. 3. TRANSFERS TO COMPLY
WITH LAWS. Notwithstanding any contrary provision herein, Northstar may not
Transfer or offer to Transfer any shares of Capital Stock (or solicit any
offers to Transfer any shares of Capital Stock), except in compliance with the
1933 Act, as amended, and rules and regulations promulgated thereunder and in
compliance with any applicable state securities laws and rules and regulations
promulgated thereunder.
ARTICLE III
BOARD OF DIRECTORS; CORPORATE GOVERNANCE
SECTION 3.1. BOARD OF DIRECTORS. (a)
From and after the date hereof, the Company and
Baty shall take all such action as may be
necessary to increase the number of directors
comprising the Company's Board of Directors so as
to allow for the nomination and election of the
Northstar Directors at the times and as specified
below:
(i) as soon as practicable after
the execution of this Agreement, the Initial
Northstar Director shall be added to the
Company's Board of Directors;
(ii) at such time as Northstar
invests at least an additional $25,000,000
(whether in the form of indebtedness or
equity) into the Company or any Affiliate of
the Company, an additional Northstar Director
shall be added to the Company's Board of
Directors.
(iii) if at any time after the date
hereof the number of members of the Board of
Directors of the Company is increased,
additional Northstar Directors shall be added
to the Company's Board of Directors so as to
maintain Northstar's representation at a
fraction not less than one-seventh (1/7) of
entire Board of Directors.
(b) Northstar's right to have one or
more Northstar Directors added to the Company's
Board of Directors will terminate if (i) (x) it
has sold of record any of its initial investment
in the Capital Stock (or the Convertible
Debentures for which it has been exchanged) and
(y) the remaining shares of Capital Stock held by
Northstar represents less than 5% of the
outstanding Common Stock (on a fully diluted
basis), (ii) there is a Change of Control of
Northstar or (iii) Northstar is unable to exercise
independent voting control over the shares of
Capital Stock owned by it.
(c) For so long as Northstar shall be
entitled to the benefits of Section 3.1(a) of this
Agreement, Northstar agrees not to exercise its
rights as provided for in Section 6(b) of the
Designation. At such time as Northstar or any
holder of the Preferred Stock is no longer
entitled to the benefits of Section 3.1(a) of this
Agreement, Northstar or such holder, as the case
may be, shall be entitled to exercise the rights
set forth in Section 6(b) of the Designation.
SECTION 3.2. CORPORATE GOVERNANCE. (a)
For so long as there has been no Change of Control
of Northstar and Northstar retains the power to
vote the shares comprising at least 50% of its
initial investment, approval by the Company's
Board of Directors will be required for all
material decisions, including, but not limited to,
the following:
(i) the incurrence by the Company
or any Subsidiary of any indebtedness in an
amount exceeding that which is permitted by
the resolutions of the Board of Directors of
the Company adopted on February 20,
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<PAGE>
1997;
(ii) any investment by the Company or
any Subsidiary
in an amount exceeding that which is
permitted by the resolutions of the Board of
Directors of the Company adopted on February
20, 1997;
(iii) the liquidation, dissolution or
winding up of the Company or any Subsidiary;
(iv) a sale or other disposition of
all or substantially all of the assets of the
Company, other than to any Subsidiary;
(v) the merger or consolidation of
the Company, other than any such merger or
consolidation between or among any of the
Company (so long as the Company shall be the
surviving corporation) and any Subsidiary;
(vi) any affirmative action that
would result in a fundamental change in the
nature of the business conducted by the
Company or any Subsidiary, other than actions
compelled by law, rule, regulation, order or
decree;
(vii) the entry by the Company or a
Subsidiary into any material transaction with
an Affiliate; and
(viii) any amendment to the restated
articles of incorporation or restated by-laws
of the Company which adversely affects the
rights of Northstar under this Agreement.
(b) Until October 24, 2001, the Company
shall not, without the approval of the Northstar
Directors (i) issue shares of any equity security
that are senior or pari pasu to the Preferred
Stock as to dividends or liquidation rights or
(ii) declare or pay any dividends on any of the
Company's Common Stock. Section 8(c) of the
Designation shall apply to any dividends paid
pursuant to such consent.
ARTICLE IV
STANDSTILL PROVISIONS
SECTION 4.1. RESTRICTIONS OF CERTAIN
ACTIONS BY NORTHSTAR. (a) Unless consented to in
advance by the Company, Northstar will not, and
will cause each of its Affiliates not to, singly
or as part of a partnership, limited partnership,
syndicate or other group (as those terms are
defined in Section 13(d)(3) of the 1934 Act),
directly or indirectly acquire, offer to acquire,
or agree to acquire, by purchase, gift or
otherwise, any voting securities of the Company
other than the Preferred Stock and the Common
Stock into which the Preferred Stock and
Convertible Debentures are convertible, except
pursuant to a stock split, stock dividend, rights
offering, recapitalization, reclassification or
similar transaction.
(b) If Northstar or any of its
Affiliates owns or acquires any voting securities
in violation of this Agreement, such voting
securities shall immediately be disposed of to per
sons who are not Affiliates thereof but only in
compliance with the provisions of this Agreement;
provided, that the Company may also pursue any
other available remedy to which it may be entitled
as a result of such violation.
(c) Northstar will cause (i) any Person
acquiring Capital Stock from Northstar
representing more than 25% of Northstar's initial
investment or (ii) any Restricted Person acquiring
an interest in the Company from Northstar to agree
to be bound by provisions similar to those
contained in this Article IV and in Section 2.1 of
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this Agreement (excluding however, Section 2.1 (b)
hereof ).
(d) The provisions of this Article IV
will terminate as follows:
(i) if the Company commits a material
breach of its
obligations under this Agreement, 30
days after written notice by Northstar to the
Company of such breach unless the Company
cures such breach within such 30-day period;
and
(ii) 18 months after the date on
which Northstar ceases to hold Capital Stock
representing 5% of the outstanding Common
Stock (on a fully diluted basis).
ARTICLE V
MISCELLANEOUS
SECTION 5.1. LEGENDS. Each
certificate evidencing any of the Preferred Stock
shall bear a legend substantially as follows:
The shares represented by this certificate
are subject to the terms and conditions of a
certain Shareholders' Agreement dated as of
October 24, 1997, as at any time amended,
which Shareholders' Agreement contains, among
other things, certain restrictions on the
transfer of such shares and restrictions on
acquiring additional securities of the
Company. A copy of such Shareholders'
Agreement is on file at the principal
executive office of the Company and will be
furnished to the holder of this certificate
upon request and without charge.
SECTION 5.2. NOTICES. All notices,
requests and other communications to any party
hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such
party at its address or facsimile number set forth
on the signature pages hereof or such other
address or facsimile number as such party may
hereafter specify for the purpose by notice to the
party sending the communication. Each such notice,
request or other communication shall be effective
(i) if given by facsimile, when such facsimile is
transmitted to the facsimile number specified in
this Section and receipt is confirmed, (ii) if
given by mail, 72 hours after such communication
is deposited in the mail registered or certified,
return receipt requested, with postage prepaid, ad
dressed as aforesaid, or (iii) if given by any
other means, where delivered at the address
specified in this Section.
SECTION 5.3. AMENDMENTS AND WAIVERS. Any
provision of this agreement may be amended if, but
only if, such amendment is in writing and is
signed by each of the parties hereto. Any
provision of this agreement may be waived if, but
only if, such waiver is in writing and is signed
by each of the parties hereto.
SECTION 5.4. SUCCESSORS AND ASSIGNS. The
provisions of this agreement shall be binding upon
and inure to the benefit of the parties hereto and
their respective successors and assigns; provided,
however, that no assignment of rights under this
agreement will be valid unless made in connection
with a contemporaneous Transfer of Capital Stock
which is not prohibited by this agreement. The
Company may not assign or otherwise transfer any
of its rights under this agreement.
SECTION 5.5. CAPTIONS. The captions of
this agreement are included for convenience of
reference only, do not constitute a part hereof
and shall be disregarded in the construction
hereof.
SECTION 5. 6. COUNTERPARTS; EFFECTIVENESS. This agreement may be
signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
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<PAGE>
instrument.
SECTION 5. 7. GOVERNING LAW.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAWS.
(b) THE COMPANY HEREBY EXPRESSLY WAIVES
ANY RIGHT IT MAY HAVE NOW OR HEREAFTER TO A JURY
TRIAL IN ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT.
(c) Upon breach or default by the
Company with respect to any obligation hereunder,
Northstar (or its agents) shall be entitled to
protect and enforce their rights at law, or in
equity or by other appropriate proceedings for
specific performance of such obligation, or for an
injunction against such breach or default, or in
aid of the exercise of any power or remedy granted
hereby or thereby or by law.
SECTION 5.8. SEVERABILITY. Any term or
provision of this agreement which is invalid or
unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without ren
dering invalid or unenforceable the remaining
terms and provisions of this agreement, or
affecting the validity or enforceability of any of
the terms or provisions of this agreement in any
other jurisdiction.
SECTION 5.9. HEADINGS. The Article and
Section headings used or contained in this
Agreement are for convenience of reference only
and shall not affect the construction of this
Agreement.
SECTION 5.10. NO RELIANCE. Each party
hereto acknowledges that it has obtained separate
advice with respect to the legal, tax and
accounting consequences of the transactions
contemplated by this Agreement, and that it has
neither sought nor relied upon any such advice
from any other party hereto or its Affiliates.
SECTION 5.11. ENTIRE AGREEMENT. This
Agreement and agreements executed
contemporaneously herewith constitute the entire
agreement among the parties with respect to the
subject matter hereof, and, as of the date hereof,
there are no promises or undertakings with respect
thereto relative to the subject matter hereof not
expressly set forth or referred to herein.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto
have caused this agreement to be duly executed by
their respective authorized officers as of the day
and year first above written.
EMERITUS CORPORATION
By: /s/ Kelly J. Price
-----------------------
Name: Kelly J. Price
Title: Vice President of Finance
Emeritus Corporation
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Attn: Kelly J. Price
Telephone: (206) 298-2909
Telecopier: (206) 301-4500
DANIEL BATY
/s/ Daniel R. Baty
------------------------------
Daniel. R. Baty
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Telephone: (206) 298-2909
Telecopier: (206) 301-4500
B.F., LIMITED PARTNERSHIP
By: Columbia-Pacific Group,
Inc., General Partner
By: /s/ Daniel R. Baty
---------------------
Name: Daniel R. Baty
Title: Chairman
B.F., Limited Partnership
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Attn: Daniel R. Baty
Telephone: (206) 298-2909
Telecopier: (206) 301-4500
9
<PAGE>
MERIT PARTNERS, LLC
By : MERIT OPERATING, LLC
By: NORTHSTAR OPERATING, LLC
By: /s/ David Hamamoto
-----------------------
Name: David Hamamoto
Title: Authorized Signatory
Merit Partners, LLC
299 Park Avenue, 33rd Floor
New York, New York 10022
Attn: Richard J. Sabella
Telephone: (212) 821-4602
Telecopier: (212) 821-4517
<PAGE>
MASTER AGREEMENT
AND SUBORDINATION AGREEMENT
THIS AGREEMENT is made and entered into as of
the 5th day of September,1997 (the "Effective
Date") by and between Emeritus Corporation, a
Washington corporation ("Emeritus"), Emeritus
Properties I, Inc., a Washington corporation ("EP
I") and Mississippi Baptist Health Systems, Inc.,
a Mississippi non profit corporation (the
"System").
RECITALS
A. EP I, a wholly owned subsidiary of
Emeritus, is the lessee and licensed operator of
that 80 unit assisted living facility known as
Ridgeland Court and located in Ridgeland,
Mississippi (the "Facility") under the terms of a
Facility Lease Agreement dated March 15,1996
executed by Meditrust Acquisition Corporation I,
Inc., a Delaware corporation ("Meditrust"), as
Lessor and EP I, as Lessee (the "Lease") which
Lease has been guaranteed by Emeritus.
B. The System is interested in
participating with EP I in the operations of the
Ridgeland Facility and participating with Emeritus
in the development and operation of additional
assisted living facilities in the State of
Mississippi (the "Additional Facilities").
C. Emeritus, EP I and the System are
interested in documenting the terms and conditions
under which the System will participate in the
operations of the Ridgeland Facility and in the
development and operation of the Additional
Facilities.
NOW, THEREFORE, in consideration of the
foregoing premises and the mutual covenants of the
parties set forth herein, IT IS HEREBY AGREED AS
FOLLOWS :
AGREEMENT
1. INITIAL PAYMENT. Concurrently with the
execution of this Agreement the System will
deposit with Emeritus One Hundred Thousand and
no/100 Dollars ($100,000) (the "Initial Payment").
2. ECONOMIC INTEREST.
(a) Concurrently with the execution of this
Agreement, EP I shall grant the System a 50%
Economic Interest (as hereinafter defined) in the
Ridgeland Facility (the "Economic Interest
Assignment").
(b) For purposes hereof, the term 50%
Economic Interest" shall mean a 50% interest in
the Net Profits, Net Losses and Net Cash Proceeds
(as hereinafter defined) of the Ridgeland
Facility. For purposes hereof, the term "Net
Profits" and "Net Losses" shall mean the net
operating profits or net operating losses of the
Ridgeland Facility, after the payment of all
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ordinary expenses incurred by EP I in the
operation of the Ridgeland Facility, including,
but not limited to, the Rent (as defined in the
Lease) due under the Lease and the term "Net Cash
Proceeds" shall mean the net proceeds (remaining
after the payment of all indebtedness then
outstanding with respect to the Ridgeland
Facility, including indebtedness owing to Emeritus
and after the return to Emeritus and/or the System
of any equity invested in the Ridgeland Facility)
resulting from the sale of all or substantially
all of the assets of the Ridgeland Facility, all
as determined in accordance with generally
accepted accounting principles.
(c) EP I shall determine no later than ninety
(90) days after the end of each fiscal year
whether or not there are any Net Profits, Net
Losses or Net Cash Proceeds available for
allocation or distribution to the parties and, if
and to the extent available for distribution or
allocation, shall allocate or distribute the same
within thirty (30) days thereafter.
(d) EP I, Emeritus and the System acknowledge
and agree that nothing herein shall be construed
as requiring the System to fund the net operating
losses of the Ridgeland Facility prior to the
earlier to occur of (i) the satisfaction of the
Release and Development Conditions (as hereinafter
defined) on or prior to the expiration of the
Release and Development Period (as hereinafter
defined) or (ii) the failure of the Release and
Development Conditions prior to the expiration of
the Release and Development Period and the
affirmative election by the System to exercise the
rights granted to it under Section 6(a)(ii) of
this Agreement, at which time Assignee's
obligations with respect to such operating losses
shall be as set forth in this Master Agreement.
3. SUBORDINATION. The System acknowledges
and agrees that Emeritus and EP I have secured the
consent of Meditrust to the assignment of the
Economic Interest on the specific condition that
any payments to the System due with respect to the
Economic Interest are and will be subordinate to
the obligations of EP I and Emeritus to Meditrust,
and to the rights of Meditrust against Emeritus
and EP I, under the Lease and the Lease Documents
(as that term is defined in the Lease).
Accordingly, the System acknowledges and agrees
for the direct benefit of Meditrust (on which
Meditrust may rely) as follows:
(a) It has been provided with a true and
correct copy of the Lease and the Lease Documents
and it has reviewed the same and is familiar with
the terms and conditions thereof.
(b) The payment of any and all amounts due
to the System under this Agreement or under any
other agreement executed pursuant hereto,
including, but not limited to, the Economic
Interest Assignment, shall be and hereby is
subordinated and made junior to the complete and
prior payment and performance as and when due of
all fees, indebtedness, liabilities, obligations
and other amounts due or owing from or by Emeritus
or EP I under the Lease Documents; provided,
however, that for so long as (A) (i) there is no
Event of Default under the Lease or event
outstanding which, with the giving of notice or
the passage of time or both, would constitute an
Event of Default under the
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<PAGE>
Lease or (ii) Meditrust (pursuant to any of the
Lease Documents) shall not have commenced to
exercise any right or remedy under the Lease
Documents and (B) after giving effect to any such
payment, Emeritus and EP I will be able to
continue to comply with all of their obligations
under the Lease Documents, then EP I shall be
permitted to make any payments which are then due
and owing to the System under this Agreement or
under any other agreement executed pursuant
hereto, including, but not limited to, the
Economic Interest Assignment.
(c) In the event the System receives any
payments in contravention of the terms of this
Agreement, whether or not it has been provided
with notice of the existence of such Event of
Default or any other event by Meditrust or
Emeritus, it shall receive and hold those payment
in trust for the benefit of Meditrust and it shall
immediately remit the same to Meditrust.
(d) In the event of any voluntary or
involuntary insolvency, bankruptcy, receivership,
custodianship, readjustment of debt, arrangement,
composition, assignment for the benefit of
creditors or other similar proceedings relative to
Emeritus or EP I or any of their property (the
"Triggering Events"), then and in any such event:
(i) any payment or distribution of any
character, which would otherwise (but for the
terms hereof be payable or deliverable in
respect of the amounts owed to the System
shall be paid or delivered directly to
Meditrust until any and all amounts due under
the Lease Documents shall have been paid in
full;
(ii) upon the written request of Meditrust,
the System shall provide, enforce and
endeavor to obtain payment of the aggregate
outstanding amount of all unpaid payments due
and payable to the System or thereafter
becoming due and payable from Emeritus or EP
I to the System and shall turn over to
Meditrust, in precisely the form received,
any such unpaid payment of any kind or
character on account of such amounts owed to
the System for application to the payment of
all amounts then due by Emeritus or EP I
under the Lease Documents. In the event that
the System fails to take any such action
requested by Meditrust, Meditrust, as
attorney in fact for the System for the
limited purpose of enforcing and obtaining
such payments, with full power of
substitution, may take such action on behalf
of the System, but for the use and benefit of
Meditrust. This limited power of attorney,
being coupled with an interest, shall be
irrevocable until all of the amounts due by
Emeritus or EP I under the Lease Documents
are fully paid and performed. The power of
attorney conferred on Meditrust is provided
solely to protect the interests of Meditrust
and shall not impose any duty on Meditrust to
exercise any such power and Meditrust, as
such attorney-in-fact, shall not be liable
for any act, omission, error in judgment or
mistake of law, except as the same may result
from its gross negligence, breach of
fiduciary duty to System or wilful
misconduct;
(iii) System shall execute and deliver to
Meditrust all such further instruments
confirming the authorization referred to in
the foregoing clauses (i) and (ii) and any
powers of attorney specifically confirming
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<PAGE>
the rights of Meditrust arising hereunder and
all such proofs of claim, assignments of
claim and other instruments and shall take
all such other actions as may be requested by
Meditrust in order to enable Meditrust to
enforce any and all claims upon or in respect
of any and all amounts due by Emeritus or EP
I under the Lease Documents and to collect
any and all payment or distributions which
may be payable or deliverable to System after
the occurrence of the aforementioned
Triggering Events at any time upon, or with
respect to, such amounts.
(e) The subordination provisions provided for
herein shall not be affected, modified or impaired
in any manner or to any extent by: (i) any
renewal, replacement, amendment, extension,
substitution, revision, consolidation,
modification or termination of any of the Lease
Documents, (ii) the validity or enforceability of
any of the Lease Documents, (iii) the release,
sale, exchange or surrender, in whole or in part,
by Meditrust of any collateral which it is holding
as security for the performance by EP I or
Emeritus of its or their obligations under the
Lease Documents, (iv) any exercise or non-exercise
of any right, power or remedy in respect of any
amounts due under the Lease or (v) any waiver,
consent, release, indulgence, extension, renewal,
modification, delay or other action or inaction or
omission in respect of the amounts now or
hereafter due from Emeritus or EP I under the
Lease, in each instance whether or not the System
had notice or knowledge thereof or consents
thereto.
Any and all rights granted by Emeritus
and EP I to the System under this Agreement or
under any other documents executed pursuant
hereto, may at the option of Meditrust be
terminated in the event that upon the occurrence
of an Event of Default under the Lease, Meditrust
elects either to terminate the Lease or to re-take
possession of the Ridgeland Facility; provided,
however, that concurrently with such termination,
the rights granted to Emeritus and its
subsidiaries, including EP I, under the License
Agreement shall also terminate, it being
understood and agreed that Meditrust shall have no
right to succeed to the rights granted to Emeritus
thereunder even in the event it retakes possession
of the Ridgeland Facility, and the Initial Payment
and the Subsequent Payment, if applicable, shall
be returned to the System upon written demand
therefor.
(g) Meditrust shall have no liability to the
System for any payments due to the System under
this Agreement or under any document executed
pursuant to this Agreement, it being understood
and agreed that the System's sole recourse for
such payments shall be solely to Emeritus or EP I,
as appropriate.
(h) In consideration for the agreements of
the System set forth in this Section 3, Emeritus
and EP I do hereby agree to provide the System
with copies of any and all notices of default
which may be provided by Meditrust to either
Emeritus or EP I under any of the Lease Documents;
provided, however, that the System acknowledges
and agrees for the benefit of Emeritus, EP I and
Meditrust, that the giving of such notice shall
not be construed in any manner as granting the
System any right to cure any such default under
the Lease Documents or to otherwise interfere with
or affect the rights granted to Meditrust under
the Lease Documents upon the occurrence of a
default thereunder.
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<PAGE>
4. LICENSING AGREEMENT. Concurrently with the
granting of the Economic Interest, Emeritus and
the System will enter into a Licensing Agreement
under which Emeritus and its subsidiaries,
including but not limited to, EP I, will be
granted the right to use the System's name in
connection with the marketing of the Ridgeland
Facility. The License Agreement shall be in form
and substance substantially the same as the
License Agreement attached hereto as Exhibit A.
5. DEVELOPMENT, OWNERSHIP AND OPERATION OF
ADDITIONAL FACILITIES.
(a) From and after the Effective Date,
Emeritus and/or the System will use its or their
commercially reasonable efforts to have satisfied
the following conditions (the "Release and
Development Conditions") by no later than the
second anniversary of the Effective Date (the
"Release and Development Period"): (i) Emeritus
shall have secured a release (as hereinafter
defined) of the Ridgeland Facility from the Lease
and (ii) Emeritus and the System shall have
commenced (as hereinafter defined) no less than
two Additional Facilities in the Jackson,
Mississippi metropolitan area.
(b) For purposes hereof, (i) Emeritus will be
deemed to have secured a release of the Ridgeland
Facility from the Lease in the event it is able to
either (A) convert the Lease to a mortgage in
favor of Meditrust but only if such mortgage
clearly provides that it is not cross defaulted or
cross collateralized to any other agreements
between Emeritus and its affiliates, on the one
hand, and Meditrust and its affiliates, on the
other hand, or any other lender or an affiliate
thereof or (B) acquire title to the Ridgeland
Facility by conveying to Meditrust title to
another property in substitution for the Ridgeland
Facility in accordance with the Substitution of
Properties provisions of the Lease and (ii)
Emeritus and the System will be deemed to have
commenced no less than two Additional Facilities
in the event they have acquired title to property
upon which the same will be constructed, secured
any necessary zoning permits and approvals
necessary for the construction thereof, secured a
building permit with respect to the construction
thereof and commenced construction thereof within
any time period required for the validity of such
building permits or on such earlier date as may be
specified by agreement of Emeritus and the System,
it being understood and agreed that construction
of such Additional Facilities shall not be
required to be completed as of the end of the
Release and Development Period in order for the
Release and Development Conditions to be
satisfied.
(c) Emeritus shall provide the System with
written notice (the "Condition Satisfaction
Notice") of the date upon which it believes that
Release and Development Conditions have been
satisfied (the "Condition Satisfaction Date"). The
Condition Satisfaction Notice from Emeritus shall
be final and binding upon the System unless
objected to by the System within ten (10) days
after the receipt thereof. In the event the System
objects to the date specified in the Condition
Satisfaction Notice, it shall be required to
provide Emeritus with written notice of its
objection and details concerning the bases
therefor and the date which is believes
constitutes the Condition Satisfaction Date (the
"Objection Notice"). Emeritus and the System shall
have a period of twenty (20)
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<PAGE>
days after Emeritus' receipt of the Objection
Notice to negotiate in good faith with respect to
the Condition Satisfaction Date and failing that
shall submit the same to binding mediation before
a mediator selected by mutual agreement of the
parties.
(d) Within ten (10) days after the later of
the receipt of the Condition Satisfaction Notice
or the date on which the Condition Satisfaction
Date is determined by agreement of the parties or
mediation, (A) the System will (i) reimburse
Emeritus for 50% of any equity provided by
Emeritus in order to secure the release of the
Ridgeland Facility from the Lease (the "Equity
Reimbursement Payment"), it being understood and
agreed that for purposes hereof, the System shall
have no obligation to reimburse Emeritus for any
fees paid or expenses reimbursed to Meditrust in
consideration for the release of the Ridgeland
Facility from the Lease and (ii) reimburse
Emeritus for 50% of any working capital advanced
by Emeritus from the date of this Agreement to the
Condition Satisfaction Date in connection with the
operation of the Ridgeland Facility in excess of
the amount financed as part of the Original
Meditrust Investment (as that term is defined in
the Lease) (the "Working Capital Reimbursement
Payment"); provided, however, that the System
shall receive a credit against the aggregate
amount of the Equity Reimbursement Payment and the
Working Capital Reimbursement Payment in an amount
equal to the Initial Payment and (B) Emeritus will
take such action as may be necessary to convey
title to the Ridgeland Facility to a limited
liability company (the "Ridgeland LLC"), in which
Emeritus or a subsidiary of Emeritus and the
System or a subsidiary of the System are the sole
members, with each of Emeritus and the System
holding a SO% interest therein, which limited
liability company shall be formed pursuant to
Articles of Organization and operated pursuant to
an Operating Agreement in such forms as may be
mutually acceptable to the parties ( the
"Ridgeland LLC Documents") and (C) Emeritus and
the System shall enter into a Management Agreement
which shall vest in Emeritus responsibility for
the day to day operations of the Ridgeland
Facility and the Additional Facilities, which
Management Agreement shall be in form and
substance mutually acceptable to each of the
System and Emeritus.
(e) In the event at the time Emeritus and the
System have agreed to acquire title to any land or
otherwise enter into any contractual relationship
with respect to either or both of the Additional
Facilities the Ridgeland Facility is still subject
to the Lease or the Ridgeland Facility has been
released from the Lease but is subject to a
mortgage in favor of Meditrust, Emeritus and the
System shall form one or more additional limited
liability companies (the "New LLCs") through which
they shall pursue the development, ownership and
operation of such Additional Facilities, it being
understood and agreed that for so long as the
Ridgeland Facility is owned or financed by
Meditrust, the Ridgeland LLC cannot engage in any
business other than the ownership or operation of
Meditrust financed or owned facilities. The
Articles of Organization and Operating Agreements
with respect to the New LLCs shall be in form and
substance substantially the same as the Ridgeland
LLC Documents or in such other form as may be
mutually acceptable to each of Emeritus and the
System.
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In the event at the time Emeritus and the
System have agreed to acquire title to any land or
otherwise enter into any contractual relationship
with respect to either or both of the Additional
Facilities, the Ridgeland Facility has been
released from the Lease and is not subject to a
mortgage in favor of Meditrust, Emeritus and the
System shall have the option of either forming a
New LLC through which they shall purse the
development, ownership and operation of such
Additional Facilities or doing so through the
Ridgeland LLC.
(g) In the event Emeritus and the System
elect for any reason to pursue the development,
ownership and operation of one or more of the
Additional Facilities through the Ridgeland LLC,
including, but not limited to, in the event
Meditrust elects to finance either of both of such
Additional Facilities and accordingly consents to
the development, ownership and operation of such
Additional Facilities by the Ridgeland LLC,
Emeritus and the System shall enter into such
amendment to the Operating Agreement with respect
to the Ridgeland LLC as they mutually deem to be
necessary and appropriate.
(h) Emeritus and the System agree that any
and all costs incurred from and after the
Condition Satisfaction Date in connection with the
development, ownership and operation of the
Additional Facilities, including, but not limited
to, any equity required to secure financing for
the construction thereof and any working capital,
shall be shared by them on a 50-50 basis;
provided, however, that in no event shall the
System be required to provide its guarantee in
connection with any financing secured for such
development or operation.
6. FAILURE OF THE RELEASE AND DEVELOPMENT
CONDITIONS.
(a) In the event either or both of the
Release and Development Conditions have not been
satisfied as of the end of the Release and
Development Period, the System will have the right
exercisable on written notice to Emeritus
delivered no later than thirty (30) days after the
end of the Release and Development Period (the
"Election Notice") either:
(i) to demand the return of the Initial
Payment, in which case the Economic Interest
Assignment and the Licensing Agreement shall
be null and void and of no further force and
effect as of the date of the Election Notice;
or
(ii) to continue in effect the relationship
described in Paragraphs 2, 4 and 5, above, in
exchange for the following actions by the
System: (A) increase its deposit by another
One Hundred Thousand and no/100 Dollars
($100,000) (the "Subsequent Payment"), for an
aggregate deposit with respect to the
Ridgeland Facility of Two Hundred Thousand
and no/100 Dollars ($200,000), (B) pay to
Emeritus an amount equal to the Working
Capital Reimbursement Payment, (C) upon
request, confirm in writing the rights
granted to Emeritus under the License
Agreement and (D) from and after the date
thereof, be responsible on a 50-50 basis with
Emeritus for any working capital required in
connection with the operation of the
Ridgeland Facility in excess of the amount
financed as part of the Original Meditrust
Investment, it being
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<PAGE>
understood and agreed that in such event, the
System shall have no right, title or interest
in and to any of the Facilities.
(b) In the event the System fails to provide
Emeritus with written notice of its election
pursuant to Section 6(a) within the thirty (30)
day period specified therein, it shall be deemed
to have elected the option provided for in Section
6(a)(i).
(c) In consideration for the Subsequent
Payment and the Working Capital Reimbursement, the
System will have those additional rights with
respect to the Ridgeland Facility as are set forth
in the Economic Interest Assignment Agreement.
7. ANCILLARY SERVICES. Emeritus and EP I
agree that any and all ancillary services which
may from time to time be offered by the Ridgeland
Facility to its residents, including but not
limited to, rehabilitation therapy services and
pharmacy services, shall be provided under
contract with the System or its affiliates on
terms mutually agreed upon by both Emeritus and
the System; provided, however, that nothing herein
shall be construed as requiring the Ridgeland
Facility to contract with the System at rates
which are not competitive with other ancillary and
pharmaceutical service providers in the Jackson,
Mississippi market or to continue to contract with
the System in the event the System fails to
provide the services for which it has been
retained in accordance with the terms of such
service agreements or otherwise breaches its
obligations thereunder.
8. FINANCIAL REPORTS/INSPECTION OF BOOKS AND
RECORDS. On or before the twenty fifth (25th) day
of each month, EP I shall provide the System with
monthly operating financial statements for the
Ridgeland Facility for the immediately preceding
month, which financial statements shall be
prepared in accordance with generally accepted
accounting principles and shall include a
statement of cash flows and a comparison of each
item reflected therein for the current period and
year to date to the budgeted amounts with respect
thereto. In addition, the System shall have the
right on reasonable notice and during normal
business hours to inspect the books, records and
accounts of the Ridgeland Facility.
9. AMENDMENT AND MODIFICATION OF THE LEASE
DOCUMENTS. For so long as the System holds the
Economic Interest, neither Emeritus nor EP I will
amend, modify, extend, replace, consolidate, renew
or terminate any of the terms of the Lease
Documents in a manner which would adversely affect
the rights of the System hereunder without the
prior written consent of the System, which consent
shall not be unreasonably withheld; provided,
however, that nothing herein shall be construed as
prohibiting Emeritus and EP I from terminating the
Lease Documents in accordance with the terms
thereof which have been disclosed to the System,
it being understood and agreed that such
termination may adversely affect the rights of the
System hereunder.
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<PAGE>
10. MISCELLANEOUS.
(a) This Agreement represents the entire and
final agreement of the parties hereto with respect
to the subject matter hereof and may not be
amended or modified except by written instrument
signed by the parties hereto.
(b) In the event of a dispute among the
parties hereto with respect to the interpretation
or enforcement of the terms hereof, the prevailing
party shall be entitled to collect from the other
its reasonable costs and attorneys fees, including
its costs and fees on appeal.
(c) Each of the parties has had an
opportunity to participate in the drafting of this
Agreement and to be represented by counsel in
connection therewith. Accordingly, in the event of
a dispute between the parties hereto with respect
to the interpretation of any term or provision
hereof, no provision shall be read so as to favor
or disfavor either party hereto.
(d) This Agreement may be executed in
counterparts, each of which shall be deemed to be
an original but all of which taken together shall
constitute but one and the same instrument.
(e) This Agreement shall be binding upon and
inure to the benefit of the parties hereto and
their successors and assigns; provided, however,
that neither party shall have the right to assign
its rights or obligations hereunder, without the
prior written consent of the other party hereto,
which consent may be withheld in its sole and
absolute discretion, it being understood and
agreed that the rights and obligations provided
for in this Agreement are personal to the parties
hereto.
Nothing herein is intended to confer a
benefit on any person or entity not a party hereto
other than Meditrust, which is and shall be an
intended beneficiary of the provisions of
Paragraph 3 hereof.
IN WITNESS WHEREOF, the parties hereby
execute this Agreement as of the day and year
first set forth above.
MISSISSIPPI BAPTIST HEALTH
SYSTEMS, INC.
By:
Its:
EMERITUS CORPORATION
By: /s/ Raymond R. Brandstrom
-----------------------
Its: President
9
<PAGE>
EMERITUS PROPERTIES I, INC.
By: /s/ Raymond R. Brandstrom
-----------------------
Its: President
10
<PAGE>
LICENSE
THIS AGREEMENT is made and entered into as of
the 5th day of September,1997 by and between
Mississippi Baptist Health Systems, Inc., a not-
for-profit Mississippi corporation (hereinafter
called "MBHS") and Emeritus Corporation, a
Washington corporation and its subsidiary and
affiliated corporations, including Emeritus
Properties I, Inc., a Washington corporation, and
any limited liability companies and partnerships
in which Emeritus and/or such affiliated or
subsidiary corporations alone or in conjunction
with MBHS and/or its qualified affiliates are the
sole members or partners (hereinafter collectively
called "Licensee").
RECITALS
A. MBHS is the sole owner of its name, trade
name and certain trademarks relating to MBHS, and
any and all of its affiliates, which are specified
in Exhibit A attached hereto (hereinafter referred
to as the "Marks"), and any copyrights relating to
or arising from the use of the Marks (the
"Related Rights"); and has the sole right to grant
Licenses for the use thereof.
B. Licensee desires to obtain a license to
use the Marks, and the Related Rights of MBHS, in
connection with the development, operation and
maintenance of assisted living facilities in
Mississippi (the "License").
C. Pursuant to that Master Agreement and
Subordination Agreement of even date herewith
between MBHS and Licensee (the "Master
Agreement"), Emeritus agrees to cause its
subsidiary, Emeritus Properties I, Inc. ("EP I")
to grant to MBHS a 50% Economic Interest in that
80 unit assisted living facility operated by EP I,
and commonly known as Ridgeland Court and located
in Ridgeland, Mississippi and MBHS agreed to grant
Licensee a License and to authorize the use of
said Marks and Related Rights upon the terms and
conditions hereinafter stated.
D. By Economic Interest Assignment Agreement
and Subordination Agreement of even date herewith
(the "Assignment Agreement"), Emeritus has caused
EP I to grant the Economic Interest contemplated
by the Master Agreement.
E. Emeritus and MBHS are now interested in
documenting the terms and conditions under which
the License shall be granted to Emeritus.
NOW, THEREFORE, in consideration of the
premises and mutual covenants herein contained and
other good and valuable consideration the receipt
and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
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<PAGE>
AGREEMENT
1. GRANT OF LICENSE. In consideration for the
execution and delivery of the Assignment
Agreement, MBHS hereby grants to Licensee the non-
exclusive right to use the Marks and Related
Rights to identify each of the facilities which
serves as assisted living facilities for the
elderly identified by location on Exhibit B
attached hereto as such Exhibit B may hereafter be
amended or modified from time to time by mutual
agreement of the parties hereto (the
"Facilities"), to use the Marks and Related Rights
for the purpose of developing, marketing,
operating and maintaining the Facilities and in
conjunction therewith, to use the Marks and
Related Rights in furtherance of the purposes for
which this License is issued. Where Exhibit B
refers to more than one Facility, every reference
hereafter in this License shall be deemed to be a
reference to each such Facility. Notwithstanding
the non-exclusive nature of the License granted
hereunder, nothing herein shall be construed as
permitting MBHS to grant a similar License to any
person or entity unaffiliated with MBHS providing
services or facilities in competition with the
Facilities.
2. TERM OF AGREEMENT.
(a) The term of this License shall commence
on the date set forth above and shall continue
until terminated by mutual agreement of the
parties, unless earlier terminated by MBHS
pursuant to Sections 2(b) or 2(c).
(b) Licensee acknowledges that elder care is
an integral part of the health care mission of
MBHS. Licensee also acknowledges that MBHS is a
Southern Baptist health care organization. As
such, Licensee agrees not (i) to advocate, allow
or condone euthanasia or assisted suicide at the
Facilities, even were these practices to be
legalized or (ii) violate the Guiding Principles
attached hereto as Exhibit C, and that a breach of
this provision would entitle MBHS to terminate
this Agreement.
(c) In addition to the termination rights
provided for in Section 2(b), this Agreement shall
terminate in the event the Release and Development
Conditions (as that term is defined in the Master
Agreement) are not satisfied by the end of the
Release and Development Period and MBHS provides
an Election Notice to Emeritus pursuant to Section
5(a)(i) of the Master Agreement. Such termination
shall be effective as of the date of the Election
Notice.
(d) Upon termination of this License,
Licensee and its affiliates will within thirty
(30) days thereafter (i) cease the further use of
the Marks and the Related Rights, including but
not limited to the names "Mississippi Baptist,"
"Mississippi Baptist Health Systems," "Baptist
Health Systems" and "Mississippi Baptist Medical
Center" in connection with the development,
marketing, operation and maintenance of the
Facilities and (ii) destroy all promotional and
all marketing or other materials then in its
possession or control using or displaying the
Marks or Related Rights.
2
<PAGE>
3. LIMITATIONS ON LICENSE. No license is
granted hereunder for use of the Marks or Related
Rights for any purpose other than the development,
marketing, operation and maintenance of the
Facilities and other than on the terms expressly
provided herein. In addition, unless and until
title to the Ridgeland Facility is transferred to
the Ridgeland LLC (as defined in the Master
Agreement), Licensee shall use the Marks and
Related Rights with the designation that the
project or service at issue is "affiliated with"
Mississippi Baptist, Mississippi Baptist Health
Systems, Baptists Health Systems, Mississippi
Baptist Medical Center or a similar designation,
it being understood and agreed that any such
projects or services shall be designated as a
project or service of Mississippi Baptist,
Mississippi Baptist Health Systems, Baptist Health
Systems, Mississippi Baptist Medical Center or a
similar designation after MBHS has a direct
ownership interest in the Ridgeland Facility. All
rights not expressly granted to Licensee in the
Agreement are reserved by MBHS.
4. COMPLIANCE WITH LAWS. With respect to the
Facilities, Licensee shall at all times conform to
all applicable, federal, state and local laws,
rules and regulations, ordinances and other
enactments including, but not limited to, those
relating to the development, marketing, operation
and maintenance of Facilities for assisted living
for the elderly.
5. RESERVED RIGHTS. MBHS reserves the right,
by itself or its designees, upon reasonable notice
to periodically inspect the Facilities and/or any
use of the Marks or Related Rights by Licensee to
ensure that such use, as well as the marketing and
operation of such Facilities, is consistent with
the standards and Guiding Principles attached
hereto as Exhibit C. Licensee shall forward to
MBHS's representative samples of materials using
the Marks and Related Rights upon MBHS's periodic
request.
6. INDEMNIFICATION. Licensee shall indemnify,
defend and hold MBHS, its subsidiaries, affiliates
and their respective directors, officers,
trustees, employees, insurers and agents
(collectively, the "Indemnitees") harmless from
and against any and all claims, liabilities,
judgments, penalties, settlements, losses, damages
and expenses, including court costs and reasonable
attorneys' fees, incurred or suffered by these
parties, which arise out of a breach by Licensee
of its obligations under this Agreement or which
are imposed against the Indemnitees in connection
with the operation by Licensee of the Facilities
solely as a result of the existence of this
Agreement, as compared to or as a result of any
other ownership interest in or relationship to the
Facilities which MBHS may have under the terms of
the Master Agreement or any documents executed
pursuant thereto or any actions or omissions of
MBHS hereunder or thereunder. MBHS agrees to
immediately provide Licensee and its and their
respective directors, officers, employees,
insurers and agents, with notice of any
allegations of trademark or copyright infringement
based upon specifically authorized uses of the
Marks or Related Rights and to indemnify, defend
and hold Licensee harmless from and against any
and all claims, liabilities, judgments, penalties,
settlements, losses, costs, damages and expenses,
including court costs and reasonable attorneys'
fees, arising by reason of or in connection with
allegations of trademark or copyright infringement
based upon specifically
3
<PAGE>
authorized uses of the Marks or Related Rights or
the breach by MBHS of its obligations under this
Agreement.
7. INSURANCE. Licensee shall at all times
name MBHS as an additional insured or loss payee,
as appropriate, on the insurance maintained by
Licensee with respect to the Facilities under the
terms of any applicable lease or financing
documents. Licensee and MBHS acknowledge and agree
that with respect to the Facility located in
Ridgeland, Mississippi, Licensee is currently
required to maintain in effect the insurance
described in Exhibit D hereto. Licensee shall
cause its insurance companies to send to MBHS, a
certificate of insurance verifying such coverages
within thirty (30) days of the execution of this
License. Each certificate shall provide that MBHS
shall be notified by Licensee's insurance company
not less than thirty (30) days in advance of any
proposed change in or termination of Licensee's
insurance coverage. Licensee or its insurance
companies shall provide annual confirmation of all
Licensee's insurance coverages promptly following
renewal thereof.
8. MARK DESIGNATION. All copyrights relating
to or arising from the use of the Marks and
Related Rights under this Agreement shall belong
to MBHS and shall bear the following copyright
notice: "O 1997 Mississippi Baptist Health
Systems, Inc.", where the year is that in which
the work was created. All trademarks, designs,
slogans and copyrights created or developed by or
on behalf of Licensee which relate to or arise
from the Marks or the Related Rights licensed to
Licensee hereunder are hereby assigned to MBHS.
9. ASSIGNMENT. This License and all rights
and duties thereunder are personal to Licensee and
shall not (without the prior written consent of
MBHS) be assigned, sublicensed or otherwise
encumbered or alienated by Licensee or its
affiliates or by operation of law or otherwise. In
the event of any attempted assignment or
encumbrance or other alienation by operation of
law or otherwise, this License shall immediately
be null and void and of no effect as if it had
never been discussed, negotiated and/or executed.
10. SURVIVAL. The obligations of the parties
under Sections 2(d) and 6 shall survive the
termination of this License.
11. GOVERNING LAW. This License shall be
construed and interpreted in accordance with the
laws of the State of Mississippi and in the courts
located therein without giving effect to choice of
law principles.
12. ENTIRETY. This Agreement represents the
entire and final agreement of the parties hereto
with respect to the subject matter hereof and may
not be amended or modified except by written
instrument signed by the parties hereto.
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<PAGE>
13. ATTORNEYS FEES. In the event of a dispute
between the parties hereto with respect to the
interpretation or enforcement of the terms hereof,
the prevailing party shall be entitled to collect
from the other its reasonable costs and attorneys
fees, including its costs and fees on appeal.
14. COUNTERPARTS. This Agreement may be
executed in counterparts, each of which shall be
deemed to be an original but all of which taken
together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have
executed this License Agreement as of the day and
year first set forth above.
MISSISSIPPI BAPTIST
HEALTH SYSTEMS, INC.
By: /s/ Kurt W. Metzner
-------------------
Kurt W. Metzner,
CEO/President
EMERITUS CORPORATION on
behalf of itself and its
affiliated and subsidiary
corporations including
Emeritus Properties I,
Inc.
By: /s/ Raymond R. Brandstrom
-------------------------
Its: President
5
<PAGE>
ECONOMIC INTEREST ASSIGNMENT AGREEMENT
AND SUBORDINATION AGREEMENT
THIS AGREEMENT is made and entered into as of
the 5th day of September,1997 (the "Effective
Date") by and between Emeritus Properties I, Inc.,
a Washington corporation ("EP I"), Emeritus
Corporation, a Washington corporation ("Emeritus")
and Mississippi Baptist Health Systems, Inc., a
Mississippi non profit corporation ("Assignee").
RECITALS
A. EP I is the current lessee and licensed
operator of that 80 unit assisted living facility
known as Ridgeland Court and located in Ridgeland,
Mississippi (the "Facility").
B. By Master Agreement and Subordination
Agreement of even date herewith between Emeritus,
EP I and Assignee (the "Master Agreement"), EP I
agreed to grant an Economic Interest (as defined
in the Master Agreement) in the Ridgeland Facility
to Assignee.
C. EP I and Assignee are interested in
documenting the terms and conditions under which
the assignment and assumption of such Economic
Interest shall occur.
NOW, THEREFORE, in consideration of the
foregoing premises and the mutual covenants set
forth herein, IT IS HEREBY AGREED AS FOLLOWS:
1. ASSIGNMENT AND ACCEPTANCE.
(a) As of the Effective Date, EP I does
hereby assign to Assignee and Assignee does hereby
accept and assume a 50% Economic Interest in the
Ridgeland Facility. For purposes hereof, the term
50% Economic Interest" shall mean a 50% interest
in the Net Profits, Net Losses and Net Cash
Proceeds (as hereinafter defined) of the Ridgeland
Facility.
(b) For purposes hereof, the term "Net
Profits" and "Net Losses" shall mean the net
operating profits or net operating losses of the
Ridgeland Facility, after the payment of all
ordinary expenses incurred by EP I in the
operation of the Ridgeland Facility, including,
but not limited to, the Rent (as defined in the
Lease) due under the Lease and the term "Net Cash
Proceeds" shall mean the net proceeds (remaining
after the payment of all indebtedness then
outstanding with respect to the Ridgeland
Facility, including indebtedness owing to Assignor
and after the return to Assignor and/or Assignee
of any equity invested in the Ridgeland Facility)
resulting from the sale of all or substantially
all of the assets of the Ridgeland Facility, all
as determined in accordance with generally
accepted accounting principles.
(c) EP I shall determine no later than ninety
(90) days after the end of each fiscal year
whether or not there are any Net Profits, Net
Losses or Net Cash Proceeds available for
allocation or distribution to the parties and, if
and to the extent available for distribution or
allocation, shall
1
<PAGE>
allocate or distribute the same within thirty (30)
days thereafter.
(d) EP I, Emeritus and Assignee acknowledge
and agree that nothing herein shall be construed
as requiring Assignee to fund the net operating
losses of the Ridgeland Facility prior to the
earlier to occur of(i) the satisfaction of the
Release and Development Conditions (as defined in
the Master Agreement) on or prior to the
expiration of the Release and Development Period
(as defined in the Master Agreement) or (ii) the
failure of the Release and Development Conditions
prior to the expiration of the Release and
Development Period and the affirmative election by
the System to exercise the rights granted to it
under Section 6(a)(ii) of the Master Agreement, at
which time Assignee's obligations with respect to
such operating losses shall be as set forth in the
Master Agreement.
2. ACKNOWLEDGMENTS OF ASSIGNEE. In connection
with and as a material inducement to Assignor to
make the assignment provided for herein, Assignee
acknowledges and agrees as follows: (i) its status
as a holder of an Economic Interest does not
entitle it to any rights as a shareholder, officer
or director of EP I or any other rights with
respect to the Ridgeland Facility and that, except
as otherwise specifically provided herein, its
only rights are to share in the Ridgeland
Facility's Net Profits, Net Losses and Net Cash
Proceeds, (ii) Assignor has not made, and by the
execution and delivery of this Assignment does not
make, any representation, warranty, covenant or
other agreement that there will be any Net
Profits, Net Losses or Net Cash Proceeds
distributed or allocated by with respect to the
Ridgeland Facility at any time that this
Assignment is in effect and (iii) Assignor shall
have no liability to Assignee as a result of the
execution and delivery of this Agreement and the
assignment of the Economic Interest provided for
herein.
3. SUBORDINATION. Assignee acknowledges and
agrees that Emeritus and EP I have secured the
consent of Meditrust to the assignment by EP I of
the Economic Interest on the specific condition
that any payments to Assignee due with respect to
the Economic Interest are and will be subordinate
to the obligations of EP I and Emeritus to
Meditrust, and to the rights of Meditrust against
Emeritus and EP I, under the Lease and the Lease
Documents (as that term is defined in the Lease).
Accordingly, Assignee acknowledges and agrees for
the direct benefit of Meditrust (on which
Meditrust may rely) as follows:
(a) It has been provided with a true and
correct copy of the Lease and the Lease Documents
and it has reviewed the same and is familiar with
the terms and conditions thereof.
(b) The payment of any and all amounts due to
Assignee under this Agreement or under any other
agreement executed pursuant hereto, including, but
not limited to, the Economic Interest Assignment,
shall be and hereby is subordinated and made
junior to the complete and prior payment and
performance as and when due of all fees,
indebtedness, liabilities, obligations and other
amounts due or owing from or by Emeritus or EP I
under the Lease Documents; provided, however, that
for so long as (A) (i) there is no Event of
2
<PAGE>
Default under the Lease or event outstanding
which, with the giving of notice or the passage of
time or both, would constitute an Event of Default
under the Lease or (ii) Meditrust (pursuant to any
of the Lease Documents) shall not have commenced
to exercise any right or remedy under the Lease
Documents and (B) after giving effect to any such
payment, Emeritus and EP I will be able to
continue to comply with all of their obligations
under the Lease Documents, then EP I shall be
permitted to make any payments which are then due
and owing to Assignee under this Agreement or
under any other agreement executed pursuant
hereto, including, but not limited to, the
Economic Interest Assignment.
(c) In the event Assignee receives any
payments in contravention of the terms of this
Agreement, whether or not it has been provided
with notice of the existence of such Event of
Default or any other event by Meditrust or
Emeritus, it shall receive and hold those payment
in trust for the benefit of Meditrust and it shall
immediately remit the same to Meditrust.
(d) In the event of any voluntary or
involuntary insolvency, bankruptcy, receivership,
custodianship, readjustment of debt, arrangement,
composition, assignment for the benefit of
creditors or other similar proceedings relative to
Emeritus ox EP I or any of their property (the
"Triggering Events"), then and in any such event:
(i) any payment or distribution of any
character, which would otherwise (but for the
terms hereof be payable or deliverable in
respect of the amounts owed to Assignee shall
be paid or delivered directly to Meditrust
until any and all amounts due under the Lease
Documents shall have been paid in full;
(ii) upon the written request of Meditrust,
Assignee shall provide, enforce and endeavor
to obtain payment of the aggregate
outstanding amount of all unpaid payments due
and payable to Assignee or thereafter
becoming due and payable from Emeritus or EP
I to Assignee and shall turn over to
Meditrust, in precisely the form received,
any such unpaid payment of any kind or
character on account of such amounts owed to
Assignee for application to the payment of
all amounts then due by Emeritus or EP I
under the Lease Documents. In the event that
Assignee fails to take any such action
requested by Meditrust, Meditrust, as
attorney in fact for Assignee for the limited
purpose of enforcing and obtaining such
payments, with full power of substitution,
may take such action on behalf of Assignee,
but for the use and benefit of Meditrust.
This limited power of attorney, being coupled
with an interest, shall be irrevocable until
all of the amounts due by Emeritus or EP I
under the Lease Documents are fully paid and
performed. The power of attorney conferred on
Meditrust is provided solely to protect the
interests of Meditrust and shall not impose
any duty on Meditrust to exercise any such
power and Meditrust, as such attorney-in-
fact, shall not be liable for any act,
omission, error in judgment or mistake of
law, except as the same may result from its
gross negligence, breach of fiduciary duty to
System or wilful misconduct;
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<PAGE>
(iii) System shall execute and deliver to
Meditrust all such further instruments
confirming the authorization referred to in
the foregoing clauses (i) and (ii) and any
powers of attorney specifically confirming
the rights of Meditrust arising hereunder and
all such proofs of claim, assignments of
claim and other instruments and shall take
all such other actions as may be requested by
Meditrust in order to enable Meditrust to
enforce any and all claims upon or in respect
of any and all amounts due by Emeritus or EP
I under the Lease Documents and to collect
any and all payment or distributions which
may be payable or deliverable to System after
the occurrence of the aforementioned
Triggering Events at any time upon, or with
respect to, such amounts.
(e) The subordination provisions provided for
herein shall not be affected, modified or impaired
in any manner or to any extent by: (i) any
renewal, replacement, amendment, extension,
substitution, revision, consolidation,
modification or termination of any of the Lease
Documents, (ii) the validity or enforceability of
any of the Lease Documents, (iii) the release,
sale, exchange or surrender, in whole or in part,
by Meditrust of any collateral which it is holding
as security for the performance by EP I or
Emeritus of its or their obligations under the
Lease Documents, (iv) any exercise or non-exercise
of any right, power or remedy in respect of any
amounts due under the Lease or (v) any waiver,
consent, release, indulgence, extension, renewal,
modification, delay or other action or inaction or
omission in respect of the amounts now or
hereafter due from Emeritus or EP I under the
Lease, in each instance whether or not Assignee
had notice or knowledge thereof or consents
thereto.
Any and all rights granted by Emeritus and EP
I to Assignee under this Agreement or under any
other documents executed pursuant hereto, may at
the option of Meditrust be terminated in the event
that upon the occurrence of an Event of Default
under the Lease, Meditrust elects either to
terminate the Lease or to retake possession of the
Ridgeland Facility; provided, however, that
concurrently with such termination, the rights
granted to Emeritus and its subsidiaries,
including EP I, under the License Agreement shall
also terminate, it being understood and agreed
that Meditrust shall have no right to succeed to
the rights granted to Emeritus thereunder even in
the event it retakes possession of the Ridgeland
Facility, and the Initial Payment and the
Subsequent Payment, if applicable, shall be
returned to Assignee upon written demand therefor.
(g) Meditrust shall have no liability to
Assignee for any payments due to Assignee under
this Agreement or under any document executed
pursuant to this Agreement, it being understood
and agreed that Assignee's sole recourse for such
payments shall be solely to Emeritus or EP I, as
appropriate.
(h) In consideration for the agreements of
Assignee set forth in this Section 3, Emeritus and
EP I do hereby agree to provide Assignee with
copies of any and all notices of default which may
be provided by Meditrust to either Emeritus or EP
I under any of the Lease Documents; provided,
however, that Assignee acknowledges and agrees for
the benefit of Emeritus, EP I and Meditrust, that
the giving of such notice shall not be construed
in any manner as granting Assignee any right to
cure any such default under the Lease Documents
4
<PAGE>
or to otherwise interfere with or affect the
rights granted to Meditrust under the Lease
Documents upon the occurrence of a default
thereunder.
4. SPECIAL RIGHTS OF ASSIGNEE. In the event
of the failure of the Release and Development
Conditions (as defined in the Master Agreement)
and of the affirmative election by Assignee
pursuant to Section 5(a)(ii) of the Master
Agreement to increase its deposit under the terms
of the Master Agreement notwithstanding the
failure of the Release and Development Conditions,
from and after the date on which Assignee makes
such election, Assignee shall have the right to
approve the following actions with respect to the
Ridgeland Facility, which approval shall not be
unreasonably withheld or delayed:
(a) Any act which would make it impossible to
carry on the ordinary business of the Ridgeland
Facility;
(b) Any material change in the nature of the
Ridgeland Facility's business;
(c) The possession, assignment or use of
funds or other property of the Ridgeland Facility
with a value in excess of $25,000 for other than a
Facility purpose;
(d) The execution or delivery on behalf of
the Ridgeland Facility an assignment for the
benefit of creditors; cause the Ridgeland Facility
or any part thereof or interest therein to be
subject to the authority of any trustee, custodian
or receiver or to be subject to any proceeding for
bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, relief of
debtors, dissolution or liquidation or similar
proceedings;
(e) The annual Operating and Capital Budgets
of the Ridgeland Facility;
(f) The incurrence of any expenditure
not contemplated by the Approved Budgets and which
alone or in conjunction with any prior unapproved
expenditures equals or exceeds $25,000;
(g) The granting of any additional Economic
Interests.
5. TERM. The assignment and assumption
provided for herein shall be effective as of the
Lease Assignment Effective Date (as that term is
defined in the Master Agreement) (the "Effective
Date") and shall remain in full force and effect
until the earlier to occur of (i) the expiration
or sooner termination of the Lease Term, including
the termination of the Lease Term upon the
occurrence of an Event of Default thereunder, (ii)
the sale or other disposition of all or
substantially all of the Ridgeland Facility's
assets, (iii) the satisfaction of the Release and
Development Conditions and the transfer of
ownership of the Ridgeland Facility to the
Ridgeland LLC (as defined in the Master Agreement)
or (iv) the failure to satisfy the Release and
Development Conditions and the election by
Assignee to terminate its the relationships
provided for therein pursuant to Section 6(a)(i)
of the Master Agreement.
5
<PAGE>
6. FINANCIAL REPORTS/INSPECTION OF BOOKS AND
RECORDS. On or before the twenty fifth (25th) day
of each month, Emeritus shall provide Assignee
with monthly operating financial statements for
the Ridgeland Facility for the immediately
preceding month, which financial statements shall
be prepared in accordance with generally accepted
accounting principles and shall include a
statement of cash flows and a comparison of each
item reflected therein for the current period and
year to date to the budgeted amounts with respect
thereto. In addition, Assignee shall have the
right on reasonable notice and during normal
business hours to inspect the books, records and
accounts of the Ridgeland Facility.
7. AMENDMENT AND MODIFICATION OF THE LEASE
DOCUMENTS. For so long as Assignee holds the
Economic Interest, Emeritus will not, nor will it
permit EP I to, amend, modify, extend, replace,
consolidate, renew or terminate any of the terms
of the Lease Documents in a manner which would
adversely affect the rights of Assignee hereunder
without the prior written consent of Assignee,
which consent shall not be unreasonably withheld;
provided, however, that nothing herein shall be
construed as prohibiting Emeritus and EP I from
terminating the Lease Documents in accordance with
the terms thereof which have been disclosed to
Assignee, it being understood and agreed that such
termination may adversely affect the rights of
Assignee hereunder.
8 MISCELLANEOUS.
(a) This Agreement represents the entire and
final agreement of the parties hereto with respect
to the subject matter hereof and may not be
amended or modified except by written instrument
signed by the parties hereto.
(b) In the event of a dispute between the
parties hereto with respect to the interpretation
or enforcement of the terms hereof, the prevailing
party shall be entitled to collect from the other
its reasonable costs and attorneys fees, including
its costs and fees on appeal.
(c) Each of the parties has had an
opportunity to participate in the drafting of this
Agreement and to be represented by counsel in
connection therewith. Accordingly, in the event of
a dispute between the parties hereto with respect
to the interpretation of any term or provision
hereof, no provision shall be read so as to favor
or disfavor either party hereto.
(d) This Agreement may be executed in
counterparts, each of which shall be deemed. to be
an original but all of which taken together shall
constitute but one and the same instrument.
(e) This Agreement shall be binding upon and
inure to the benefit of the parties hereto and
their successors and assigns; provided, however,
that neither party shall have the right to assign
its rights or obligations hereunder, without the
prior written consent of the other party hereto,
which consent may be withheld in its sole and
absolute discretion, it being understood and
agreed that
6
<PAGE>
the rights and obligations provided for in this
Agreement are personal to the parties hereto.
(f) Nothing herein is intended to confer
a benefit on any person or entity not a party
hereto other than Meditrust, which is and shall be
an intended beneficiary of the provisions of
Paragraph 3 hereof.
IN WITNESS WHEREOF, the parties hereby
execute this Agreement as of the day and year
first set forth above.
EMERITUS PROPERTIES I,
INC.
By: /s/ Raymond R. Brandstrom
---------------------------
Its: President
EMERITUS CORPORATION
By: /s/ Raymond R. Brandstrom
--------------------------
Its: President
MISSISSIPP BAPTIST HEALTH
SYSTEMS, INC.
By: /s/ Kurt W. Metzner
---------------------------
Its: President & CEO
7
<PAGE>
LEASE AGREEMENT
ALCO IV, L.L.C.
a North Carolina limited liability company
( "LESSOR")
AND
EMERITUS CORPORATION
a Washington corporation
("LESSEE")
September 10, 1997
for
ASSISTED LIVING FACILITY
located at
Urbana, Illinois
<PAGE>
LEASE
THIS LEASE ("Lease") dated as of September
10, 1997, is entered into between ALCO IV, L.L.C.,
a North Carolina limited liability company, having
its principal office at 46 3rd Street, NW,
Hickory, North Carolina. ("Lessor"), and EMERITUS
CORPORATION, a Washington corporation, having its
principal office at 3131 Elliott Avenue, Suite
500, Seattle, Washington 98121 ("Lessee").
ARTICLE
1.
LEASED PROPERTY; TERM
Upon and subject to the terms and conditions
hereinafter set forth, Lessor leases to Lessee and
Lessee rents from Lessor all of Lessor's rights
and interest in and to the following real property
located in Urbana, Illinois(collectively, the
"Leased Property"):
(a) the real property more particularly
described on Exhibit A attached hereto together
with all covenants, licenses, privileges and
benefits thereto belonging, and any easements,
rights-of way, rights of ingress and egress or
other interests of Lessor in, on or to any land,
highway, street, road or avenue, open or proposed,
in, on, across, in front of, abutting or adjoining
such real property, including all strips and gores
adjacent to or lying between such real property
and any adjacent real property (the "Land");
(b) the 100-unit assisted living facility
(the "Facility") to be constructed on the Land
together with all buildings, structures, Fixtures
(as hereinafter defined) and other improvements of
every kind (including all alleyways and connecting
tunnels, crosswalks, sidewalks, landscaping,
parking lots and structures and roadways
appurtenant to such buildings and structures
presently or hereafter situated upon the Land,
drainage and all above-ground and underground
utility structures) (collectively, together with
the Facility, and any Capital Additions financed
by Lessor, the "Leased Improvements");
(c) all permanently affixed 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 and
apparatus, sprinkler systems and fire and theft
protection equipment, carpet, moveable or
immoveable walls or partitions and built-in oxygen
and vacuum systems, all of which are hereby deemed
by the parties hereto to constitute real estate,
together with all replacements, modifications,
alterations and additions thereto, but
specifically excluding all items included within
the category of Personal Property (collectively
the "Fixtures");
(d) the Personal Property;
(e) to the extent permitted by law, all
permits, approvals and other intangible property
or any interest therein now or hereafter owned or
held by Lessor in connection with the Leased
Property or any business or businesses now or
hereafter conducted by Lessee or any Tenant or
with the use thereof, including all leases,
contract rights, agreements, trade names, water
rights and reservations, zoning rights, business
licenses and warranties (including those relating
to construction or fabrication) related to the
Leased Property or any part thereof, but
specifically excluding the general corporate
trademarks, service marks, logos, insignia or
books and records of Lessee; and
<PAGE>
(f) all site plans, surveys, soil and
substrata studies, architectural drawings, plans
and specifications, engineering plans and studies,
floor plans, landscape plans, and other plans and
studies that relate to the Land or the Leased
Improvements and are in Lessor's possession or
control.
SUBJECT, HOWEVER, to the matters set forth on
Exhibit B attached hereto (the "Permitted
Exceptions"), to have and to hold for a fixed term
of 10 years (the "Initial Term") commencing on the
earlier date to occur (the "Commencement Date") of
(i) two years after the date a certificate of
occupancy is issued for the Facility by the
applicable governing body, and (ii) the Breakeven
Date (as defined below), and ending at midnight on
the last day of the 120th month after the
Commencement Date, as may be extended pursuant to
the terms of Article 34. "Breakeven Date" means
the first day of the first month following the
month in which the revenues generated from the
operation of the Facility exceed the sum of the
monthly operating expenses of the Facility, plus
the monthly Minimum Rent projected to be due
hereunder.
ARTICLE 2
RENT
2.1 MINIMUM RENT AND ADJUSTMENTS TO MINIMUM
RENT. Lessee shall pay to Lessor, without notice,
demand, set off (except as set forth in Section
30.2 or Article 32 hereof) or counterclaim, in
advance an lawful money of the United States of
America, at Lessor's address set forth herein or
at such other place or to such other person, firms
or corporations as Lessor from time to time may
designate in writing, Minimum Rent, as adjusted
annually pursuant to Section 2.1(b) during the
Term, as follows:
(a) MINIMUM RENT. Lessee will pay to Lessor
as rent (as adjusted from time to time in
accordance with Sections 2.1(b) and 2.1(e), the
"Minimum Rent") for the Leased Property the annual
sum equal to the lesser of (i) l.1 times the
Project Amount and (ii) the Project Amount plus
$750,000.00, times the sum of (A) the rate, as of
such date, equal to the weekly average yield on
United States Treasury Securities - Constant
Maturity Series for a term of ten years plus (B)
350 basis points. The Minimum Rent shall be
payable in advance in 12 equal, consecutive
monthly installments on the first day of each
calendar month during the Term. The parties shall
execute an acknowledgment of the Commencement Date
and the calculation of the initial Minimum Rent
pursuant to this Section 2.1(a) as soon as
reasonably practicable after the Commencement
Date. The Minimum Rent shall be prorated for any
partial month, and is subject to adjustment as
provided in Sections 2.1(b), 2.1(e) and 9.3(b)(iv)
below. As used herein, the term "Project Amount"
means the total amount funded or to be funded for
the acquisition of the Land and the Personal
Property and the development and construction of
the Facility and the other Leased Improvements by
Lessor pursuant to that certain Building and Term
Loan Agreement of even date herewith (the "Loan
Agreement") between Capstone Capital Corporation
(the "Lender") and Lessor, as borrower, in the
amount of $7,670,000 ("Loan Amount"). The Loan
Amount was based on a projected budget, a copy of
which has been previously furnished Lessee. Lessor
agrees to provide Lessee copies of all change
orders in connection with the construction of the
Facility. The obligation of Lessee to commence
rental payments in connection with this section
will be secured by an irrevocable letter of credit
in favor of the Lender in the amount of
$383,500.00.
(b) INCREASES TO MINIMUM RENT. On each
anniversary of the Commencement Date (each such
annual date individually referred to as the
"Adjustment
2
<PAGE>
Date") throughout the Term, the then-current
Minimum Rent shall be increased annually effective
as of such Adjustment Date by the increase in the
Consumer Price Index from
the Commencement Date to the first Adjustment Date
and, thereafter, from one Adjustment Date to the
then-current Adjustment Date, provided that in no
event will the
annual change in the Minimum Rent be more than
3.5% of the Minimum Rent for the prior year.
(c) CAPITAL EXPENDITURES. Lessee will make
expenditures for repairs and replacements for the
Facility as approved by Lessor, the costs of which
according to generally accepted accounting
principles must be depreciated over periods
greater than one year in the amounts and for the
periods set forth on Exhibit C attached herein.
Within 45 days after each anniversary of the
Commencement Date, Lessee provide evidence of such
expenditures satisfactory to Lessor. In the event
such expenditures are not made, then within such
45- day period following each anniversary of the
Commencement Date, Lessee will pay to Lessor for
deposit in a money market account in a federally
insured bank in Birmingham, Alabama acceptable to
Lessor and Lessee the difference between the
expenditures required and the amount actually
spent for such purposes, which funds (the "Capital
Replacement Account") shall be made available to
Lessee to make such repairs and replacements. The
Capital Replacement Account shall be in the name
of Lessor, and interest earned on such account
shall be retained in the Capital Replacement
Account. Lessee shall make detailed requests for
such funds in writing to Lessor in the same form
as a Request pursuant Section 9.3 hereof. Within
30 days of such Request, Lessor shall reasonably
approve the amount of requested funds and make
mutually agreeable arrangements for the
disbursement of the funds, or provide Lessee with
written notice in reasonable detail specifying
Lessor's objections to such Request. So long as
this Lease is still in effect at the end of the
Term, up to $100,000.00 of the Capital Replacement
Account will be paid to Lessee and the balance of
such account shall be the sole property of Lessor.
Until released or until the end of the Term, such
escrow funds will constitute security for Lessee's
obligations under this Lease in the event of a
termination of Lessee's interest hereunder, and
Lessee hereby grants to Lessor an assignment of, a
security interest in and a right of setoff against
all such escrow funds.
(d) PAYMENT OF MINIMUM RENT. All payments of
Minimum Rent shall be made in lawful money of the
United States by wire transfer of same day funds
to such account or location specified by Lessor
from time to time in writing. In the event that
Lessor fails to timely provide such notice, Lessee
shall make the payment to Lessor at the address
provided for notices below or such other address
as Lessor may from time to time designate in
writing to Lessee.
(e) RECALCULATION OF MINIMUM RENT. The
parties agree that the Project Amount may be
estimated as of the Commencement Date. As soon as
reasonably practicable after the determination of
the final Project Amount, Lessor will recalculate
the Minimum Rent pursuant to Section 2.1(a)
whereupon the parties will execute an
acknowledgment of the recalculated Minimum Rent,
the Commencement Date and the termination date of
the Initial Term; provided, however, that if the
increase in the Project Amount is a result of
Lessor's actions (other than increases (i)
approved by Lessee or (ii) resulting from causes
beyond the control of Lessor), the Minimum Rent
shall not be increased.
2.2 CALCULATION OF INCREASES TO MINIMUM RENT.
On or about each Adjustment Date, Lessor will
calculate the increase in the Minimum Rent
pursuant to the provisions of Section 2.1(b) and
will provide Lessee with written notice of same.
3
<PAGE>
2.3 ADDITIONAL CHARGES. Lessee will also pay
and discharge as and when due (a) all other
amounts, liabilities, obligations and Impositions,
which Lessee assumes or agrees to pay under this
Lease including, to the extent applicable, any
condominium association dues, assessments or other
charges, and (b) in the event of any failure on
the
part of Lessee to pay any of those items referred
to in clause (a) above, Lessee will also promptly
pay and discharge every fine, penalty, interest
and cost which may be added for nonpayment or late
payment of such items (the items referred to in
clauses (a) and (b) above being referred to herein
collectively as the "Additional Charges"), and
Lessor shall have all legal, equitable and
contractual rights, powers and remedies provided
in this Lease, by statute or otherwise, in the
case of non-payment of the Additional Charges, as
well as the Minimum Rent. If any installment of
Minimum Rent or Additional Charges
(but only as to those Additional Charges which are
payable directly to Lessor) shall not be paid
within ten days after the date when due, Lessee
will pay Lessor on demand, as Additional Charges,
interest (to the extent permitted by law) computed
at the Overdue Rate on the amount of such
installment, from the due date when due to the
date of payment in full thereof. In the event
Lessor provides Lessee with written notice of
failure to timely pay 3ny installment of Minimum
Rent or any Additional Charges pursuant to Section
15.1(b) more than three times within any twelve-
month period, Lessee shall pay an administrative
fee to Lessor in the amount of $500.00 for each
additional written notice Lessor gives pursuant to
Section 15.1(b) during the next twelve months. To
the extent that Lessee pays any Additional Charges
to Lessor or the Facility Mortgagee pursuant to
any requirement of this Lease, Lessee shall be
relieved of its obligation to pay such Additional
Charges to the entity to which such Additional
Charges would otherwise be due. Additional Charges
shall be deemed Rent hereunder.
2.4 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 and the payments of
Additional Charges throughout the Term but subject
to any provisions of this Lease which expressly
provide for payments by Lessor or the adjustment
of the Rent or other charges.
2.5 RENT RESERVE DEPOSIT. On or prior to the
Commencement Date, Lessee will deposit, as
security for the performance of Lessee's covenants
and obligations under this Lease, the sum of three
times the monthly amount of Minimum Rent computed
in accordance with Section 2.1 (a) above (together
with any undistributed accrued interest, the "Rent
Reserve Deposit") in an interest bearing account
in Birmingham, Alabama to be maintained by and in
the name of Lessor. Lessee shall have no right to
receive, pledge, borrow or otherwise obtain the
benefits of the Rent Reserve Deposit except as
provided in this Section 2.6 and Section 15.2
hereof. So long as no Event of Default has
occurred and is continuing, Lessor shall pay to
Lessee all accrued and unpaid interest, but
interest only, under the Rent Reserve Deposit on
each anniversary of the Commencement Date, except
to the extent that such accrued interest is
required to maintain the balance of the Rent
Reserve Deposit equal to three times the then
current monthly payment of the Minimum Rent.
Lessor may, from time to time, without prejudice
to any other remedy apply or appropriate funds
from the Rent Reserve Deposit to make good any
arrearage of Rent, to satisfy any other covenant
or obligation of Lessee hereunder, to compensate
Lessor for any other loss or damage which Lessor
may suffer by reason of any Event of Default by
Lessee; provided that the Rent Reserve Deposit
shall not be considered a limit on the measure of
Lessor' s damages in case of an Event of Default
by Lessee. At such time as Lessee has discharged
its obligations under all of the provisions of
this Lease to be performed by Lessee, including
surrender of the Leased Property in accordance
with the provisions hereof, the Rent Reserve
Deposit, or the then existing balance thereof,
4
<PAGE>
shall be returned by Lessor to Lessee. Until
released or until the end of the Term, such escrow
funds will constitute security for Lessee's
obligations under this Lease, and Lessee hereby
grants to Lessor an assignment of, a security
interest in and a right of setoff against all such
escrow funds.
ARTICLE 3
IMPOSITIONS
3.1 PAYMENT OF IMPOSITIONS. Subject to
Article 11 relating to permitted contests, Lessee
will pay, or cause to be paid, all Impositions
before any fine, penalty, interest or cost may be
added for nonpayment, such payments to be made
directly to the taxing authorities where feasible,
and Lessee will promptly, upon request, furnish to
Lessor copies of official receipts or other
satisfactory proof evidencing such payments.
Lessee's obligation to pay such impositions and
the amount thereof shall be deemed absolutely
fixed upon the date such Impositions become a lien
upon the Leased Property or any part thereof. If
any such Imposition may lawfully be paid in
installments (whether or not interest shall accrue
on the unpaid balance of such Imposition), Lessee
may exercise the option to pay the same (and any
accrued interest on the unpaid balance of such
imposition) in installments and, in such event,
shall pay such installments during the Term hereof
as the same become due and before any fine,
penalty, premium, further interest or cost may be
added thereto. Lessor, at its expense, shall, to
the extent permitted by applicable law, prepare
and file all tax returns and reports as may be
required by governmental authorities in respect of
Lessor's net income, gross receipts, franchise
taxes and taxes on its capital stock. Lessee, at
its expense, shall, to the extent permitted by
applicable laws and regulations, prepare and file
all other tax returns and reports in respect of
any Imposition as may be required by governmental
authorities. If any refund shall be due from any
taxing authority in respect of any Imposition paid
by Lessee, the same shall be paid over to or
retained by Lessee if no Event of Default shall
have occurred hereunder and be continuing. Any
such funds retained by Lessor due to an Event of
Default shall be applied as provided in Article
15. Lessor and Lessee shall, upon request of the
other, provide such data as is maintained by the
party to whom the request is made with respect to
the Leased Property as may be necessary to prepare
any required returns and reports. In the event
governmental authorities classify any property
covered by this Lease as personal property, Lessee
shall file all personal property tax returns in
such jurisdictions where filing is required.
Lessor and Lessee will 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 Lessee is obligated for the same
hereunder, Lessee will be provided with copies of
assessment notices in sufficient time for Lessee
to file a protest. Lessee may, upon giving 30
days' prior written 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, if requested by
Lessee and at Lessee's expense as aforesaid, shall
fully cooperate with Lessee in such protest,
appeal, or other action. Billings for
reimbursement by Lessee to Lessor of personal
property taxes shall be accompanied by copies of
an invoice therefor and payments thereof which
identify the personal property with respect to
which such payments are made. Lessor will
cooperate with Lessee in order that Lessee may
fulfill its obligations hereunder, including the
execution of any instruments or documents
reasonably requested by Lessee.
5
<PAGE>
3.2 PRORATION OF IMPOSITIONS. Impositions
imposed in respect of the tax-fiscal period during
which the Term terminates shall be prorated
between Lessor and
Lessee, whether or not such Imposition is imposed
before or after such termination, and Lessee's and
Lessor's obligation to pay their respective
prorated shares thereof shall survive such
termination.
3.3 UTILITY CHARGES. Lessee will, or will
cause Tenants to, contract for, in its own name,
and will pay or cause to be paid all charges for,
electricity, power, gas, oil, water and other
utilities used in the Leased Property during the
Term.
3.4 INSURANCE PREMIUMS. Lessee will contract
for, in its own name, and will pay or cause to be
paid all premiums for, the insurance coverage
required to be maintained by Lessee pursuant to
Article 12 during the Term.
ARTICLE 4
NO TERMINATION
Except as provided in this Lease, Lessee
shall remain bound by this Lease in accordance
with its terms and shall neither take any action
without the consent of Lessor to modify, surrender
or terminate the same, nor seek nor be entitled to
any abatement, deduction, deferment or reduction
of Rent, or set-off against the Rent, nor shall
the respective obligations of Lessor and Lessee be
otherwise affected by reason of (a) any damage to,
or destruction of, the Leased Property or any
portion thereof from whatever cause or any Taking
of the Leased Property or any portion thereof,
except as otherwise provided in Articles 13 or 14,
(b) the lawful or unlawful prohibition of, or
restriction upon, Lessee's use of the Leased
Property, or any portion thereof, or the
interference with such use by any person,
corporation, partnership or other entity, or by
reason of eviction by paramount title, (c) any
claim which Lessee has or might have against
Lessor or by reason of any default or breach of
any warranty by Lessor under this Lease or any
other agreement between Lessor and Lessee or to
which Lessor and Lessee are parties, (d) any
bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation,
dissolution, winding up or other proceedings
affecting Lessor or any assignee or transferee of
Lessor, or (e) for any other cause whatsoever
whether similar or dissimilar to any of the
foregoing. Lessee hereby specifically waives all
rights arising from any occurrence whatsoever
which may now or hereafter be conferred upon it by
law to (i) modify, surrender or terminate this
Lease or quit or surrender the Leased Property or
any portion thereof, or (ii) 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. 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. Notwithstanding the foregoing, Lessee
shall have the right by separate and independent
action to pursue any claim or seek any damages it
may have against Lessor as a result of a breach by
Lessor of the terms of this Lease.
ARTICLE 5
OWNERSHIP OF LEASSED PROPERTY
5.1 OWNERSHIP OF THE PROPERTY. Lessee
acknowledges that the Leased Property is the
property of Lessor and that Lessee has only the
right to the possession and use of the Leased
Property upon the terms and conditions of this
Lease.
6
<PAGE>
5.2 PERSONAL PROPERTY. Lessee may (and shall
as provided hereinbelow), 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 the Personal Property, and may remove,
replace or substitute for the same from time to
time in the Ordinary Course of Business. Lessee
shall provide and maintain during the entire Term
all such Personal Property as shall be necessary
in order to operate the Facility in compliance
with all licensure and certification requirements,
in compliance with all applicable Legal
Requirements and Insurance Requirements and
otherwise in accordance with customary practice in
the industry for the Primary Intended Use.
ARTICLE 6
CONDITION AND USE OF LEASED PROPERTY
6.1 CONDITION OF THE LEASED PROPERTY. Lessor
hereby assigns for Lessee's benefit any covenants,
representations and warranties made in favor of
Lessor with respect to the design and construction
of the Improvements pursuant to the Loan
Agreement. Lessee will examine and otherwise
acquire knowledge of the condition of the Leased
Property prior to the occupancy of the Leased
Property. Lessee is leasing the Leased Property
"as is" in its condition at the time of occupancy.
Lessee waives any claim or action against Lessor
in respect of the condition of the Leased
Property. LESSOR MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF
THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS
TO ITS FITNESS FOR USE, SUITABILITY, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR
OTHERWISE, OR AS TO QUALTTY OF THE MATERIAL OR
WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING
AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY
LESSEE. LESSEE ACKNOWLEDGES THAT THE LEASED
PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS
SATISFACTORY TO IT IN ALL RESPECTS.
6.2 USE OF THE LEASED PROPERTY.
(a) After the Commencement Date and during
the entire Term, Lessee shall use or cause to be
used the Facility and the Leased Property as a 100-
unit assisted living facility and for such other
uses as may be necessary in connection with or
incidental to such use (the "Primary Intended
Use"). Lessee shall not use the Leased Property or
any portion thereof for any other use without the
prior written consent of Lessor, which consent
shall not be unreasonably withheld or delayed.
(b) Lessee covenants that it will obtain and
maintain all material approvals needed to use and
operate the Leased Property and the Facility for
the Primary Intended Use in compliance with all
applicable Legal Requirements.
(c) Lessee covenants and agrees that during
the Term it will use its reasonable best efforts
to operate continuously the Leased Property in
accordance with its Primary Intended Use and to
maintain its certifications for reimbursement, if
any, and licensure and its accreditation, if
compliance with accreditation standards is
required to maintain the operations of the
Facility and if a failure to comply would
adversely affect operations of the Facility.
(d) Lessee shall not commit or suffer to be
committed any waste on the Leased Property, or in
the Facility or cause or permit any nuisance
thereon.
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(e) Lessee shall neither suffer nor permit
the Leased Property or any portion thereof,
including any Capital Addition whether or not
financed by Lessor, to be used in such a manner as
(i) is reasonably likely to impair Lessor's estate
therein or in any portion thereof, or (ii) is
reasonably likely to result in a claim or claims
of adverse usage or adverse possession by the
public, as such, or of implied dedication of the
Leased Property or any portion thereof.
(f) Lessee will not utilize any Hazardous
Materials on the Leased Property except in
accordance with applicable Legal Requirements and
will not permit any contamination which may
require remediation under any applicable Hazardous
Materials Law. Lessee agrees not to dispose of any
Hazardous Materials or substances within the
sewerage system of the Leased Property, and that
it will handle all "red bag" wastes in accordance
with applicable Hazardous Materials Laws.
6.3 MANAGEMENT OF FACILITY. Unless otherwise
agreed to in writing by Lessor (i) Lessee shall
cause the Facility to be managed and leased to
Residents and Tenants at all times by Lessee or an
Affiliate of Lessee, (ii) Lessee shall not enter
into any agreement (oral or written) with respect
to such management and leasing activities unless
the terms thereof and the proposed manager or
leasing agent have been approved in writing by
Lessor, (iii) all such management or leasing
agreements must be in writing, and (iv) all
management or leasing agreements with an Affiliate
of Lessee must contain provisions to the effect
that (A) the obligation of Lessee to pay
management fees is subordinate to its obligation
to pay the Rent, and (B) the manager shall not
have the right to collect any management fees
during the continuance of an Event of Default.
6.4 LESSOR TO GRANT EASEMENTS. Lessor will,
from time to time, at the request of Lessee and at
Lessee's cost and expense, but subject to the
approval of Lessor (a) grant easements and other
rights in the nature of easements, (b) release
existing easements or other rights in the nature
of easements which are for the benefit of the
Leased Property, (c) dedicate or transfer
unimproved portions of the Leased Property for
road, highway or other public purposes, (d)
execute petitions to have the Leased Property
annexed to any municipal corporation or utility
district, (e) execute amendments to any covenants
and restrictions affecting the Leased Property,
and (f) execute and deliver to any person such
instruments as may be necessary or 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 (and such other information as Lessor may
reasonably require confirming) that such grant,
release, dedication, transfer, petition or
amendment is required or beneficial for and not
detrimental to the proper conduct of the business
of Lessee on the Leased Property and does not
reduce the value thereof.
ARTICLE 7
LEGAL, INSURANCE AND FINANCIAL REQUIREMENTS
7.1 COMPLIANCE WITH LEGAL AND INSURANCE
REQUIREMENTS. Subject to Article 11 relating to
permitted contests, Lessee, at its expense, will
promptly (a) comply with all material Legal
Requirements and Insurance Requirements in respect
of the use, operation, maintenance, repair and
restoration of the Leased Property, whether or not
compliance therewith shall require structural
change in any of the Leased Improvements or
interfere with the use and enjoyment of the Leased
Property, and (b) directly or indirectly with the
cooperation of Lessor, but at Lessee's sole cost
and expense, procure, maintain and comply with all
material licenses, certificates of need, if
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any, and other authorizations required for (i) any
use of the Leased Property then being made, and
for (ii) the proper erection, installation,
operation and maintenance of the Leased
Improvements or any part thereof, including any
Capital Additions.
7.2 LEGAL REQUIREMENT COVENANTS. Lessee
covenants and agrees that the Leased Property
shall not be used for any unlawful purpose. Lessee
shall, directly or indirectly with the cooperation
of Lessor, but at Lessee's sole cost and expense,
acquire and maintain all material licenses,
certificates, permits and other authorizations and
approvals needed to operate the Leased Property in
its customary manner for the Primary Intended Use
and any other use conducted on the Leased Property
as may be permitted from time to time hereunder.
Lessee further covenants and agrees that Lessee's
use of the Leased Property and Lessee's
maintenance, alteration, and operation of the
same, and all pacts thereof, shall at alt times
conform to all applicable Legal Requirements.
7.3 RENT AND DEBT SERVICE COVERAGE -
FACILITY. As used herein, the term "Coverage
Ratio" means EBITDAR (as defined below) for the
Facility only for the applicable period minus
assumed management fees of five percent of the
total revenues (regardless of the amount of the
management fees actually paid or incurred) earned
from the Facility divided by the principal
(excluding any prepayments or principal at
maturity), interest and lease (capital and
operating) payment obligations of Lessee
(including the Rent) for the same period. As used
herein, the term "EBITDAR" means, for any period,
the sum of (i) the income (or deficit) from all
operations before provision of income taxes for
such period and without deduction for actual
management fees paid or incurred, plus (ii) the
interest charges paid or accrued during such
period (including imputed interest on lease
(capital or operating) obligations (including this
Lease), but excluding amortization of debt
discount and expense), plus (iii) all amounts in
respect of depreciation and amortization for such
period, plus (iv) the rent due under all leases
(capital or operating, including this Lease) for
such period. Lessee agrees and covenants with
Lessor that so long as this Lease is in effect,
Lessee will achieve and within 45 days after the
end of each calendar quarter (end of each March,
June, September or December) during the Term,
provide evidence to Lessor of the achievement of
the Coverage Ratio equal to or greater than 1.2 to
1.0 for the previous period (the " Applicable
Period") equal to the lessor of (A) 12 months or
(B) the number of months elapsed between the
Commencement Date and the then current calendar
quarter.
ARTICLE 8
REPAIRS; RESTRICTIONS AND ANNUAL INSPECTIONS
8.1 MAINTENANCE AND REPAIR.
(a) Lessee, at its expense, will keep the
Leased Property and all private roadways,
sidewalks and curbs appurtenant thereto in
reasonably 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, the age
of the Leased Property or any portion thereof, and
except as otherwise provided in Articles 13 and
14, with reasonable promptness will make all
necessary and appropriate repairs thereto of every
kind and nature (including remodeling to the
extent necessary to maintain the Leased Property
in a condition substantially the same as exists on
the date hereof, whether interior or exterior,
structural or non-structural, ordinary or
extraordinary, foreseen or unforeseen or arising
by reason of a condition existing prior to or
after the commencement of the Term of this Lease
(concealed or otherwise). All repairs and
remodeling shall, to the extent reasonably
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achievable, be at least equivalent in quality to
the original work and shall be accomplished by
Lessee or a party selected by Lessee. Lessee will
not take or omit to take any action the taking or
omission of which might materially impair the
value or usefulness of the Leased Property or any
part thereof for the Primary Intended Use. If
Lessee fails to perform any of its obligations
hereunder, or if Lessor reasonably determines that
action is necessary and is not being taken, Lessor
may, on giving 30 days' written notice to Lessee
(other than in a case reasonably deemed by Lessor
to be an emergency, in which case no such notice
shall be required), without demand on Lessee,
perform any such obligations in such manner and to
such extent and take such other action as Lessor
may deem appropriate in the event that Lessee has
not timely commenced to perform such obligation or
take such action, and all costs, expenses and
charges of Lessor relating to any such action
shall constitute Additional Charges and shall be
payable by Lessee to Lessor in accordance with
Section 2.3.
(b) Except for the use of any insurance
proceeds (to the extent required by Sections 13.1
and 13.2) and any Award (to the extent required by
Section 14.3) Lessor shall not under any
circumstances be required to build or rebuild any
improvements on the Leased Property, or to make
any repairs, replacements, alterations,
restorations, or renewals of any nature or
description to the Leased Property, whether
ordinary or extraordinary, structural or
nonstructural, foreseen or unforeseen, or to make
any expenditure whatsoever with respect thereto in
connection with this Lease, or to maintain the
Leased Property in any way.
(c) 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 particular labor or
services or the furnishing of any particular
materials or other property for the construction,
alteration, addition, repair or demolition of or
to the Leased Property or any part thereof, or
(ii) giving Lessee any right, power or permission
to contract for or permit the performance of any
labor or services or the finishing 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.
(d) Unless Lessor shall convey any of the
Leased Property to Lessee pursuant to the
provisions of this Lease, Lessee will, upon the
expiration or prior termination of this Lease,
vacate and surrender the Leased Property to Lessor
in the condition in which the Leased Property was
originally received from Lessor, except for
ordinary wear and tear (subject to the obligation
of Lessee to maintain the Property in good order
and repair during the entice Term), damage caused
by the gross negligence or willful acts of Lessor,
and damage or destruction described in Article 13
or resulting from a Taking described in Article 14
which Lessee is not required by the terms of this
Lease to repair or restore, and except as
repaired, rebuilt, restored, altered or added to
as permitted or required by the provisions of this
Lease.
8.2 ENCROACHMENTS; RESTRICTIONS. If any of
the Improvements shall, at any time, encroach upon
any property, street or right-of-way adjacent to
the Leased Property, or shall violate the
agreements or conditions contained in any
applicable Legal Requirement, lawful restrictive
covenant or other agreement affecting the Leased
Property, or any part thereof, or shall impair the
rights of others under any easement or right of
way to which the Leased Property is subject, then
promptly upon the request of Lessor, Lessee shall
at its expense, subject to its right to contest
the existence of any such
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encroachment, violation or impairment, (a) 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
(b) make such changes in the Improvements, and
take such other actions, as Lessor 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, and in any event take all such
actions as may be necessary in order to be able to
continue the operation of the Facility for the
Primary Intended Use substantially in the manner
and to the extent the Facility was operated prior
to the assertion of such violation or
encroachment. Any such alteration shall be made in
conformity with the applicable requirements of
Article 9. Lessee's obligations under this Section
8.2 shall be in addition to and shall in no way
discharge or diminish any obligation of any
insurer under any policy of title or other
insurance and Lessee shall be entitled to a credit
for any sums recovered by Lessor under any such
policy of title or other insurance.
8.3 INSPECTIONS. From time to time during the
Term but no more often than one time per year,
Lessor and its agents shall have the right to
inspect the Leased Property and all systems
contained therein at any reasonable time to
determine Lessee's compliance with its obligations
under this Lease, including those obligations set
forth in Article 7 and this Article 8. Lessee
shall pay Lessor the sum of $2,000.00 per year to
cover the time and expense associated with such
inspections.
ARTICLE 9
CAPITAL ADDITIONS
9.1 CONSTRUCTION OF CAPITAL ADDITIONS TO THE
LEASED PROPERTY.
(a) If no Event of Default shall have
occurred and be continuing, Lessee shall have the
right, upon and subject to the terms and
conditions set forth below, to construct or
install Capital Additions on the Leased Property
with the prior written consent of Lessor which
consent shall not be unreasonably withheld;
provided that Lessee shall not be permitted to
create any Encumbrance on the Leased Property in
connection with such Capital Addition without
first complying with Section 9.1(b) hereof. Prior
to commencing construction of any Capital
Addition, Lessee shall submit to Lessor in writing
a proposal setting forth in reasonable detail any
proposed Capital Addition and shall provide to
Lessor such plans and specifications, permits,
licenses, contracts and other information
concerning the proposed Capital Addition as Lessor
may reasonably request. Without limiting the
generality of the foregoing, such proposal shall
indicate the approximate projected cost of
constructing such Capital Addition and the use or
uses to which it will be put.
(b) Prior to commencing construction of any
Capital Addition, Lessee shall first request
Lessor to provide funds to pay for such Capital
Addition in accordance with the provisions of
Section 9.3. If Lessor declines or is unable to
provide such financing on terms acceptable to
Lessee and Lessee rejects Lessor's offer of
financing, Lessee may arrange or provide other
financing, subject to the provisions of Section
9.2. Lessor will reasonably cooperate with Lessee
regarding the grant of any consents or easements
or the like necessary or appropriate in connection
with any Capital Addition; provided that no
Capital Addition shall be made which would tie in
or connect any Leased Improvements on the Leased
Property with any other improvements on property
adjacent to the Leased Property (and not part of
the Land covered by this Lease) including tie-ins
of buildings or other structures or utilities,
unless Lessee shall have obtained the prior
written approval
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of Lessor, which approval shall not be
unreasonably withheld. All proposed Capital
Additions shall be architecturally integrated into
and consistent with the Leased Property.
9.2 CAPITAL ADDITIONS FINANCED BY LESSEE. If
Lessee finances or arranges to finance any Capital
Addition with a party other than Lessor or if
Lessee pays cash for any Capital Addition, this
Lease shall be and hereby is amended to provide as
follows:
(a) There shall be no adjustment in the
Minimum Rent by reason of any such Capital
Addition.
(b) Upon the expiration or earlier
termination of this Lease, Lessor shall compensate
Lessee for all Capital Additions paid for or
financed by Lessee in any of the following ways:
(i) By purchasing all Capital Additions paid
for by Lessee from Lessee for cash in the amount
of the Fair Market Added Value at the time of
purchase by Lessor of all such Capital Additions
paid for or financed by Lessee; or
(ii) Such other arrangement regarding such
compensation as shall be mutually
acceptable to Lessor and Lessee.
Any amount owed by Lessee to Lessor under this
Lease at such termination or expiration may be
deducted from any compensation for Capital
Additions payable by Lessor to Lessee under this
Section 9.2.
9.3 CAPITAL ADDITIONS FINANCED BY LESSOR.
(a) Lessee shall request that Lessor provide
or arrange financing for a Capital Addition by
providing to Lessor such information about the
Capital Addition as Lessor may reasonably request
(a "Request"), including all information referred
to in Section 9.1 above. Lessor may, but shall be
under no obligation to provide or obtain the funds
necessary to meet the Request. Within 30 days of
receipt of a Request, Lessor shall notify Lessee
as to whether it will finance 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. In no event (i) shall the
portion of the projected Capital Addition Cost
comprised of land (if any), materials, labor
charges, fixtures and out of-pocket expenses
(including a reasonable construction management
fee) be less than 100% of the total amount of such
cost, or (ii) shall Lessee or any of its
Affiliates be entitled to any commission or
development fee, directly or indirectly, as a
portion of the Capital Addition Cost. Any Capital
Addition not financed by Lessor, which Lessee
intends to finance or arrange financing for
pursuant to Section 9.2, must shall be approved in
writing by Lessor pursuant to the terms of Section
9.1 hereof, which consent will not be unreasonably
withheld. Lessee may withdraw its Request by
notice to Lessor at any time before or after
receipt of Lessor's terms and conditions.
(b) If Lessor agrees to finance the proposed
Capital Addition, Lessor's obligation to advance
any funds shall be subject to receipt of all of
the following, in form and substance reasonably
satisfactory to Lessor:
(i) such loan documentation as may be
required by Lessor ;
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(ii) any information, certificates, licenses,
permits or documents requested by Lessor, or by
any lender with whom Lessor has agreed or may
agree to provide financing, which are necessary or
appropriate 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;
(iii) an Officer's Certificate and, if
requested, a certificate from Lessee's architect,
setting forth in detail reasonably satisfactory to
Lessor the projected (or actual, if available)
cost of the proposed Capital Addition;
(iv) an amendment to this Lease, duly
executed and acknowledged, in form and substance
satisfactory to Lessor and Lessee (the "Lease
Amendment"), containing such provisions as may be
necessary or appropriate due to the Capital
Addition, including any appropriate changes in the
legal description of the Land and the Rent, all
such changes to be mutually agreed upon by Lessor
and Lessee;
(v) if appropriate, a deed conveying title to
Lessor to any land and improvements or other
rights acquired for the purpose of constructing
the Capital Addition, free and clear of any liens
or encumbrances except those approved in writing
by Lessor and, both prior to and following
completion of the Capital Addition, an as-built
survey thereof reasonably satisfactory to Lessor;
(vi) if appropriate, endorsements to any
outstanding policy of title insurance covering the
Leased Property or a supplemental policy of title
insurance covering the Leased Propecty reasonably
satisfactory in form and substance to Lessor (A)
updating the same without any additional
exceptions, except as may be permitted by Lessor;
and (B) 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 (vii) below);
(vii) if required by Lessor, (A) an owner's
policy of title insurance insuring fee simple
title to any land conveyed to Lessor pursuant to
subparagraph (v), free and clear of all liens and
encumbrances except those approved by Lessor and
(B) a lender's policy of title insurance
satisfactory in form and substance to Lessor and
the Lending Institution advancing any portion of
the Capital Addition Cost;
(viii) if required by Lessor upon completion
of the Capital Addition, an M.A.I appraisal of the
Leased Property ; and
(ix) such other certificates (including
endorsements increasing the insurance coverage, if
any, at the time required by Section 12.1),
documents, customary opinions of Lessee's counsel,
appraisals, surveys, certified copies of duly
adopted resolutions of the Board of Directors of
Lessee authorizing the execution and delivery of
the Lease Amendment and any other instruments or
documents as may be reasonably required by Lessor.
(c) Upon making a Request to finance a
Capital Addition, whether or not such financing is
actually consummated, Lessee shall pay the
reasonable costs and expenses of Lessor and any
Lending Institution which has committed to finance
such Capital Addition paid or incurred in
connection with the financing of the Capital
Addition, including (i) the fees and expenses of
their respective counsel, (ii) the amount of any
recording or transfer taxes and fees, (iii)
documentary stamp taxes, if any, (iv) title
insurance charges, (v) appraisal fees, if any, and
(vi) commitment fees, if any.
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Notwithstanding the foregoing, Lessee shall have
no obligation to reimburse Lessor for any of the
fees, charges and expenses described in this
Section 9.3(c), if such Capital Addition financing
fails to close subsequent to Lessor issuing Lessee
a written commitment to finance said Capital
Additions; provided that this provision shall not
apply if such financing fails to close due to the
acts or omissions of Lessee.
9.4 REMODELING AND NON-CAPITAL ADDITIONS.
Lessee shall have the right and the obligation to
make additions, modifications or improvements to
the Leased Property which ace not Capital
Additions, including tenant improvements made in
connection with the Tenant Leases, from time to
time as may reasonably be necessary for its uses
and purposes and to permit Lessee to comply fully
with its obligations set forth in this Lease;
provided that such action will be undertaken
expeditiously, in a workmanlike manner and will
not significantly alter the character or purpose
or detract from the value or operating efficiency
of the Leased Property and will not significantly
impair the revenue producing capability of the
Leased Property or adversely affect the ability of
Lessee to comply with the provisions of this
Lease. Title to all non-Capital Additions,
modifications and improvements shall, without
payment by Lessor at any time, be included under
the terms of this Lease and, upon expiration or
earlier termination of this Lease, shall pass to
and become the property of Lessor.
9.5 SALVAGE. All materials which are scrapped
or removed in connection with the making of either
Capital Additions permitted by Section 9.1 or
repairs required by Article 8 shall be or become
the property of Lessor; provided that Lessor may
require Lessee to dispose of such materials and
remit the net proceeds thereof to Lessor within 15
days of such disposal.
ARTICLE 10
LIENS
Subject to the provisions of Article 11
relating to permitted contests, Lessee will not
directly or indirectly create or suffer to exist
and will promptly discharge at its expense any
lien, encumbrance, attachment, title retention
agreement or claim upon the Leased Property or any
attachment, levy, claim or encumbrance in respect
of the Rent, not including, however, (a) this
Lease, (b) the matters, if any, set forth in
Exhibit B attached hereto, (c) restrictions, liens
and other encumbrances which are consented to in
writing by Lessor, or any easements granted
pursuant to the provisions of Section 6.4 of this
Lease, (d) liens for those taxes of Lessor which
Lessee is not required to pay hereunder, (e)
subleases permitted by Article 23, (f) liens for
Impositions or for sums resulting from
noncompliance with Legal Requirements so long as
(1) the same are not yet payable or are payable
without the addition of any fine or penalty or (2)
such liens are in the process of being contested
in accordance with the provisions of Article 11,
(g) 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 for more than 60 days
after the completion of the action (including any
appeal from any judgment rendered therein) giving
rise to such lien and such reserve or other
appropriate provisions as shall be required by law
or generally accepted accounting principles shall
have been made therefor or (2) any such liens are
in the process of being contested in accordance
with the provisions of Article 11, and (h) any
Encumbrance placed on the Leased Property by
Lessor.
ARTICLE 11
PERMITTED CONTESTS
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Lessee, after ten days' prior written notice
to Lessor, on its own or on Lessor's behalf (or in
Lessor's name), but 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 Imposition, Legal Requirement,
Insurance Requirement, lien, attachment, levy,
encumbrance, charge or claim (collectively
"Charge") not otherwise permitted by Article 10,
which is required to be paid or discharged by
Lessee, any Resident or any Tenant; provided that
(a) in the case of an unpaid Charge, the
commencement and continuation of such proceedings,
or the posting of a bond or certificate of deposit
as may be permitted by applicable law, shall
suspend the collection thereof from Lessor and
from the Leased Property; (b) neither the Leased
Property nor any Rent therefrom nor any part
thereof or interest therein would be in any
immediate danger of being sold, forfeited,
attached or lost; (c) Lessor would not be in any
immediate danger of civil or criminal liability
for failure to comply therewith pending the
outcome of such proceedings; (d) in the event that
any such contest shall involve a sum of money or
potential loss in excess of $50,000.00, then
Lessee shall deliver to Lessor and its counsel an
Officer's Certificate as to the matters set forth
in clauses (a), (b) and (c) and such opinions of
legal counsel as Lessor may reasonably request;
(e) in the case of an Insurance Requirement, the
coverage required by Article 12 shall be
maintained; and (f) if such contest be finally
resolved against Lessor or Lessee, Lessee shall,
as Additional Charges due hereunder, promptly pay
the amount required to be paid, together with All
interest and penalties accrued thereon, or
otherwise comply with the applicable Charge;
provided further that nothing contained herein
shall be construed to permit Lessee to contest the
payment of the Rent, or any other sums payable by
Lessee to Lessor hereunder. 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 and then at its own expense, Lessor shall
join as a party therein. Lessor shall do all
things reasonably requested by Lessee in
connection with such action. Lessee shall
indemnify and save Lessor harmless 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 12
INSURANCE
12.1 GENERAL INSURANCE REQUIREMENTS. During
the Term of this Lease, Lessee shall at all times
keep the Leased Property, and all property located
in or on the Leased Property insured with the
kinds and amounts of insurance described below and
written by companies reasonably acceptable to
Lessor authorized to do insurance business in the
state in which the Leased Property is located. The
policies must name Lessor as an additional insured
and losses shall be payable to Lessor and/or
Lessee as provided in Article 13. In addition, the
policies shall name as an additional insured the
holder ("Facility Mortgagee") of any mortgage,
deed of trust or other security agreement securing
any Encumbrance placed on the Leased Property or
any part thereof in accordance with the provisions
of Article 32 ("Facility Mortgage"), if any, by
way of a standard form of mortgagee's loss payable
endorsement. Any loss adjustment in excess of
$100,000.00 shall require the written consent of
Lessor and each affected Facility Mortgagee.
Evidence of insurance shall be deposited with
Lessor and, if requested, with any Facility
Mortgagee(s). If any provision of any Facility
Mortgage which constitutes a first lien on the
Leased Property 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 such
Facility Mortgagee or, pursuant to written
direction by Lessor, Lessee shall make such
deposits directly with such Facility
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Mortgagee. The policies on the Leased Property,
including the Leased Improvements, the Fixtures
and the Personal Property, shall insure against
the following risks:
(a) Loss or damage by fire, vandalism and
malicious mischief, extended coverage perils
commonly known as "All Risk" and all physical loss
perils, including sprinkler leakage and business
interruption, in aa amount not less than 90% of
the then Full Replacement Cost thereof (as defined
below in Section 12.2) after deductible with a
replacement cost endorsement sufficient to prevent
Lessee from becoming a co-insurer together with an
agreed value endorsement;
(b) Loss pr 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;
(c) Loss or damage by hurricane and
earthquake in the amount of the Full Replacement
Cost, after deductible;
(d) Loss of rental under a business
interruption insurance policy covering risk of
loss during the first 12 months of reconstruction
necessitated by the occurrence of any of the
hazards described in Sections 12.1(a),12.1(b) or
12.1 (c), in an amount sufficient to prevent
Lessee from becoming a co-insurer; provided that
in the event that Lessee shall not be in default
hereunder and Lessor shall receive any proceeds
from such rental insurance which, when added to
rental amounts i-2ceived with respect to the
applicable time period, exceed the amount of
rental owed by Lessee hereunder, Lessor shall
immediately pay such excess to Lessee;
(e) Claims for personal injury or property
damage under a policy of comprehensive general
public liability insurance including insurance
against assumed or contractual liability including
indemnities under this Lease, with amounts not
less than $5,000,000.00 per occurrence in respect
of bodily injury and death and $10,000,000.00 for
property damage; provided that if it becomes
customary for tenants occupying similar buildings
in the same City where the Leased Property is
located to be required to provide liability
coverage with higher limits than the foregoing,
then Lessee shall provide Lessor with an insurance
policy with coverage limits that are not less than
such customary limits; and
(f) Flood (when the Leased Property is
located in whole or in part within a designated
flood plain area) and such other hazards and in
such amounts as may be customary for comparable
properties in the area and if available from
insurance companies authorized to do business in
the state in which the Leased Property is located.
12.2 REPLACEMENT COST. The term "Full
Replacement Cost" as used herein shall mean the
actual replacement cost of the Facility from time
to time, including increased cost of construction
endorsement, less exclusions provided in the
normal fire insurance policy. In the event Lessor
or Lessee believes that the Full Replacement Cost
has increased or decreased at any time during the
Term, it shall have the right at its own expense
to have such Full Replacement Cost redetermined by
the insurance company which is then providing the
largest amount of casualty insurance carried on
the Leased Property, hereinafter referred to as
the "impartial appraiser". The party desiring to
have the Full 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 such impartial appraiser shall be
final and binding on the
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parties hereto, and Lessee shall forthwith
increase, or may decrease, the amount of the
insurance carried pursuant to this Article to the
amount so determined by the impartial appraiser.
12.3 ADDITIONAL INSURANCE. In addition to
the insurance described above, Lessee shall
maintain such additional insurance as may be
reasonably required from time to time by any
Facility Mortgagee which is consistent with
insurance coverage for similar properties in the
city, county and state where the Leased Property
is located, or required pursuant to any applicable
Legal Requirement, and shall at all times maintain
or cause to be maintained adequate worker's
compensation insurance coverage for all persons
employed by Lessee on the Leased Property, in
accordance with all applicable Legal Requirements.
12.4 WAIVER OF SUBROGATION. All insurance
policies carried by either party covering the
Leased Property, the Fixtures, the Facility and/or
the Personal Property, including contents, fire
and casualty insurance, shall expressly waive any
right of subrogation on the pact of the insurer
against the other party. The parties hereto agree
that their policies will include such a waiver
clause or endorsement so long as the same is
obtainable without extra cost, and in the event of
such an extra charge the other party, at its
election, may request and pay the same. but shall
not be obligated to do so.
12.5 FORM OF INSURANCE. All of the policies
of insurance referred to in this Section shall be
written in from reasonably satisfactory to Lessor
by insurance companies reasonably satisfactory to
Lessor; provided that the deductibles for
insurance required by Sections 12.1(a) through
12.1 (d) shall be no greater than $50,000.00 and
the deductible for coverage required by Section
12.1(e) shall be no greater than $100,000.00.
Lessee shall pay all 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 30 days
prior to the expiration of the existing policy).
In the event of the failure of Lessee 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 enact such insurance
and pay the premiums therefor, which premiums
shall be repayable by Lessee to Lessor upon
written demand therefor, and failure to repay the
same shall constitute an Event of Default within
the meaning of Section 15.1(c). Each insurer
mentioned in this Section 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 prior written
notice before the policy or policies in question
shall be altered, allowed to expire or canceled.
12.6 CHANGE IN LIMITS. In the event that
Lessor shall at any time reasonably and in good
faith believe the limits of the personal injury,
property damage or general public liability
insurance then carried to be insufficient, the
parties shall endeavor to agree 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 shall be determined by an impartial
third party selected by the parties the costs of
which shall be divided equally between the
parties. Such redeterminations, whether made by
the parties or by arbitration, shall be made no
more frequently than every year. Nothing herein
shall permit the amount of insurance to be reduced
below the amount or amounts reasonably required by
any Facility
Mortgagee.
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12.7 BLANKET POLICY. Notwithstanding anything
to the contrary contained in this Section,
Lessee's obligations to carry the insurance
provided for herein may be brought within the
coverage of a so-called blanket policy or policies
of insurance carried and maintained by Lessee ;
provided that the coverage afforded Lessor will
not be reduced or diminished or otherwise be
different from that which would exist under
separate policies meeting all other requirements
of this Lease; provided further that the
requirements of this Article 12 are otherwise
satisfied.
12.8 NO SEPARATE INSURANCE. Without the
prior written consent of Lessor, Lessee shall not,
on Lessee' s own initiative or pursuant to the
request or requirement of any third party, take
out separate insurance concurrent in form or
contributing in the event of loss with that
required in this Article 12 to be furnished by, or
which may reasonably be required by a Facility
Mortgagee to be furnished by, Lessee, or increase
the amounts of any then-existing insurance
required under this Article 12 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 said insurance in the same
manner as losses are required to be payable under
this Lease. Lessee shall immediately notify Lessor
of the taking out of any such separate insurance
or of the increasing of any of the amounts of the
then-existing insurance required under fhis
Article 12 by securing an additional policy or
additional policies.
12.9 INSURANCE FOR CONTRACTORS. If Lessee
shall engage or cause to be engaged any contractor
to perform work on the Leased Property, Lessee
shall require such contractor to carry and
maintain insurance coverage comparable to the
foregoing requirements, at no expense to Lessor;
provided that in cases where such coverage is
excessive in relation to the work being done,
Lessee may allow any such contractor to carry or
maintain alternative coverage in reasonable
amounts upon Lessor's prior written consent, which
shall not be unreasonably withheld.
ARTICLE 13
FIRE AND CASUALTY
13.1 INSURANCE PROCEEDS. All proceeds payable
by reason of any loss or damage to the Leased
Property or any portion thereof, and insured under
any policy of insurance required by Article 12 of
this Lease shall be paid to Lessor and held by
Lessor in trust (subject to the provisions of
Section 13.7) and shall be made available for
reconstruction or repair, as the case may be, of
any damage to or destruction of the Leased
Property, or any portion thereof, and shall be
paid out by Lessor from time to time for the
reasonable cost of such reconstruction or repair
in accordance with this Article 13 after Lessee
has expended an amount equal to or exceeding the
deductible under any applicable insurance policy.
Any excess proceeds of insurance remaining after
the completion of the restoration or
reconstruction of the Leased Property shall be
retained by Lessee free and clear upon completion
of any such repair and restoration except as
otherwise specifically provided below in this
Article 13; provided that in the event neither
Lessor nor Lessee is required or elects to repair
or restore the Leased Property, then all such
insurance proceeds shall be retained by Lessor.
All salvage resulting from any risk covered by
insurance shall belong to Lessee, including any
salvage relating to Capital Additions paid for by
Lessee.
13.2 RECONSTRUCTION IN THE EVENT OF DAMAGE OR
DESTRUCTION COVERED BY INSURANCE.
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(a) Except as provided in Section 13.7, if
during the Term, the Facility is totally or
partially destroyed from a risk covered by the
insurance described in Article 12 and the Facility
thereby is rendered Unsuitable for its Primary
Intended Use, such damage or destruction shall not
terminate this Lease and all of Lessee's
obligations with respect to payment of Rent shall
continue in full force and effect and shall not be
affected thereby and Lessee shall either:
(i) apply all proceeds payable with respect
thereto to restore the Facility to substantially
the same condition as existed immediately prior to
such damage or destruction, or
(ii) offer either (A) to acquire the Leased
Property from Lessor for a purchase price equal to
the Minimum Purchase Price of the Leased Property
immediately prior to such damage or destruction or
(B) to substitute a new property or properties for
the Leased Property pursuant to and in accordance
with the provisions of Article 20 (which offer to
substitute Lessor may in its reasonable discretion
refuse).
Lessee shall give written notice to Lessor within
60 days after the date of such damage or
destruction whether Lessee chooses option (i) or
option (ii), and if option (ii) is chosen, such
notice shall be accompanied by the offer referred
to therein. In the event Lessee fails to give such
notice or does not make an offer under option
(ii), Lessee shall promptly proceed to restore the
Facility to substantially the same condition as
existed immediately prior to the damage or
destruction. If Lessee's offer to substitute for
the Leased Property is reasonably refused by
Lessor, Lessee shall promptly proceed to restore
the Facility to substantially the same condition
as existed immediately prior to such damage for
destruction or acquire the Leased Property from
Lessor for a purchase price equal to the Minimum
Purchase Price of the Leased Property immediately
prior to such damage or destruction.
(b) FACILITY NOT RENDERED UNSUITABLE FOR ITS
PRIMARY INTENDED USE . Except as provided in
Section 13.7, if during the Term, the Facility is
partially destroyed from a risk covered by the
insurance described in Article 12, but the
Facility is not thereby rendered Unsuitable for
its Primary Intended Use, Lessee shall restore the
Facility to substantially the same condition as
existed immediately prior to the damage or
destruction and such damage or destruction shall
not terminate this Lease and all of Lessee's
obligations hereunder, including Lessee's
obligations with respect to the payment of the
Rent, shall continue in full force and effect and
shall not be affected thereby; provided that if
Lessee cannot within a reasonable time obtain all
necessary governmental approvals, including
building permits, licenses, conditional use
permits and any certificates of need, after
diligent efforts to do so, in order to be able to
perform all required repair and restoration work
and to operate the Facility for its Primary
Intended Use in substantially the same manner as
immediately prior to such damage or destruction,
then Lessee shall offer:
offer, either (i) to acquire the Leased
Property from Lessor for a purchase price equal to
the Minimum Purchase Price immediately prior to
such damage or destruction, or (ii) to substitute
a new property or properties for the Leased
Property pursuant to and in accordance with the
provisions of Article 20 (which offer to
substitute Lessor in its reasonable discretion may
refuse).
Lessee shall give written notice to Lessor within
60 days after the date of such damage or
destruction whether Lessee chooses option (i) or
(ii) and such notice shall be accompanied by the
offer referred to therein. In the event Lessee
fails to give such notice
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or does not make an offer, Lessee shall promptly
proceed to restore the Facility to substantially
the same condition as existed immediately prior to
the damage or destruction. If Lessee's offer to
substitute for the Leased Property is reasonably
refused by Lessor, Lessee shall promptly proceed
to restore the Facility to substantially the same
condition as existed immediately prior to such
damage for destruction or acquire the Leased
Property from Lessor for a purchase price equal to
the Minimum Purchase Price of the Leased Property
immediately prior to such damage or destruction.
13.3 RECONSTRUCTION IN THE EVENT OF DAMAGE OR
DESTRUCTION NOT COVERED BY INSURANCE. Except as
provided in Section 13.7, if during the Term the
Facility is totally or materially destroyed from a
risk (including earthquake) not covered by the
insurance described in Article 12, whether or not
such damage or destruction renders the Facility
Unsuitable for Its Primary Intended Use, Lessee
shall:
(i) restore the Facility to substantially the
same condition it was in immediately prior to such
damage or destruction and such damage or
destruction shall not terminate this Lease, and
all of Lessee's obligations hereunder, including
Lessee's obligations with respect to the payment
of the Rent, shall continue in full force and
effect and not be affected thereby, or
(ii) offer either (A) to acquire the Leased
Property from Lessor for a purchase price equal to
the Minimum Purchase Price immediately prior to
such damage or destruction, or (B) to substitute a
new property or properties for the Leased Property
pursuant to and in accordance with the provisions
of Article 20 (which offer to substitute Lessor in
its reasonable discretion may refuse); provided
that if such damage or destruction is not material
in the reasonable opinion of Lessor, Lessee shall
restore the Facility to substantially the same
condition as existed immediately prior to any such
damage or destruction.
Lessee shall give written notice to Lessor within
60 days after the date of such damage or
destruction whether Lessee chooses option (i),
(ii)(A) or (ii)(B) and, in the event of either
option (ii)(A) or (ii) (B), such notice shall be
accompanied by the offer referred to therein. In
the event Lessee fails to give such notice or does
not make an offer, Lessee shall promptly proceed
to restore the Facility to substantially the same
condition as existed immediately prior to the
damage or destruction. If Lessor does not accept
Lessee's offer to substitute for or purchase the
Leased Property within 30 days after the date of
such offer, Lessee's offer shall be deemed
withdrawn on such 30th day and Lessee shall
promptly proceed to restore the Facility to
substantially the same condition as existed
immediately prior to such damage for destruction;
provided that if such damage or destruction occurs
during any Extended Term, then Lessor must accept
Lessee's offer to acquire the Leased Property from
Lessor for a purchase price equal to the Minimum
Purchase Price immediately prior to such damage or
destruction.
13.4 PERSONAL PROPERTY. Lessee shall use any
insurance proceeds payable by reason of any loss
of or damage to any of the Personal Property to
restore such Personal Property to the Leased
Property with items of substantially equivalent
value to the items being replaced.
13.5 RESTORATION OF PERSONAL PROPERTY. If
Lessee is required or elects to restore the
Facility as provided in Sections 13.2 or 13.3,
Lessee shall also restore the Personal Property
related thereto as required by Section 13.4 and
all Capital Additions paid for or financed by
Lessor. Insurance proceeds payable by reason of
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damage to Capital Additions paid for or financed
by Lessor shall be paid to Lessor and Lessor shall
hold such insurance proceeds in trust to pay the
cost of repairing or replacing such Capital
Additions in the event Lessee does not purchase or
substitute other property or properties for the
Leased Property.
13.6 NO ABATEMENT OF THE RENT. This Lease
shall remain in full force and effect and Lessee's
obligation to make rental payments and to pay all
other charges required by this Lease shall remain
unabated during any period required for repair and
restoration.
13.7 DAMAGE NEAR END OF TERM. Notwithstanding
any provisions of Sections 13.2 or 13.3 to the
contrary, if damage to or destruction of the
Facility occurs during the last 12 months of the
Term, and if such damage or destruction cannot be
fully repaired and restored within the lesser of
(i) six months or (ii) the period remaining in the
Term immediately following the date of loss, then
either party shall have the right to terminate
this Lease by giving notice of termination to the
other within 30 days after the date of such damage
or destruction, in which event Lessor shall be
entitled to retain the insurance proceeds and
Lessee shall pay to Lessor on demand the amount of
any deductible or uninsured loss arising in
connection therewith; provided that any such
notice given by Lessor shall be void and of no
force and effect if Lessee exercises an available
option to extend the Term for one Extended Term,
or one additional Extended Term, as the case may
be, within 30 days following receipt of such
termination notice.
13.8 PURCHASE OR SUBSTITUTION. In the event
Lessor accepts any offer by Lessee to purchase the
Leased Property or to substitute a property or
properties for the Leased Property, this Lease
shall terminate upon payment of the purchase price
and execution and delivery of all documentation in
accordance with Article 17, or execution and
delivery of all documents required in connection
with a Substitute Property under Article 20.
Lessor shall remit to Lessee, or in the case of a
purchase allow Lessee a credit toward the purchase
price, an amount equal to all insurance proceeds
being held in trust by Lessor.
13.9 WAIVER. Lessee hereby knowingly and
expressly waives any statutory or common law
rights of termination which may arise by reason of
any damage or destruction of the Facility.
ARTICLE 14
CONDEMNATION
14.1 PARTIES' RIGHTS AND OBLIGATIONS. If
during the Term there is any Taking of all or any
part of the Leased Property or any interest in
this Lease by Condemnation, the rights and
obligations of the parties shall be determined by
this Article 14.
14.2 TOTAL TAKING. If there is a Taking of
all of the Leased Property by Condemnation, this
Lease shall terminate on the Date of Taking, and
the Minimum Rent and all Additional Charges paid
or payable hereunder shall be apportioned and paid
to the Date of Taking.
14.3 PARTIAL TAKING. If there is a Taking of
a portion of the Leased Property by Condemnation
such that the Facility is not thereby rendered
Unsuitable for Its Primary Intended Use, this
Lease shall not terminate and all of Lessee's
obligations hereunder, including Lessee's
obligations with respect to the payment of the
Rent, shall
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continue in full force and effect and shall not be
affected thereby. If, however, the Facility is
thereby rendered Unsuitable for Its Primary
Intended Use, Lessee shall either:
(i) at Lessee's expense, restore the
Facility, to the extent possible, to substantially
the same condition as existed immediately prior to
the partial Taking, in which case the proceeds of
any Award shall be applied to such restoration to
the extent necessary or appropriate, or
(ii) offer either (A) to acquire the Leased
Property from Lessor for a purchase price equal to
the Minimum Purchase Price of the Leased Property
immediately prior to such partial Taking, or (B)
to substitute a new property or properties for the
Leased Property pursuant to and in accordance with
the provisions of Article 20 (which offer to
substitute Lessor may in its reasonable discretion
refuse), or
(iii) terminate this Lease effective upon the
effective date of such Taking.
Lessee will give written notice to Lessor within
60 days after Lessee receives notice of the Taking
which option Lessee chooses, and if option (ii) is
chosen, such notice shall be accompanied by the
offer referred to therein. In the event Lessor
does not accept Lessee's offer to so purchase the
Leased Property within 30 days after receipt of
the notice described in the preceding sentence,
Lessee may either (a) withdraw its offer to
purchase the Leased Property and proceed to
restore the Facility, to the extent possible, to
substantially the same condition as existed
immediately before the partial Taking, or (b)
terminate the offer and this Lease by written
notice to Lessor.
14.4 RESTORATION. If there is a partial
Taking of the Leased Property and this Lease
remains in full force and effect pursuant to any
provision of this Article 14, Lessee shall
accomplish all necessary restoration in order that
the Leased Property may continue to be used for
its Primacy Intended Use.
14.5 AWARD DISTRIBUTION. In the event Lessee
purchases the Leased Property pursuant to Section
14.3 or Lessor accepts any offer by Lessee to
purchase the Leased Property or to provide a
Substitute Property therefor pursuant to this
Article 14, then the entire Award shall belong to
Lessee and Lessor agrees to assign to Lessee all
of its rights thereto. Except as otherwise
expressly provided in this Article 14, in any
other event the entire Award shall belong to and
be paid to Lessor; provided that if this Lease is
terminated in accordance with Section 14.2(b) or
14.3(a), and subject to the rights of any Facility
Mortgagees, Lessee shall be entitled to receive
from the Award any sum attributable to any Capital
Additions for which Lessee would be entitled to
reimbursement at the end of the Term pursuant to
the provisions of Section 9.2(b), but only if any
to the extent such Award expressly includes such
items and allocates a value thereto. If Lessee is
required or elects to restore the Facility, Lessor
agrees that, subject to the rights of the Facility
Mortgagees, its portion of the Award shall be used
for such restoration and it shall hold such
portion of the Award in trust, for application to
the costs of the restoration.
14.6 TEMPORARY TAKING. The Taking of the
Leased Property, or any part thereof, by military
or other public authority shall constitute a
Taking by Condemnation only when the use and
occupancy by the Taking authority has continued
for longer than six months. During any such six-
month period all the provisions of this Lease
shall remain in full force and effect and the Rent
shall not be abated or reduced during such period
of Taking; provided that to the extent any
compensation is paid by the Taking authority as a
result of such temporary Taking, Lessee will
retain such compensation.
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14.7 PURCHASE OR SUBSTITUTION. In the event
Lessor accepts any offer by Lessee to purchase the
Leased Property or to substitute a property or
properties for the Leased Property, this Lease
shall terminate upon payment of the purchase price
and execution and delivery of all appropriate
documentation in accordance with Article 17, or
execution and delivery of all documents required
in connection with a Substitute Property under
Article 20.
ARTTCLF 15
DEFAULT
15.1 EVENTS OF DEFAULT. The occurrence of any
one or more of the following events shall
constitute events of default (individually, an
"Event of Default" and, collectively, "Events of
Default") hereunder:
(a) An event of default shall occur under any
other lease (the "Related Leases") between Lessor
or any of its Affiliates and Lessee or any of its
Affiliates, which event of default is not cured
within the applicable grace period set forth
therein;
(b) Lessee shall fail to make a payment of
the Rent payable by Lessee under this Lease when
the same becomes due and payable and such failure
continues for a period of ten calendar days after
written notice from Lessor to Lessee;
(c) lessee shall fail to observe or perform
any other term, covenant or condition of this
Lease or any document executed in connection
herewith and such failure is not cured by Lessee
within a period of 30 days after receipt by Lessee
of notice thereof from Lessor, unless such failure
cannot with due diligence be cured within a period
of 30 days, in which case such failure shall not
be deemed to continue if Lessee proceeds promptly
and with due diligence to cure the failure and
diligently completes the curing thereof (as soon
as reasonably possible);
(d) Lessee 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 law,
(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; or
(e) Lessee shall default beyond any
applicable grace period contained in one or more
major credit facilities which by their terms would
permit an outstanding balance equal to or greater
than $10,000,000.00 in the aggregate and the same
shall be accelerated by the lenders or other
applicable parties.
15.2 REMEDIES. If an Event of Default shall
have occurred, Lessor may, at its election, then
or at any time thereafter, apply or appropriate,
as the case may be, the Rent Reserve Deposit, or
the then remaining balance thereof, as its remedy
for any damages
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sustained by Lessor caused by a continuing Event
of Default. If (i) Lessor elects not to apply or
appropriate the Rent Reserve Deposit, (ii) the
full balance of the Rent Reserve Deposit is
inadequate to compensate Lessor for damages
sustained arising out of said continuing Event of
Default, or (iii) should an Event of Default occur
and be continuing after the Rent Reserve Deposit
is fully depleted, then, in such event, Lessor
may, at its election, then or at any time
thereafter, pursue any one or more of the
following remedies, in addition to any remedies
which may be permitted by law or by other
provisions of this Lease, without further notice
or demand, except as hereinafter provided:
(a) Without any notice or demand whatsoever,
Lessor may take any one or more actions
permissible at law to ensure performance by Lessee
of Lessee's covenants and obligations under this
Lease. In this regard, it is agreed that if Lessee
abandons or vacates the Leased Property, Lessor
may enter upon and take possession of such Leased
Property in order to protect it from deterioration
and continue to demand from Lessee the monthly
rentals and other charges provided in this Lease.
Lessor shall use reasonable efforts to relet but
shall have no absolute obligation to relet: If
Lessor does, at its sole discretion, elect to
relet the Leased Property, such action by Lessor
shall not be deemed as an acceptance of Lessee's
surrender of the Leased Property unless Lessor
expressly notifies Lessee of such acceptance in
writing, Lessee hereby acknowledging that Lessor
shall otherwise be reletting as Lessee's agent. It
is further agreed in this regard that in the event
of any Event of Default described in this Article
15, Lessor shall have the right to enter upon the
Leased Property and do whatever Lessee is
obligated to do under the terms of this Lease.
Lessee agrees to reimburse Lessor on demand for
any reasonable expenses which Lessor may incur m
thus effecting compliance with Lessee's obligation
under this Lease, and further agrees that Lessor
shall not be liable for any damages resulting to
Lessee from such action, except as may result from
Lessor's gross negligence or willful misconduct.
(b) Lessor may terminate this Lease by
written notice to Lessee, in which event Lessee
shall immediately surrender the Leased Property to
Lessor, and if Lessee fails to do so, Lessor may,
without prejudice to any other remedy which Lessor
may have for possession or arrearage in rent
(including any interest which may have accrued
pursuant to Section 2.3 of this Lease or
otherwise), enter upon and take possession of the
Leased Property and expel or remove Lessee and any
other person who may be occupying said premises or
any part thereof other than Residents pursuant to
Resident Agreements or Tenants pursuant to Tenant
Leases. In addition, Lessee agrees to pay to
Lessor on demand the amount of all loss and damage
which Lessor may suffer by reason of any
termination effected pursuant to this subsection
(b), said loss and damage to be determined, at
Lessor's option, by either of the following
alternative measures of damages:
(i) Although Lessor shall be under no
absolute obligation to attempt and shall be
obligated only to use reasonable efforts, to relet
the Leased Property, until the Leased Property is
relet Lessee shall pay to Lessor on or before the
first day of each calendar month the monthly
rentals and other charges provided in this Lease.
After the Leased Property has been relet by
Lessor, Lessee shall pay to Lessor on the 10th day
of each calendar month the difference between the
monthly rentals and-other charges provided in this
Lease for the preceding calendar month and that
actually collected by Lessor for such month. If it
is necessary for Lessor to bring suit in order to
collect any deficiency, Lessor shall have a right
to allow such deficiencies to accumulate and to
bring an action on several or all of the accrued
deficiencies at one time. Any such suit shall not
prejudice
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in any way the right of Lessor to bring a similar
action for any subsequent deficiency or
deficiencies. Any amount collected by Lessor from
subsequent tenants for any calendar month in
excess of the monthly rentals and other charges
provided in this Lease shall be credited to Lessee
in reduction of Lessee's liability for any
calendar month for which the amount collected by
Lessor will be less than the monthly rentals and
other charges provided in this Lease, bat Lessee
shall have no right to such excess other than the
above described credit; or
(ii) When Lessor desires, Lessor may demand a
final settlement not to exceed the Minimum
Purchase Price at the time of such final
settlement. Upon demand for a final settlement,
Lessor shall have a right to, and Lessee hereby
agrees to pay, the difference between the total of
all monthly rentals and other charges provided in
this Lease for the remainder of the Term and the
reasonable rental value of the Leased Property for
such period (including a reasonable time to relet
the Leased Property), as determined pursuant to
the provisions of Article 28 hereof, such
difference to be discounted to present value at a
rate equal to. the Treasury Yield then in effect
with maturity periods substantially equivalent to
the balance of the Initial Term or any Extended
Term then in effect.
The rights and remedies of Lessor hereunder
are cumulative, and pursuit of any of the above
remedies shall not preclude pursuit of any other
remedies prescribed in other sections of this
Lease and any other remedies provided by law or
equity. Forbearance by Lessor to enforce one or
more of the remedies herein provided upon an Event
of Default shall not be deemed or construed to
constitute a waiver of such Event of Default.
Exercise by Lessor of any one or more remedies
shall not constitute an acceptance of surrender of
the Leased Property by Lessee, it being understood
that such surrender can be effected only by the
prior written agreement of Lessor and Lessee.
15.3 ADDITIONAL EXPENSES. In addition to
payments required pursuant to subsections (a) and
(b) of Section 15.2 above, Lessee shall compensate
Lessor for all reasonable expenses incurred by
Lessor in repossessing the Leased Property
(including any increase in insurance premiums
caused by the vacancy of the Leased Property), all
reasonable expenses incurred by Lessor in
reletting (including repairs, remodeling,
replacements, advertisements and brokerage fees),
all reasonable concessions granted to a new tenant
upon reletting (including renewal options), all
fees and expenses incurred by Lessor as a direct
or indirect result of any appropriate action by a
Facility Mortgagee and a reasonable allowance for
Lessor's administrative efforts, salaries and
overhead attributable directly or indirectly to
Lessee's default and Lessor's pursuing the rights
and remedies provided herein and under applicable
law.
15.4 WAIVER. If this Lease is terminated
pursuant to law or the provisions of this Article
15, Lessee waives, to the extent permitted by
applicable law, (a) any right of redemption,
reentry or repossession and (b) the benefit of any
laws now or hereafter in force exempting property
from liability for rent or for debt.
15.5 APPLICATION OF FUNDS. All payments
otherwise payable to Lessee which are received by
Lessor under any of the provisions of this Lease
during the existence or continuance of any 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 in which the Facility is
located.
15.6 NOTICES BY LESSOR. The provisions of
this Article 15 concerning notices shall be
liberally construed insofar as the contents of
such notices are concerned,
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and any such notice shall be sufficient if it
shall generally apprise Lessee of the nature and
approximate extent of any default.
15.7 LESSOR'S SECURITY INTEREST. Lessee
hereby grants to Lessor, a valid and continuing
security interest to secure payment of all rentals
and other sums of money becoming due hereunder
from Lessee, and to secure payment of any damages
or loss which Lessor may suffer by reason of the
breach by Lessee of any covenant, agreement or
condition contained herein, upon all of the
Personal Property presently, or which may
hereafter be, situated in or about and used in
connection with the operation of the Leased
Property, and all proceeds therefrom and
accessions thereto and, except as a result of
sales made in the ordinary course of Lessee's
business, such property shall not be removed
without the consent of Lessor until any arrearage
in rent as well as any and all other sums of money
then due to Lessor or to become due to Lessor
hereunder shall first have been paid and
discharged and all the covenants, agreements and
conditions hereof have been fully complied with
and performed by Lessee. Upon the occurrence of an
Event of Default by Lessee, Lessor may, in
addition to any other remedies provided herein,
enter upon the Leased Property and take possession
of any and all of the Personal Property, without
liability for trespass or conversion, and sell the
same at public or private sale, with or without
having such property at the sale, after giving
Lessee reasonable notice of the time and place of
any public sale or of the time after which any
private sale is to be made, at which sale Lessor
or its assigns may purchase unless otherwise.:
prohibited by law. Unless otherwise provided by
law, and without intending to exclude any other
manner of giving Lessee reasonable notice, the
requirement of reasonable notice shall be met, if
such notice is given in the manner prescribed in
this Lease at least seven days prior to the time
of sale. Any sale made pursuant to the provision
of this paragraph shall be deemed to have been a
public sale conducted in commercially reasonable
manner if held in the above described premises or
where the property is located after the time,
place and method of sate and a general description
of the types of property to be sold have been
advertised in a daily newspaper published in the
county in which the property is located, for five
consecutive days before the date of the sale. The
proceeds from any such disposition, less any and
all expenses collected with the taking of
possession, holding and selling of the property
(including reasonable attorneys' fees and legal
expenses), shall be applied as a credit against
the indebtedness secured by the security interest
granted in this paragraph. Any surplus shall be
paid to Lessee or as otherwise required by law;
Lessee shall pay any deficiencies forthwith. Upon
request by Lessor, Lessee agrees to execute and
deliver to Lessor a financing statement in form
sufficient to perfect the security interest of
Lessor in the aforementioned property and proceeds
thereof under the provision of the Uniform
Commercial Code (or corresponding state statute or
statutes) in force in the state in which the
Leased Property is located, as well as any other
state the laws of which Lessor may at any time
consider to be applicable. Notwithstanding
anything to the contrary contained in this
Section, Lessor's security interest in the
property of Lessee described above shall be
subject to and absolutely subordinate to any and
all purchase money security interests at any time
given by Lessee to third parties.
ARTICLE 16
LESSOR'S RIGHT TO CURE
If Lessee, without the prior written consent
of Lessor, shall fail to make any payment, or to
perform any act required to be made or performed
under this Lease and to cure the same within the
relevant time periods provided in Section 15.1,
Lessor, without waiving or releasing any
obligation or Event of Default, may (but shall be
under no obligation to) make such payment or
perform such act for the account and at the
expense
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of Lessee, and may, to the extent permitted by
law, enter upon the Leased Property for such
purpose and take all such action thereon as, in
Lessor's opinion, may be necessary or appropriate
therefor. No such entry shall be deemed an
eviction of Lessee. All sums so paid by Lessor,
together with a late charge thereon (to the extent
permitted by law) at the Overdue Rate from the
date on which such sums or expenses are paid or
incurred by Lessor, and all costs and expenses
(including reasonable attorneys' fees and
expenses, in each case, to the extent permitted by
law) so incurred shall be paid by Lessee to Lessor
on demand. The obligations of Lessee and rights of
Lessor contained in this Article shall survive the
expiration or earlier termination of this Lease.
ARTICLE 17
PURCHASE OF THE LEASED PROPERTY
In the event Lessee purchases the Leased
Property from Lessor pursuant to any of the terms
of this Lease, Lessor shall, upon receipt from
Lessee of the applicable purchase price (after
credit for the balance of the Capital Replacement
Account), 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 and
any other amounts owing to Lessor hereunder,
deliver to Lessee an appropriate special warranty
deed (in substantially the same form used to
convey the Leased Property to Lessor) and any
other documents reasonably requested by Lessee to
convey the interest of Lessor in and to the Leased
Property to Lessee, and such other standard
documents usually and customarily prepared in
connection with such transfers, free and clear of
all encumbrances other than (a) those that Lessee
has agreed hereunder to pay or discharge, (b)
those mortgage liens, if any, which Lessee has
agreed in writing to accept and to take title
subject to, (c) any other Encumbrances permitted
to be imposed on the Leased Property under the
provisions of Article 32 which are assumable at no
cost to Lessee, and (d) any matters affecting the
Leased Property on or as of the Commencement Date.
The difference between the applicable purchase
price and the total of the encumbrances assigned
or taken subject to shall be paid in cash to
Lessor, or as Lessor may direct, in federal or
other immediately available funds except as
otherwise mutually agreed by Lessor and Lessee.
The closing of any such sale shall be contingent
upon and subject to Lessee obtaining all required
governmental consents and approvals for such
transfer. If such sale shall fail to be
consummated by reason of the inability of Lessee
to obtain all such approvals and consents, any
options to extend the Term which otherwise would
have expired during the period from the date when
Lessee elected or became obligated to purchase the
Leased Property until Lessee's inability to obtain
the approvals and consents is confirmed shall be
deemed to remain in effect for 30 days after the
end of such period. The closing with respect to
any such sale shall be appropriately timed to
accommodate the determination of the Minimum
Purchase Price in accordance with Article 28. All
expenses of such conveyance, including the cost of
title examination or standard coverage title
insurance, reasonable attorneys' fees incurred by
Lessor in connection with such conveyance,
transfer taxes and recording fees shall be paid by
Lessee. Additionally, any sale to Lessee shall be
subject to delivery of an opinion of Lessor' s
counsel confirming that (i) the sale will not
result in ordinary recapture income to Lessor
pursuant to Code Section 1245 or 1250 or any other
Code provision, (ii) the sale will result in
income, if any, to Lessor of a type described in
Code Section 856(c)(2) or 856(c)(3) and will not
result in income of the types described in Code
Section 856(c)(4) or result in the tax imposed
under Code Section 857(b)(6), and (iii) the sale,
together with all other substitutions and sales
made or requested by Lessee pursuant to any other
leases with Lessor of properties hereto or any
other transfers of the Leased Property or the
properties leased under other such operating
leases, during the relevant time period, will not
jeopardize the qualification of Lessor as a real
estate investment trust under Code Sections 856-
860.
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ARTICLE I 8
HOLDING OVER
If Lessee shall for any reason remain in
possession of the Leased Property after the
expiration of the Term or any earlier termination
of the Term hereof, such possession shall be as a
tenancy at will during which time Lessee shall pay
as rental each month an amount equal to the sum of
(a) 150% of the aggregate of 1/12 of the aggregate
Minimum Rent payable with respect to the last
complete year prior to the- expiration of the
Term, plus (b) all Additional Charges accruing
during such month, plus (c) all other sums, if
any, payable pursuant t4 the provisions of this
Lease with respect to the Leased Property. During
such period of tenancy, Lessee and Lessor shall be
obligated to perform and observe all of the terms,
covenants and conditions of this Lease and 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 19
ABANDONMENT
19.1 DISCONTINUANCE OF OPERATIONS ON THE
LEASED PROPERTY; OFFER OF SUBSTITUTION. If Lessee
has discontinued use of the Leased Property for
its Primary Intended Use for 90 consecutive days
without Lessor's prior written consent for
alterations or remodeling pursuant to Article 9,
repairs or restoration pursuant to Article 13 or
Article 14 or otherwise, then provided Lessor has
not terminated this Lease pursuant to Section
15.2, Lessee may offer to substitute a new
property or properties for the Leased Property
pursuant to and in accordance with the provisions
of Article 20 (which offer to substitute Lessor
may in its reasonable discretion refuse).
19.2 OBSOLESCENCE OF THE LEASED PROPERTY;
OFFER TO PURCHASE. If the Leased Property becomes
Unsuitable for its Primary Intended Use, all as
set forth in an Officer's Certificate delivered to
Lessor. Lessee may on or after the fifteenth
anniversary of the Commencement Date (provided
this Lease is still in effect), purchase the
Leased Property for the Minimum Purchase Price on
the first Payment Date occurring not less than 120
days after the date of such Officer's Certificate.
19.3 CONVEYANCE OF LEASED PROPERTY. In the
event Lessee elects to purchase the Leased
Property pursuant to Section 192, then on the
first Payment Date occurring not less than 120
days after the date of the Officer's Certificate
referred to in Section 19.2, Lessor shall, upon
receipt from Lessee of the Minimum Purchase Price
as of the date of such purchase and all Rent and
or other sums then due and payable under this
Lease (excluding any installment of Minimum Rent
due on such Payment Date), convey the Leased
Property to Lessee on such date in accordance with
the provisions of Article 17 and this Lease shall
thereupon terminate as to the Leased Property.
ARTICLE 20
SUBSTITUTION OF PROPERTY
20.1 SUBSTITUTION OF PROPERTY FOR THE LEASED
PROPERTY.
(a) In the event Lessor accepts an offer by
Lessee to substitute other property for the Leased
Property under Article 13, Article 14 or Article
19, and provided that no Event of Default shall
have occurred and be continuing, Lessee shall have
the right (subject to the conditions set forth
below in this Article 20, and upon notice to
Lessor) to
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<PAGE>
substitute one or more properties (collectively
referred to as "Substitute Properties" or
individually as a "Substitute Property") for the
Leased Property on a monthly Payment Date
specified in such notice (the "Substitution Date")
occurring not less than 90 days after receipt by
Lessor of such notice. The notice shall be in the
form of an Officer's Certificate and shall specify
the reason(s) for the proposed substitution and
the proposed Substitution Date. Notwithstanding
anything contained herein to the contrary, any
other substitution for the Leased Property shall
require the prior written consent of Lessor which
shall be within the sole discretion of Lessor.
(b) If Lessee gives the notice referred to in
Section 20.1(a) above, Lessee shall present to
Lessor one or more properties (or groups of
properties) each of which property (or groups of
properties) shall provide Lessor with a yield
(i.e. , an annual return on its equity in such
property) equal to or greater than the Current
Yield (and the yield reasonably expected to be
received thereafter throughout the remainder of
the term) from the Leased Property at the time of
such proposed substitution (or in the case of a
proposed substitution as a result of damage,
destruction or Condemnation, the Current Yield
immediately prior to such damage, destruction or
Condemnation) and as reasonably projected over the
remaining Term of this Lease and shall have a Fair
Market Value substantially equivalent to the Fair
Market Value of the Leased Property. Lessor shall
have a period of 90 days within which to review
such information and either to accept or to reject
the Substitute Property or Substitute Properties
so presented; provided that if Lessee is required
by a court order or administrative action to
divest or otherwise dispose of the Leased Property
within a shorter time period, in which ease the
time period shall be shortened appropriately to
meet the reasonable needs of Lessee, but in no
event shall said period be less than 15 Business
Days after Lessor' s receipt of said notice
(subject to further extension for any period of
time in which Lessor is not timely provided with
the information provided for in Section 20.2 and
Section 20.3 below); provided that if Lessor shall
contend that the Substitute Properties fail to
meet all the conditions for substitution set forth
in this Article 20, including the provisions of
Sections 20.1(c), (d) and (e) below, the matter
shall be submitted to arbitration in accordance
with Article 31 and the time periods for Lessor's
approval or rejection shall be tolled during the
period of such arbitration.
(c) It shall be a condition to consummation
of any substitution hereunder that all of the
conditions set forth in Section 20.2 below, shall
have been satisfied with respect to such
substitution, and to the delivery of an opinion of
counsel for Lessor confirming that (i) the
substitution of the Substitute Property for the
Leased Property will qualify as an exchange solely
of property of a like-land under Section 1031 of
the Code, in which, generally, except for "boot"
such as cash needed to equalize exchange values or
discharge indebtedness, no gain or loss is
recognized to Lessor, (ii) the substitution or
sale wil1 not result in ordinary recapture income
to Lessor pursuant to Code Section 1245 or 1250 or
any other Code provision, (iii) the substitution
or sale will result in income, if any, to Lessor
of a type described in Code Section 856(c)(2) or
856(c)(3) and will not result in income of the
types described in Code Section 856(c)(4) or
result in the tax imposed under Code Section
857(b)(6), and (iv) the substitution or sale,
together with all other substitutions and sales
made or requested by Lessee pursuant to any other
leases with Lessor of properties hereto or any
other transfers of the Leased Property or the
properties leased under other such operating
leases, during the relevant time period, will not
jeopardize the qualification of Lessor as a real
estate investment trust under Code Sections 856-
860.
(d) In the event that the equity value of the
Substitute Property or group of Substitute
Properties (i.e., the Fair Market Value of the
Substitute Property or group of
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Substitute Properties minus the encumbrances
subject to which Lessor will take the Substitute
Property or group of Substitute Properties) as of
the Substitution Date is greater than the equity
value of the Leased Property (i.e. , the Fair
Market Value of the Leased Property minus the
encumbrances subject to which Lessee will take the
Leased Property) as of the Substitution Date (or
in the case of damage destruction or Condemnation,
the Fair Market Value immediately prior to such
damage, destruction or Condemnation), Lessor shall
pay to Lessee an amount equal to the difference,
subject to the limitation set forth below. In the
event that said equity value of the Substitute
Property or group of Substitute Properties is less
than said equity value of the Leased Property,
Lessee shall pay to Lessor an amount equal to the
difference, subject to the limitation set forth
below. Notwithstanding the foregoing, neither
Lessor nor Lessee shall be obligated to consummate
any substitution if such party would be required
to make a payment to the other in excess of an
amount equal to ten percent of said Fair Market
Value of the Leased Property (the amount of cash
paid by one party to the other being hereinafter
referred to as the "Cash Adjustment").
(e) The Rent for such Substitute Property in
all respects shall provide Lessor with a yield at
the time of such substitution (i.e. , annual
return on its investment in such Substitute
Property) not less than the Current Yield (and the
yield reasonably expected to be received
thereafter throughout the remainder of the Term)
from the Leased Property prior to any damage,
destruction or Condemnation, taking into account
the Cash Adjustment paid or received by Lessor and
any other relevant factors.
(f) The Minimum Purchase Price of any
Substitute Property or Substitute Properties shall
be an amount equal to the Minimum Purchase Price
of the Leased Property on the Substitution Date
(i) increased by any Cash Adjustment paid by
Lessor pursuant to Section 20.1(d) above, or (ii)
decreased by any Cash Adjustment paid by Lessee
pursuant to Section 20.1(d) above.
20.2 CONDITIONS TO SUBSTITUTION. On the
Substitution Date, the Substitute Property will
become the Leased Property hereunder upon delivery
by Lessee to Lessor of the following items in form
and substance reasonably satisfactory to Lessor:
(a) an Officer's Certificate representing,
warranting and certifying that (i) the Substitute
Property has been accepted by Lessee for all
purposes of this Lease and there has been no
material damage to the improvements located on the
Substitute Property nor is any condemnation or
eminent domain proceeding pending with respect
thereto; (ii) all permits, licenses and
certificates (including a permanent, unconditional
certificate of occupancy and, to the extent
permitted by law, all certificates of need and
licenses) which are necessary to permit the use of
the Substitute Property in accordance with the
provisions of this Lease have been obtained and
are in full force and effect; (iii) under
applicable zoning and use laws, ordinances, rules
and regulations the Substitute Property may be
used for the purposes contemplated by Lessee and
all necessary subdivision approvals have been
obtained; (iv) there are no mechanic' s or
materialmen's liens outstanding or threatened to
the knowledge of Lessee against the Substitute
Property arising out of or in connection with the
construction of the improvements thereon, other
than those being contested by Lessee pursuant to
Article 11; (v) any mechanic's or materialmen's
liens being contested by Lessee will be promptly
paid by Lessee if such contest is resolved in
favor of the mechanic or materialman; (vi) to the
best knowledge of Lessee, there exists no Event of
Default under this Lease, and no defense, offset
or claim exists with respect to any sums to be
paid by Lessee hereunder; and (vii) any exceptions
to Lessor's title to the Substitute Property do
not materially interfere with the intended use of
the Substitute Property by Lessee;
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(b) a special warranty deed with warranties
against claims arising under Lessee conveying to
Lessor tide to the Substitute Property free and
clear of any liens and encumbrances except those
approved in writing or assumed by Lessor;
(c) a lease duly executed, acknowledged and
delivered by Lessee, containing the same terms and
conditions as are contained herein, except that
(i) the legal description of the Land shall refer
to the Substitute Property, (ii) the Minimum
Purchase Price, Rent and any Additional Charges
for the Substitute Property shall be consistent
with the requirements of Section 20.1 and (iii)
such other changes therein as may be necessary or
appropriate under the circumstances shall be made
;
(d) a standard owner's or lessee's (as
applicable) policy of title insurance covering the
Substitute Property (or a valid, binding,
unconditional commitment therefor), dated the
Substitution Date, in current form and including
mechanics' and materialmen's lien coverage, issued
to Lessor by a title insurance company reasonably
satisfactory to Lessor. Such policy shall (i)
insure (A) Lessor's fee title to the Substitute
Property, subject to no liens or encumbrances
except those approved or assumed by Lessor, and
(B) that any restrictions affecting the Substitute
Property have not been violated and that a further
violation thereof will not result in a forfeiture
or reversion of title, (ii) be in an amount at
least equal to the Fair Market Value of the
Substitute Property, and (iii) contain such
endorsements as may be reasonably requested by
Lessor;
(e) certificates of insurance with respect to
the Substitute Property fulfilling the
requirements of Article 12;
(f) current appraisals or other evidence
satisfactory to Lessor, in its sole discretion, as
to the current Fair Market Values of such
Substitute Property;
(g) all available revenue data relating to
the Substitute Property for the period from the
date of opening for business of the Substitute
Property to the date of Lessee's most recent
Fiscal-Year end, or for the most recent three
years, whichever is less; and
(h) such other certificates, documents,
opinions of counsel (which may be in-house
counsel), and other instruments as may be
reasonably required by Lessor.
20.3 CONVEYANCE TO LESSEE. On the
Substitution Date Lessor will convey the Leased
Property to Lessee in accordance with the
provisions of Article 17 (except as to payment of
any expenses in connection therewith which shall
be governed by Section 20.4 below) upon either (a)
payment in cash therefor or (b) conveyance to
Lessor of the Substitute Property, as appropriate.
20.4 EXPENSES. Lessee shall pay or cause to
be paid, on demand, all reasonable costs and
expenses paid or incurred by Lessor in connection
with the substitution and conveyance of the Leased
Property and the Substitute Property, including
(a) fees and expenses of Lessor's counsel, (b) the
amount of any recording taxes and filing fees, (c)
the cost of preparing and recording, if
appropriate, a release of the Leased Property from
the lien of any mortgage, (d) broker's fees and
commissions for Lessee, if any, (e) documentary
stamp and transfer taxes, if any, (f) title
insurance;. charges, and (g) escrow fees, if any.
ARTICLE 21
RISK OF LOSS
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Except as otherwise provided in this Lease,
during the Term of this Lease, the risk of loss or
of decrease in the enjoyment and beneficial use of
the Leased Property in consequence of 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
those claiming from, through or under Lessor) is
assumed by Lessee and, Lessor shall in no event be
answerable or accountable therefor nor shall any
of the events mentioned in this Section entitle
Lessee to any abatement of the Rent except as
specifically provided in this Lease.
ARTICLE 22
INDEMNIFICATION
Notwithstanding the existence of any
insurance or self insurance provided for in
Article 12, and without regard to the policy
limits of any such insurance or self insurance,
Lessee will 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' fees and expenses), to the extent
permitted by law, imposed upon or incurred by or
asserted against Lessor by reason of: (a) any
accident, injury to or death of person or loss to
property occurring on or about the Leased
Property, including any claims of malpractice, (b)
any use, misuse, no use, condition, maintenance or
repair by Lessee of the Leased Property, (c) any
Impositions (which are the obligations of Lessee
to pay pursuant to the applicable provisions of
this Lease), (d) any failure on the part of Lessee
to perform or comply with any of the terms of this
Lease, (e) the nonperformance of any of the terms
and provisions of any and all existing and future
subleases of the Leased Property to be performed
by Lessee as landlord thereunder and (f) the
violation of any Hazardous Materials Law. Any
amounts which become payable by Lessee under this
Section shall be paid within ten days after
liability therefor on the part of Lessor is
finally determined by litigation or otherwise
(including the expiration of any time for appeals)
and, if not timely paid, shall bear interest (to
the extent permitted by law) at the Overdue Rate
from the date of such determination to the date of
payment. Lessee, at its 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. Lessor shall cooperate with
Lessee in a reasonable manner to permit Lessee to
satisfy Lessee's obligations hereunder, including
the execution of any instruments or documents
reasonably requested by Lessee. Nothing herein
shall be construed as indemnifying Lessor or its
agents for their own negligent acts or omissions
or willful misconduct. Lessee's liability for a
breach of the provisions of this Article shall
survive any termination of this Lease.
ARTICLE 23
SUBLETTING AND ASSIGNMENT
23.1 SUBLETTING AND ASSIGNMENT. Subject to
the rights of (i) Residents under existing
Resident Agreements, (ii) Tenants under existing
Tenant Leases, (iii) the provisions of Section
23.3 below and (iv) any other express conditions
or limitations set forth herein, Lessee may,
without the consent of Lessor, sublet all or any
part of the Leased Property consistently with the
Primary Intended Use. Lessor shall not
unreasonably withhold its consent to any other or
further subletting or assignment; provided that
(a) in the case of a subletting, the sublessee
shall comply with the provisions of Section 23.2,
(b) in the case of an assignment, the assignee
shall assume in writing and agree to keep and
perform all of the terms of this Lease on the part
of Lessee to be kept and performed and shall be
and become jointly and severally liable with
Lessee for the performance thereof, (c) an
original counterpart of each such sublease and
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assignment and assumption, duly executed by Lessee
and such sublessee or assignee, as the case may
be, in form and substance reasonably satisfactory
to Lessor, shall be delivered promptly to, Lessor,
and (d) in case of either an assignment or
subletting, Lessee shall remain primarily liable,
as principal rather than as surety, for the prompt
payment of the Rent and for the performance and
observance of all of the covenants and conditions
to be performed by Lessee hereunder. In addition
to Lessee's rights to sublet and assign as
provided in this section above, Lessee shall also
have the right (upon Lessor's prior consent, which
consent shall not unreasonably be withheld) to
enter into Tenant Leases which extend beyond the
Term of this Lease. To the extent that any such
Tenant Leases extend beyond the Term of this
Lease, Lessor shall receive the rents from, and be
responsible for any obligations on the part of the
landlord or lessor under such Tenant Leases. Any
and all such Tenant Leases shall, to the extent
applicable, be subject to the provisions of this
Section and Section 23.2.
23.2 NON-DISTURBANCE, SUBORDINATION AND
ATTORNMENT. Lessee shall insect in each sublease
permitted under Section 23.1 provisions to the
effect that (a) such sublease is subject and
subordinate to all of the terms and provisions of
this Lease and to the rights of Lessor hereunder,
(b) in the event this Lease shall terminate before
the expiration of such sublease, the sublessee
thereunder will, at Lessor's option, attorn to
Lessor and waive any right the sublessee may have
to terminate the sublease or to surrender
possession thereunder as a result of the
termination of this Lease and (c) in the event the
sublessee receives a written notice from Lessor or
Lessor's assignees, if any, stating that Lessee is
in default under this Lease, the sublessee, shall
thereafter be obligated to pay all rentals
accruing under said sublease directly to the party
giving such notice, or as such party may direct.
All rentals received from the sublessee by Lessor
or Lessor's assignees, if any, shall be credited
against amounts owing by Lessee under this Lease.
Lessor agrees that notwithstanding any default,
termination, expiration, sale, entry or other act
or omission of Lessee pursuant to the terms of
this Lease, or at law or in equity, Tenant's
possession shall not be disturbed unless such
possession may otherwise be terminated pursuant to
the terms of the applicable Tenant Lease. Lessor
hereby agrees, upon Lessee's request, to execute a
nondisturbance agreement in favor of any Tenant or
in favor of any sublessee under any sublease
permitted under Section 23.1 above; provided that
the Tenant or any such sublessee has acknowledged
all of the foregoing provisions and executed all
documents required by this Section 23.2.
23.3 SUBLEASE LIMITATION. Notwithstanding
anything contained in this Lease to the contrary,
Lessee shall not sublet the Leased Property,
including any of the Resident Agreements and
Tenant Leases, on any basis such that the rental
to be paid by the sublessee thereunder would be
based, in whole or in part, on either (a) the
income or profits derived by the business
activities of the sublessee, or (b) any other
formula such that any portion of the sublease
rental received by Lessor would 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.
ARTICLE 24
OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS
24.1 ESTOPPEL CERTIFICATE. At any time and
from time to time within 20 days following written
request by Lessor, Lessee will furnish to Lessor
an Officer's Certificate certifying that this
Lease is unmodified and in full force and effect
(or that this Lease is in full force and effect as
modified and setting forth the modifications) and
the dates to which the Rent has been paid. Any
such Officer's Certificate furnished pursuant to
this Article may be relied upon by Lessor, any
prospective purchaser of the Leased
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Property and any third parties who have an
interest in the Leased Property, including any
Lender or professional advisor or Lessor.
24.2 FINANCIAL STATEMENTS AND CERTIFICATES.
Lessee will furnish the following statements to
Lessor; provided that Lessor shall keep
confidential terms furnished by Lessee which are
not generally available to the public:
(i) within 120 days after the end of each
Fiscal Years (A) a copy of the Consolidated
Financial Statements for such Fiscal Year; (B) an
Officer's Certificate stating (x) that no Event of
Default, or event which, with the giving of notice
or the passage of time, or both, would constitute
an Event of Default, has occurred and is
continuing and has not been waived, or, if there
shall have occurred and be continuing such an
Event of Default, specifying the nature thereof
and the steps being taken to remedy the same, and
(y) that to the best of the signer's knowledge and
belief, Lessee is not in default in the
performance or observance of any of the terms of
any loans or credit facilities, which by their
terms would permit an outstanding balance equal to
or greater than $10,000,000.00 in the aggregate,
which default would permit the holder thereof to
accelerate its stated maturity; (C) a current rent
or lease roll for the Leased Property setting
forth rental information in reasonable detail
regarding all of the Tenants and Tenant Leases,
including any space utilized by Lessee; (D) a
statement of revenues and expenses of the Leased
Property for the twelve-month period then ended in
detail reasonably satisfactory to Lessor; and (E)
a certificate in form satisfactory to Lessor
setting forth the Coverage Ratio for the twelve-
month period then ended;
(ii) within 45 days after the end of each
calendar quarter, a statement of all revenues and
expenses relating to the operation of the Facility
during such calendar quarter in each case
certified by Lessee to Lessor in a certificate in
substantially the form attached hereto as Exhibit
E.
(iii) within 15 days after request by Lessor,
(A) a statement of the number of units available
and the actual resident-days for the most recent
month, quarter and year, (B) census information
for the Facility in sufficient detail to show
resident-mix on a daily average basis for the
prior quarter and year, and (C) an aged accounts
receivable report in sufficient detail to show
amounts due from each class of resident-mix (such
as private, Medicare, Medicaid and V.A.) by the
account age classifications of 30 days, 60 days,
90 days, 120 days, and over 120 days;
(iv) if applicable, within 15 days after
filing or receipt, as the case may be, (A) all
cost reports filed with any regulatory or
licensing agency (including any cost reports for
Medicare or Medicaid) and any amendments thereto,
together with all responses, audit reports or
inquiries with respect to such cost reports, (B)
copies of all licensure and certification survey
reports and statements of deficiencies with
respect to the Facility (with correction plans
attached thereto), (C) copies of the Medicaid rate
calculation worksheet (or equivalent thereof, if
any, issued by the applicable Medicaid Agency, (D)
copies of all notices (regardless of form) from
any and all licensing and/or certifying agencies
that the license or applicable reimbursement
certification for the Facility is being downgrade
to a substandard category, revoked or suspended or
that action is pending or being considered to
downgrade to a substandard category, revoke or
suspend the Facility's license or certification,
and (E) evidence of the payment of any bed taxes
or similar taxes;
(v) within ten days after receipt, copies of
all licensure and certification surveys, reports
and statements of deficiencies with respect to the
Facility together with any plans
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of correction applicable thereto, if any, within
the time prescribed by any applicable Legal
Requirement;
(vi) within 30 days after filing copies of
the 10-Q and 10-K Reports of Lessee tiled with the
United States Securities and Exchange Commission;
(vii) within 45 days after the end of each
quarter, a certificate in form acceptable to
Lessor that the required Coverage Ratio for the
quarter then ended has been achieved; and
(viii) with reasonable promptness, such other
information respecting the financial condition,
affairs and properties of Lessee as Lessor may
reasonably request from time to time.
ARTICLE 25
INSPECTION
Upon reasonable prior notice, Lessee shall
permit Lessor, any Facility Mortgagee and their
authorized representatives to inspect the Leased
Property during usual business hours subject to
any security, health, safety or confidentiality
requirements of Lessee, the rights of the
Residents, the rights of the Tenants, any
Insurance Requirements relating to the Leased
Property, or any other restrictions imposed by law
or applicable regulations.
ARTICLE 26
QUIET ENJOYMENT
So long as Lessee shall pay all 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 hereof, 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
hereafter consented to by Lessee. No failure by
Lessor to comply with the foregoing covenant shall
give Lessee any right to cancel or terminate this
:..ease, or to fail to pay 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 or seek any damages it may have against
Lessor as a result of a breach by Lessor of the
covenant of quiet enjoyment contained in this
Article.
ARTICLE 27
NOTICES
Any notices, demands, approvals and other
communications provided for herein shall be in
writing and shall be delivered by telephonic
facsimile, overnight air courier, personal
delivery or registered or certified U.S. Mail with
return receipt requested, postage paid, to the
appropriate party at its address as follows:
If to Lessor :
ALCO IV, L.L.C. 46 3rd Street N.W.
Hickory, North Carolina 28601
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With a copy to:
Daniel R. Green, Jr. 56 3rd Street N.W.
Hickory, North Carolina 28601
If to Lessee :
Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Telephone :
Telecopy:
With a copy to:
The Nathanson Group
1411 Fourth Avenue
Suite 905
Seattle, Washington 98101
Telephone: 206-623-6239
Telecopy: 206-623-1738
Addresses for notice may be changed from time
to time by written notice to all other parties.
Any communication given by mail will be effective
(i) upon the earlier of (a) three business days
following deposit in a post office or other
official depository under the care and custody of
the United States Postal Service or (b) actual
receipt, as indicated by the return receipt; (ii)
if given by telephone facsimile, when sent; and
(iii) if given by personal delivery or by
overnight air courier, when delivered to the
appropriate address set forth.
ARTICLE 28
APPRAISAL
In the event that it becomes necessary to
determine the Fair Market Value, Fair Market Value
Purchase Price, the Fair Market Added Value, the
Minimum Purchase Price or the Fair market Rental
Value of the Leased Property or a Substitute
Property for any purpose of this Lease, the party
required or permitted to give notice of such
required determination shall include in the notice
the name of a person selected to act as an
appraiser on its behalf. Within ten days after
receipt of any such notice, Lessor (or Lessee, as
the case may be) shall by notice to Lessee (or
Lessor, as the case may be) appoint a second
person as an appraiser on its behalf. The
appraisers thus appointed (each of whom must be a
member of the American Institute of Real Estate
Appraisers or any successor organization thereto)
shall, within 45 days after the date of the notice
appointing the first appraiser, proceed to
appraise the Leased Property or the Substitute
Property, as the case may be, to determine any of
the foregoing values as of the relevant date
(giving effect to the impact, if any, of inflation
from the date of their decision to the relevant
date); provided that if only one appraiser shall
have been so appointed, or if two appraisers shall
have been so appointed but only one such appraiser
shall have made such determination within 50 days
after the making of Lessee's or Lessor's request,
then the determination of such appraiser shall be
final and binding upon the parties. If two
2ppcaisers shall have been appointed and shall
have made their determinations within the
respective requisite periods set forth above and
if the difference between the amounts so
determined shall not exceed ten percent of the
lesser of such amounts, then the Fair
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Market Value or Fair Market Added Value or the
Fair Market Rental Value shall be an amount equal
to 50% of the sum of the amounts so determined. If
the difference between the amounts so determined
shall exceed 10% of the lesser of such amounts,
then such two appraisers shall have 20 days to
appoint a third appraiser, but if such appraisers
fail to do so, then either party may request the
American Arbitration Association or any successor
organization thereto to appoint an appraiser
within 20 days of such request, and both parties
shall be bound by any appointment so made within
such 20-day period. If no such appraiser shall
have been appointed within such 20 days or within
90 days of the original request for a
determination of Fair Market Value or Fair Market
Added Value or the Fair Market Rental Value,
whichever is earlier, either Lessor or Lessee may
apply to any court having jurisdiction to have
appointment made by such court. Any appraiser
appointed, by the American Arbitration Association
or by such court, shall be instructed to determine
the Fair Market Value or Fair Market Added Value
or the Fair Market Rental Value within 30 days
after appointment of such appraiser. The
determination of the appraiser which differs most
in terms of dollar amount from the determinations
of the other two appraisers shall be excluded, and
50% of the sum of the remaining two determinations
shall be final and binding upon Lessor and Lessee
as the Fair Market Value or Fair Market Added
Value or the Fair Market Rental Value for such
interest. However, in the event that following the
appraisal performed by said third appraiser, the
dollar amount of two of such appraisals are higher
and lower, respectively, than the dollar amount of
the remaining appraisal in equal degrees, the
determinations of both the highest and lowest
appraisal, respectively, shall be rejected and the
determination of the remaining appraisal shall be
final and binding upon Lessor and Lessee as the
Fair Market Value or Fair Market Added Value or
the Fair Market Rental Value for such interest.
This provision for determination by appraisal
shall be specifically enforceable to the extent
such remedy is available under applicable law, and
any determination hereunder shall be final and
binding upon the parties except as otherwise
provided by applicable law. Lessor and Lessee
shall each pay the fees and expenses of the
appraiser appointed by it and each shall pay one-
half of the fees and expenses of the third
appraiser and one-half of all other costs and
expenses incurred in connection with each
appraisal.
ARTICLE 29
PURCHASE RIGHTS
29.1 RIGHT OF FIRST REFUSAL. During the Term
hereof (provided that no Event of Default has
occurred and is continuing), Lessee shall have a
first refusal option to purchase the Leased
Property upon the same terms and conditions as
Lessor, or its successors and assigns, shall
propose to sell the Leased Property, or shall have
received an offer from a third party to purchase
the Leased Property, which Lessor intends to
accept (or has accepted subject to Lessee's right
of first refusal granted herein). If, during the
Term, Lessor receives such an offer or reaches
such agreement with a third party or proposes to
offer the Leased Property for sale, Lessor shall
promptly notify Lessee of the purchase price for
the Leased Property and all other material terms
and conditions of such agreement or proposed sale
together with a copy of such offer, and Lessee
shall have 30 days after receipt of such notice
from Lessor within which time to exercise Lessee's
option to purchase. If Lessee exercises its
option, then such purchase shall be consummated
within the time set forth in the third-party offer
and in accordance with the provisions of Article
17 hereof to the extent not inconsistent herewith.
If Lessee shall not exercise Lessee' s option to
purchase within said 30-day period after receipt
of said notice from Lessor; Lessor shall be free
for a period of 90 days after the expiration of
said 30-day period to sell the Leased Property to
the third party at the price and terms set forth
in such offer. Whether or not such sale is
consummated, Lessee shall be entitled to exercise
its right of first refusal as provided in this
Article, as to any subsequent sale of the Leased
Property during the Term of this Lease.
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29.2 OPTION TO PURCHASE. Within 180 days
prior to the end of the Initial Term and each
Extended Term exercised by Lessee pursuant to the
terms of Article 34, Lessee shall have the option
to purchase the Leased Property upon written
notice to Lessor for a purchase price equal to the
Minimum Purchase Price. If not sooner exercised,
the option to purchase granted hereby will expire
and be of no further force and effect upon the
expiration of the Term or the earlier termination
of this Lease.
ARTICLE 30
DEFAULT BY LESSOR
30.1 DEFAULT BY LESSOR. Lessor shall be in
default of its obligations under this Lease if
Lessor shall fail to observe or perform any term,
covenant or condition of this Lease on its part to
be performed and such failure shall continue for a
period of 30 days after written notice thereof is
received by Lessor, unless such failure cannot
with due diligence be cured within a period of 30
days, in which case such failure shall not be
deemed to continue if Lessor, within said 30-day
period, proceeds promptly and with due diligence
to cure the failure and diligently completes the
curing thereof. The time within which Lessor shall
be obligated to cure any such failure shall also
be subject to extension or time due to the
occurrence of any Unavoidable Delay. In the event
Lessor fails to cure any such default, Lessee,
without waiving or releasing any obligations
hereunder, and in addition to all other remedies
available to Lessee hereunder or at law or in
equity, may purchase the Leased Property from
Lessor for a purchase price equal to the greater
of the Fair Market Value Purchase Price or the
Minimum Purchase Price of the Leased Property
minus an amount equal to any damage suffered by
Lessee by reason of such default. In the event
Lessee elects to purchase the Leased Property, it
shall deliver a notice thereof to Lessor
specifying a Payment Date occurring no less than
90 days subsequent to the date of such notice on
which it shall purchase the Leased Property, and
the same shall be thereupon conveyed in accordance
with the provisions of Article 17. Any sums owed
Lessee by Lessor hereunder shall bear interest at
the Overdue Rate from the date due and payable
until the date paid.
30.2 LESSEE'S RIGHT TO CURE. Subject to the
provisions of Section 30.1, if Lessor shall breach
any covenant to be performed by it under this
Lease, Lessee, after giving notice to and demand
upon Lessor in accordance with Section 30.1,
without waiving or releasing any obligation of
Lessor hereunder, and in addition to all other
remedies available to Lessee hereunder and at law
or in equity, Lessee may (but shall be under no
obligation at any time thereafter to) make such
payment or perform such act for the account and at
the expense of Lessor. All sums so paid by Lessee
and all costs and expenses (including reasonable
attorneys' fees) so incurred, together with
interest thereon at the Overdue Rate from the date
on which such sums or expenses are paid or
incurred by Lessee, shall be paid by Lessor to
Lessee on demand or set off against the Rent. The
rights of Lessee hereunder to cure and to secure
payment from Lessor in accordance with this
Section 30.2 shall survive the termination of this
Lease.
ARTICLE 31
ARBITRATION
31.1 CONTROVERSIES. Except with respect to
the payment of Minimum Rent hereunder, in case any
controversy shall arise between the parties hereto
as to any of the requirements of this Lease or the
performance thereof which controversy the parties
shall be unable to settle by agreement or as
otherwise provided herein, such controversy shall
be determined by arbitration to be initiated and
conducted as provided in this Article 31.
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31.2 APPOINTMENT OF ARBITRATORS. The party or
parties requesting arbitration shall serve upon
the other a written demand therefor specifying the
matter to be submitted to arbitration, and
nominating an arbitrator who is a member in good
standing of the American Arbitration Association
("AAA"). Within 20 days after receipt of such
written demand and notification, the other party
shall, in writing, nominate a person who is a
member in good standing with AAA and the two
arbitrators so designated shall, within ten days
thereafter, select a third arbitrator who is a
person who is a member in good standing with AAA
and give immediate written notice of such
selection to the parties and shall fix in said
notice a time and place for the first meeting of
the arbitrators, which meeting shall be held as
soon as conveniently possible after the selection
of all arbitrators, at which time and place the
patties to the controversy may appear and be
heard.
31.3 THIRD ARBITRATOR. In case the notified
party or parties shall fail to make a selection
upon notice, as aforesaid, or in case the first
two arbitrators selected shall fail to agree upon
a third arbitrator within ten days after their
selection, then such arbitrator or arbitrators
may, upon application made by either of the
parties to the controversy, after 20 days' written
notice thereof to the other party or parties, have
a third arbitrator appointed by any judge of any
United States court of record having jurisdiction
in the state in which the Leased Property is
located or, if such office shall not then exist,
by a judge holding an office most nearly
corresponding thereto.
31.4 ARBITRATION PROCEDURE. Said arbitrators
shall give each of the parties not less than ten
days' written notice of the time and place of each
meeting at which the parties or any of them may
appear and be heard and after hearing the parties
in regard to the matter in dispute and taking such
other testimony and making such other examinations
and investigations as justice shall require and as
the arbitrators may deem necessary, they shall
decide the questions submitted to them in
accordance with the rules of AAA. The decision of
said arbitrators in writing signed by a majority
of them shall be final and binding upon the
parties to such controversy. In rendering such
decisions and award, the arbitrators shall not add
to, subtract from or otherwise modify the
provisions of this Lease.
31.5 EXPENSES. Unless otherwise specified in
the decision of the arbitrators, the prevailing
party in any arbitration proceeding shall be
reimbursed its reasonable out-of-pocket expenses
by the non-prevailing party, including travel
expenses and reasonable attorneys' fees and
expenses, and the non-prevailing party shall pay
all other costs of such proceeding.
ARTICLE 32
FINANCING OF LEASED PROPERTY
Lessor agrees that it will not grant or
create any mortgage, deed of trust, lien,
encumbrance or other title retention agreement
upon the Leased Property to secure any
indebtedness of Lessor (an " Encumbrance " ),
unless each holder of such an Encumbrance agrees
(a) to give Lessee the same notice, if any, given
to Lessor of any default or acceleration of any
obligation underlying any such Encumbrance or any
sale in foreclosure of such Encumbrance, (b) to
permit Lessee to appear with its representatives
and to bid at any public foreclosure sale with
respect to any such Encumbrance, (c) agrees to
release the Leased Property from the Encumbrance
upon the exercise by Lessee of a right to purchase
contained in this Lease and the payment by Lessee
of the applicable purchase price, and (d) enters
into an agreement with Lessee containing the
provisions described in Article 33 of this Lease.
Lessee agrees to execute and deliver to
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Lessor or the holder of an Encumbrance any written
agreement required by this Article within ten days
of written request thereof by Lessor or such
holder of an Encumbrance. Lessee hereby consents
to the assignment of and grant of a security
interest and lien in this Lease together with the
other documents and instruments delivered to
Lessor by Lessee pursuant hereto and in connection
herewith (collectively, the "Assigned Documents"),
including all rights of Lessor in, to and under
each Assigned Document, by Lessor to any Facility
Mortgagee requesting same. Lessee hereby further
agrees to execute a Consent to Assignment in
substantially the form attached hereto as Exhibit
F,
ARTICLE 33
SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE
At the request from time to time by one or
more holders of an Encumbrance that may hereafter
be placed upon the Leased Property or any part
thereof, and any and all renewals, replacements,
modifications, consolidations, spreaders and
extensions thereof, Lessee will subordinate this
Lease and all of Lessee's rights and estate
hereunder to each such Encumbrance and will attorn
to and recognize such holder (or the purchaser at
any foreclosure sale or any sale under a power of
sale contained in any such Encumbrance or a holder
by a deed in lieu of foreclosure, as the case may
be) as Lessor under this Lease for the balance of
the Term then remaining, subject to all of the
terms and provisions of this Lease; provided that
each such institutional holder simultaneously with
or prior to recording any such Encumbrance
executes and delivers a written agreement in
recordable form (a) consenting to this Lease and
agreeing that, notwithstanding any such other
lease, mortgage, deed of trust, right, title or
interest, or any default, expiration, termination,
foreclosure, sale, entry or other act or omission
under, pursuant to or affecting any of the
foregoing, Lessee shall not be disturbed in
peaceful enjoyment of the Leased Property nor
shall this Lease be terminated or canceled at any
time, except in the event Lessor shall have the
right to terminate this Lease under the terms and
provisions expressly set forth herein; (b)
agreeing that it will be bound by all the terms of
this Lease, perform and observe all of Lessor's
obligations set forth herein; and (c) agreeing
that all proceeds of the casualty insurance
described in Article 13 of this Lease and all
Awards described in Article 14 will be made
available to Lessor for restoration of the Leased
Property as and to the extent required by this
Lease, subject only to reasonable regulation
regarding the manner of disbursement and
application thereof. Lessee agrees to execute and
deliver to Lessor or the holder of an Encumbrance
any written agreement required by this Article
within ten days of written request thereof by
Lessor or such holder of an Encumbrance. Lessee
agrees to execute from time to time, at the
request of Lessor, an institutional investor of
Lessor's or a Facility Mortgagee, a certificate
setting forth any defaults of Lessor hereunder and
the dates through which Rent has been paid and
such other matters as may be reasonably requested.
ARTICLE 34
EXTENDED TERMS
If no Event of Default shall have occurred
and be continuing, Lessee is hereby granted the
right to extend the Term of this Lease for three
additional, consecutive five-year periods (each
such period, an "Extended Term") for a maximum
possible Term of 25 years, by giving written
notice to Lessor of each such extension at least
180 days, but not more than 270 days, prior to the
expiration of the then-current Term; subject,
however, to the provisions of Section 13.7 hereof.
Lessee may not exercise its option for more than
one Extended Term at a time and may exercise the
option to extend for an Extended Term if all of
the Related Leases are simultaneously extended by
Lessee or its Affiliates, as the case may be.
During each Extended Term, all of the terms and
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conditions of this Lease shall continue in full
force and effect, except that the Minimum Rent for
and during each of the Extended Terms shall be the
greater of (i) the Fair Market Rental Value on the
first day of such Extended Term or (ii) the
Minimum Rent in effect immediately prior to the
first day of such Extended Term. In any event, the
Minimum Rent shall continue to be increased
throughout the Extended Terms in accordance with
the provisions of Section 2.1(b) hereof.
ARTICLE 35
MISCELLANEOUS
35.1 NO WAIVER. No failure by Lessor or
Lessee to insist upon the strict performance of
any term hereof or to exercise any right, power or
remedy consequent upon a breach thereof, and no
acceptance of full or partial payment of the Rent
during the continuance of any such breach, shall
constitute a waiver of any such breach or any such
term. To the extent permitted by law, 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.
35.2 REMEDIES CUMULATIVE. To the extent
permitted by law, each legal, equitable or
contractual right, power and remedy of Lessor or
Lessee 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 or
Lessee of any one or more of such rights, powers
and remedies shall not preclude the simultaneous
or subsequent exercise by Lessor or Lessee of any
or all of such other rights, powers and remedies.
35.3 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.
35.4 NO MERGER OF TITLE. There shall be no
merger of this Lease or of the leasehold estate
created hereby by reason of the fact that the same
person, firm, corporation or other entity may
acquire, own or hold, directly or indirectly, (a)
this Lease or the leasehold estate created hereby
or any interest in this Lease or (b) such
leasehold estate and the fee estate in the Leased
Property.
35.5 TRANSFERS BY LESSOR. If Lessor or any
successor owner of the Leased Property shall
convey the Leased Property in accordance with the
terms hereof, other than as security for a debt,
the guarantee or transferee of the Leased Property
shall expressly assume all obligations of Lessor
hereunder arising or accruing from and after the
date of such conveyance or transfer, and shall be
reasonably capable of performing the obligations
of Lessor hereunder and Lessor or such successor
owner, as the case may be, shall thereupon be
released from all future liabilities and
obligations of Lessor under this Lease arising or
accruing from and after the date of such
conveyance or other transfer and all such future
liabilities and obligations shall thereupon be
binding upon the new owner.
35.6 GENERAL. Anything contained in this
Lease to the contrary notwithstanding, all claims
against, and liabilities of, Lessee and Lessor
against the other arising out of or relating to
this Lease and arising prior to any date of
termination of this Lease shall survive such
termination. If any term or provision of this
Lease or any
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application thereof shall be invalid or
unenforceable, the remainder of this Lease and any
other application of such term or provision shall
not be affected thereby. If any late charges
provided for in any provision of this Lease are
based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree
that such charges shall be fixed at the maximum
permissible rate. Neither this Lease nor any
provision hereof may be changed, waived,
discharged or terminated except by an instrument
in writing and
in recordable form signed by Lessor and Lessee.
All the terms and provisions of this Lease shall
be binding upon and inure to the benefit of the
parties hereto and their respective successors and
assigns. The headings in this Lease are for
convenience of reference only and shall not limit
or otherwise affect the meaning hereof. This Lease
shall be governed by and construed in accordance
with the laws of the state where the Land is
located, but not including its conflict of laws
rules. This Lease may be executed in one or more
counterparts, each of which shall be an original
but, when taken together, shall constitute but one
document.
35.7 MEMORANDUM OF LEASE. Lessor and Lessee
shall, promptly upon the request of either, enter
into a short form memorandum of this Lease in form
suitable for recording under the laws of the state
in which the Leased Property is located in which
reference to this Lease, and all options contained
herein, shall be made.
35.8 TRANSFER OF LICENSES. Upon the
expiration or earlier termination of the Term,
Lessee shall take all action necessary or
appropriate to effect (or useful in effecting) the
transfer, to the extent permitted by any Legal
Requirement, to Lessor or Lessor's nominee of all
licenses, operating permits and other governmental
authorizations and all service contracts which may
be necessary or useful in the operation of the
Facility and which relate exclusively to the
Facility which have not previously been
transferred or assigned to Lessor.
ARTICLE 36
GLOSSARY OF TERMS
36.1 For purposes of this Lease, except as
otherwise expressly provided or unless the context
otherwise requires, (a) the terms defined in this
Article 36 have the meanings assigned to them in
this Article 36 and include the plural as well as
the singular, (b) all accounting terms not
otherwise defined herein have the meanings
assigned to them in accordance with generally
accepted accounting principles as at the time
applicable, (c) all references in this Lease to
designated "Articles", "Sections" and other
subdivisions are to the designated Articles,
Sections and other subdivisions of this Lease, and
(d) the words "herein", "hereof" and "hereunder"
and other words of similar import refer to this
Lease as a whole and not to any particular
Article, Section or other subdivision, (e) the
word "including" shall mean "including without
limitation," and (f) all consents required of
Lessor hereunder shall be in Lessor's sole and
absolute discretion, unless otherwise specifically
set forth herein. For purposes of this Lease, the
following terms shall have the meanings indicated:
"AAA" means the American Arbitration
Association.
"Additional Charges" has the meaning set
forth in Section 2.3 hereof together with all
other items specifically included as "Additional
Charges" in this Lease.
"Adjustment Date" has the meaning set forth
in Section 2.1(b) hereof.
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"Affiliate", when used with respect to
Lessee, means any Person directly or indirectly
controlling, controlled by or under direct or
indirect common control with Lessee. For the
purposes of this definition,
"control", 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.
" Agent" has the meaning set forth in Article
32 hereof.
" Applicable Period" has the meaning set
forth in Section 7. 3.
"Assigned Documents" has the meaning set
forth in Article 32 hereof.
"Award" means all compensation, sums or
anything of value awarded, paid or received on a
total or partial Condemnation.
"Breakeven Date" has the meaning set forth in
Article 1.
"Business Day" means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day
on which national banks in the City of Birmingham,
.Alabama are closed.
"Capital Additions" means one or more new
buildings or one or more additional structures
annexed to any portion of any of the Leased
Improvements, which are constructed on any parcel
or portion of the Land during the Term, including
the construction of a new wing or new story, or
the rebuilding of the existing Leased Improvements
or any portion thereof not normal, ordinary or
recurring to maintain the Leased Property,
excluding, however, any construction governed by
the provisions of Article 13.
"Capital Addition Cost" means the cost of any
Capital Additions proposed to be made by Lessee
whether paid for by Lessee or Lessor. Such cost
shall include and be limited to (a) the cost of
construction of the Capital Additions, including
site preparation and improvement, materials,
labor, supervision and certain related design,
engineering and architectural services and the
cost of any fixtures, construction financing and
miscellaneous items approved in writing by Lessor,
(b) if agreed to by Lessor in writing in advance,
the cost of any land contiguous to the Leased
Property purchased for the purpose of placing
thereon the Capital Additions or any portion
thereof or for providing means of access thereto,
or parking facilities therefor, including the cost
of surveying the same, (c) the cost of insurance,
real estate taxes, water and sewage charges and
other carrying charges for such Capital Additions
during construction, (d) the cost of title
insurance, (e) reasonable fees and expenses of
legal counsel and accountants, (f) filing,
registration and recording taxes and fees, (g)
documentary stamp taxes, if any, (h) environmental
assessments and boundary surveys and (i) all
reasonable costs and expenses of Lessor and any
Lending Institution which has committed to finance
the Capital Additions, including, (A) the
reasonable fees and expenses of their respective
legal counsel, (B) all printing expenses, (C) the
amount of any filing, registration and recording
taxes and fees, (D) documentary stamp taxes, if
any, (E) title insurance charges, appraisal fees,
if any, (F) rating agency fees, if any, and (G)
commitment fees, if any, charged by any Lending
Institution advancing or offering to advance any
portion of the financing for such Capital
Additions.
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"Capital Replacement Account" has the meaning
set forth in Section 2.1(c).
"Cash Adjustment" has the meaning set forth
in Section 20.1(d).
" Charge " has the meaning set forth in
Article 11 hereof.
"Code" means the Internal Revenue Code of
1986, as amended.
"Commencement Date" has the meaning set forth
in Article 1.
"Condemnation" means the transfer of all or
any part of the Leased Property as a result of (i)
the exercise of any governmental power, whether by
legal proceedings or otherwise, by a Condemnor or
(ii) a voluntary sale or transfer by Lessor to any
Condemnor, either under threat of condemnation or
while legal proceedings for condemnation are
pending.
"Condemnor" means any public or quasi-public
authority, or private corporation or individual,
having the power of Condemnation.
"Consolidation Financial Statements" means
for any fiscal year or other accounting period for
Lessee and its respective consolidated Affiliates,
audited 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 of Lessee 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 of Lessee, and prepared in
accordance with generally accepted accounting
principles consistently applied, except as noted.
"Consumer Price Index" or "CPI" means the
Consumer Price Index for All Urban Consumers for
the U.S. City Average for all Items (1982-
1984=100) as published by the United States
Department of Labor, Bureau of Labor Statistics.
If the manner in which the Consumer Price Index is
determined by the Bureau of Labor Statistics shall
be substantially revised (including a change in
the base index year), an adjustment shall be made
by Lessor in such revised index which would
produce results equivalent, as nearly as possible,
to those which would have been obtained if the
Consumer Price Index had not been so revised. If
the Consumer Price Index shall become unavailable
to the public because publication is discontinued
or otherwise, or if equivalent data is not readily
available to enable Lessor to make the adjustment
referred to in the preceding sentence, Lessor will
substitute therefor a comparable index based upon
changes in the cost of living or purchasing power
of the consumer dollar published by any other
governmental agency, or if no such index shall be
available, then a comparable index published by a
major bank or other financial institution or by a
university or a recognized financial publication.
" Coverage Ratio " has the meaning set forth
in Section 7. 3.
"Credit Enhancements" means all cash
collateral, security deposits, security interests,
letters of credit, pledges, prepaid rent or other
sums, deposits or interests held by Lessee, if
any, to secure obligations with respect to the
Leased Property, the Resident Agreements, the
Residents, the Tenant Leases or the Tenants.
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"Current Yield" means as of any date the
annual Minimum Rent, as adjusted from time-to-time
pursuant to the terms of this Lease, divided by
the sum of (i) the purchase price as set forth in
the Purchase and Sale Agreement plus (ii) all
Capital Additions Costs paid for or financed by
Lessor which have not been repaid by Lessee.
"Date of Taking" means the date the Condemnor
has the right to possession of the property being
condemned.
"EBITDAR" has the meaning set forth in
Section 7.3.
"Encumbrance" has the meaning set forth in
Article 32.
"Event of Default" has the meaning set forth
in Section 15.1.
"Extended Term" has the meaning set forth in
Article 34.
"Facility" has the meaning set forth in
Article 1.
"Facility Mortgage" has the meaning set forth
in Section 12.1.
"Facility Mortgagee" has the meaning set
forth in Section 12. l.
"Fair Market Added Value" means 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 paid for by
Lessee without financing by Lessor had been
constructed.
"Fair Market Rental Value" means the fair
market rental value of the Leased Property or any
Substitute Property, (a) assuming the same is
unencumbered by this Lease, (b) determined in
accordance with the appraisal procedures set forth
in Article 28 or in such other manner as shall be
mutually acceptable to Lessor and Lessee, and (c)
not taking into account any reduction in value
resulting from an indebtedness to which the Leased
Property or Substitute Property may be subject.
"Fair Market Value" means the fair market
value of the Leased Property or any Substitute
Property, including all Capital Additions, (a)
assuming the same is unencumbered by this Lease,
(b) determined in accordance with the appraisal
procedures set forth in Article 28 or in such
other manner as shall be mutually acceptable to
Lessor and Lessee, and (c) not taking into account
any reduction in value resulting from any
indebtedness to which the Leased Property or such
Substitute Property is subject or which
encumbrance Lessee or Lessor is otherwise required
to remove pursuant to any provision of this Lease
or agrees to remove at or prior to the closing of
the transaction as to which such Fair Market Value
determination is being made. The positive or
negative effect on the value of the Leased
Property or Substitute Property attributable to
the interest rate, amortization schedule, maturity
date, prepayment penalty and other terms and
conditions of any Encumbrance on the Leased
Property or any Substitute Property, as the case
may be, which is not so required or agreed to be
removed shall be taken into account in determining
such Fair Market Value. ,
"Fair Market Value Purchase Price" means the
Fair Market Value less the Fair Market Added
Value.
"Fiscal Year" means the 12-month period from
January I to December 31.
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"Fixtures" has the meaning set forth in
Article I.
"Full Replacement Cost" has the meaning set
forth in Section 12.2.
"Hazardous Materials" means any substance,
including asbestos or any substance containing
asbestos, the group of organic compounds known as
polychlorinated biphenyls, flammable explosives,
radioactive materials, medical waste, chemicals,
pollutants, effluents, contaminants, emissions or
any other related materials and items included in
the definition of hazardous or toxic wastes,
materials or substances under any Hazardous
Materials Law.
"Hazardous Materials Law" means any law,
regulation or ordinance relating to environmental
conditions, medical waste and industrial hygiene,
including the Resource Conservation and Recovery
Act of 1976 ("RCRA"), the Comprehensive
Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA"), as amended by the
Superfund Amendments and Reauthorization Act of
1986 ("SARA"), the Hazardous Materials
Transportation Act, the Federal Water Pollution
Control Act, the Clean Air Act, the Clean Water
Act, the Toxic Substances Control Act, the Safe
Drinking Water Act, the Atomic Energy Act and all
similar federal, state and local environmental
statutes and ordinances, whether heretofore or
hereafter enacted or effective and all
regulations, orders, or decrees heretofore or
hereafter promulgated thereunder.
"Impositions" means, collectively, all taxes
relating to the Leased Property, including all ad
valorem, sales and use, gross receipts, action,
privilege, rent (with respect to the Resident
Agreements and the Tenant Leases) or similar
taxes, assessments (including all assessments for
public improvements or benefits, whether or not
commenced or completed prior to the date hereof
and whether or not to be completed within the
Term), water, sewer or other rents and charges,
excises, 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 (including all interest and penalties
thereon due to any failure in payment by Lessee),
which at any time prior to, during or in respect
of the Term hereof may be assessed or imposed on
or in respect of or be a lien upon (a) Lessor or
Lessor's interest in the Leased Property, (b) the
Rent, the Leased Property or any part thereof or
any rent therefrom or any estate, right, title or
interest therein, or (c) any occupancy, operation,
use or possession of, sales from, or activity
conducted on, or in connection with, the Leased
Property, the Resident Agreements or the Tenant
Leases or use of the Leased Property or any part
thereof; provided that nothing contained in this
Lease shall be construed to require Lessee to pay
(1) any tax based on net income (whether
denominated as a franchise or capital stock or
other tax) imposed on Lessor, (2) any transfer or
net revenue tax of Lessor, (3) any tax imposed
with respect to the sale, exchange or other
disposition by Lessor of any portion of the Leased
Property or the proceeds thereof, (4) except as
expressly provided elsewhere in this Lease, any
principal or interest on any Encumbrance on the
Leased Property, or (5) any judgment lien against
Lessor which does not relate to or arise out of
any amount or obligation that Lessee is required
to pay or perform pursuant to the terms of this
Lease, except to the extent that any tax,
assessment, tax levy or charge which Lessee is
obligated to pay pursuant to this definition and
which is in effect at any time during the Term
hereof is totally or partially repealed, and a
tax, assessment, tax levy or charge set forth in
clause (1), (2) or (3) is levied, assessed or
imposed expressly in lieu thereof.
"Initial Term" has the meaning set forth in
Article 1.
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"Insurance Requirements" means all terms of
any insurance policy required by this Lease and
all requirements of the issuer of any such policy.
"Land" has the meaning set forth in Article
1.
"Lease" means this Lease.
"Lease Amendment" has the meaning set forth
in Section 9.3(b)(iv).
"Lease Assignment" means that certain
Assignment of Rents and Leases, substantially in
the form attached hereto as Exhibit D to be dated
on or about the date hereof executed by Lessee to
the Lender, pursuant to the terms of which Lessee
assigns to the Lender each of the Resident
Agreements, the Tenant Leases and Credit
Enhancements, if any, as security for the
obligations of Lessee under this Lease, and any
other obligations of Lessee, or any Affiliate of
Lessee to Lessor or the Lender.
"Leased Improvements" and "Leased Property"
have the meanings set forth in Article 1.
"Legal Requirements" means all federal,
state, county, municipal and other governmental
statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and injunctions
affecting the Leased Property or the construction,
use or alteration thereof, whether now or
hereafter enacted and in force, including any
which may (a) require repairs, modifications or
alterations of or to the Leased Property, or (b)
in any way adversely affect the use and enjoyment
thereof, and all permits, licenses, authorizations
and regulations relating thereto, and all
covenants, agreements, actions and encumbrances
contained in any instruments, either of record or
known to Lessee (other than encumbrances created
by Lessor without the consent of Lessee), at any
time in force affecting the Leased Property.
"Lender" has the meaning set forth in Section
2.1(a).
"Lending Institution" means any insurance
company, federally insured commercial or savings
bank, national banking association, savings and
loan association, employees' welfare, pension or
retirement fund or system, corporate profit-
sharing or pension plan, college or university, or
real estate investment company including any
corporation qualified to be treated for federal
tax purposes as a real estate investment trust
having a net worth of at least $50,000,000.
"Lessee" means EMERITUS CORPORATION, a
Washington corporation, its successors and
assigns.
"Lessor" means ALCO IV, L.L.C., a North
Carolina limited liability company, and its
successors and assigns.
"Loan Agreement" has the meaning set forth in
Section 2. 1(a).
"Minimum Rent" has the meaning set forth in
Section 2.1(a).
"Minimum Purchase Price" means the greater of
(i) the Fair Market Value of the Leased Property
at the time of purchase hereunder by Lessee and
(ii) the Project Amount (and in the case of a
substitution pursuant to Article 20, as adjusted
pursuant to Section 20.1(f)) as such amount is
increased at the rate of three percent compounded
annually for
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each year (to be prorated for partial years)
between the Commencement Date and the date of
repurchase by Lessee, plus the sum of all Capital
Addition Costs relating to the Leased Property
paid for or financed by Lessor which as of the
date of repurchase of the Leased Property have not
been repaid by Lessee, less the net amount (after
deduction of all reasonable legal fees and other
costs and expenses, including expert witness fees,
incurred by Lessor in connection with obtaining
any such award or proceeds) of all Awards received
by Lessor from Condemnation of the Leased Property
and all insurance proceeds received by Lessor from
any damage or destruction of the Leased Property.
"Officer's Certificate" means a certificate
of Lessee signed by the Chairman of the Board of
Directors, the President, any Vice President or
another officer authorized to so sign by the Board
of Directors or By-Laws of Lessee, or any other
person whose power and authority to act has been
authorized by delegation in writing by any of the
persons holding the foregoing offices.
"Ordinary Course of Business" means the
ordinary course of business for Lessee consistent
with past custom and practice (including quantity
and frequency).
"Overdue Rate" means as of any date, a rate
per annum equal to the Prime Rate as of such date,
plus two percent, but in no event greater than the
maximum rate then permitted under applicable law.
"Payment Date" means any due date for the
payment of the installments of Minimum Rent under
this
Lease.
"Permitted Exception's has the meaning set
forth in Article 1 hereof.
"Permitted Liens" means (i) the Permitted
Exceptions, (ii) pledges or deposits made to
secure payments of worker's compensation insurance
(or to participate in any fund in connection with
worker's compensation insurance), unemployment
insurance, pensions or social security programs,
(iii) liens imposed by mandatory provisions of law
such as for materialmen, mechanics, warehousemen
and other like liens arising in the Ordinary
Course of Business, securing indebtedness whose
payment is not yet due and payable, (iv) liens for
taxes, assessments and governmental charges or
levies if the same are not yet due and payable or
if the same are being contested in good faith and
as to which adequate cash reserves have been
provided, (v) liens arising from good faith
deposits in connection with tenders, leases, real
estate bids or contracts (other than contracts
involving the borrowing of money), pledges or
deposits to secure public or statutory obligations
and deposits to secure (or in lieu of surety,
stay, appeal or customs bonds and deposits to
secure the payment of taxes, assessments, duties
or other similar charges, (vi) liens to secure
purchase money indebtedness, so long as the
indebtedness incurred to purchase the new asset is
secured only by such asset, or (vii) encumbrances
consisting of zoning restrictions, easements or
other restrictions on the use of real property;
provided that such items do not impair the use of
such property for the purposes intended, none of
which is violated by existing or proposed
structures or land use.
"Person" means a natural person, corporation,
partnership, trust, association, limited liability
company or other entity.
"Personal Property" means all machinery,
equipment, furniture, furnishings, computers,
signage, trade fixtures or other personal property
and consumable inventory and supplies used in the
operation of the Leased Property for its Primary
Intended Use,
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together with all replacements and substitutions
therefor, except for any portion of the Leased
Property, all as more specifically set forth on
Exhibit C attached hereto or to be attached once
the complete list is available.
"Primary Intended Use" has the meaning set
forth in Section 6.2(a).
"Prime Rate" means the annual rate reported
by The Wall Street Journal, Eastern Edition (or,
if The Wall Street Journal shall no longer be
published or shall cease to report such rates,
then a publication or journal generally acceptable
in the financial industry as authoritative
evidence of prevailing commercial lending raves)
from time to time as being the prevailing prime
rate (or, if more than one such rate shall be
published in any given edition, the arithmetic
mean of such rates). The prime rate is an index
rate used by The Wall Street Journal to report
prevailing lending rates and may not necessarily
be its most favorable lending rate available. Any
change in the Prime Rate hereunder shall take
effect on the effective date of such change in the
prime rate as reported by The Wall Street Journal,
without notice to Lessee or any other action by
Lessor. Interest shall be computed on the basis
that each year contains 360 days, by multiplying
the principal amount by the per annum rate set
forth above, dividing the product so obtained by
360, and multiplying the quotient thereof by the
actual number of days elapsed.
"Project Amount" has the meaning set forth in
Section 2.1(a).
"Related Leases" has the meaning set forth in
Section 15.1(a).
"Rent" means, collectively, the Minimum Rent
and the Additional Charges.
"Rent Reserve Deposit" has the meaning set
forth in Section 2.5.
"Resident" means the lessee or tenant under
Resident Agreement.
"Resident Agreements" means all leases,
rental agreements and other agreements (written or
otherwise) that grant a possessory interest in and
to any space within the Facility, other than the
Tenant Leases, together with all Credit
Enhancements, if any, held in connection
therewith.
"Request" has the meaning set forth in
Section 9.3(a).
"Security Agreement" means that certain
Security Agreement of even date herewith executed
by Lessee to Lessor, pursuant to the terms of
which Lessee has granted to Lessor a first lien
and security interest in and to all of the
Personal Property, including but not limited to,
fixed and movable equipment, including
replacements and substitutions, as security for
the obligations of Lessee under this Lease, and
any and all other obligations of Lessee.
"Substitution Date" has the meaning set forth
in Section 20. 1.
"Substitute Properties" has the meaning set
forth in Section 20.1.
"Taking" means a taking or voluntary
conveyance during the Term hereof of all or part
of the Leased Property, or any interest therein or
right accruing thereto or use thereof, as the
result of, or in settlement of any Condemnation or
other eminent domain proceeding affecting the
Leased Property whether or not 2he same shall have
actually been commenced.
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"Tenant" means the lessees or tenants under
the Tenant Leases, if any.
"Tenant Leases" means all leases, subleases,
assignments and other rental agreements (written
or verbal, now or hereafter in effect), if any,
that grant a possessory interest in and to any
space in the Improvements, or that otherwise grant
possessory or occupancy rights with regard to the
Leased Property (except for the Resident
Agreements), together with all Credit
Enhancements, if any, held in connection
therewith.
"Term" means the Initial Term and any
Extended Term as to which Lessee has exercised its
options to extend contained in Article 34 hereof
unless earlier terminated pursuant to the
provisions hereof.
"Treasury Yield" means as of any date the
weekly average yield on United States Treasury
Securities Constant Maturity Series issued by the
United States Government, as most recently
published by the Federal Reserve Board in Federal
Reserve Statistical Release H.15(519). If, with
respect to the Treasury Yield, Lessor determines
that the sale of Treasury Securities by the United
States Government has been suspended, or Treasury
Securities are not being offered for sale, or the
weekly average yield is no longer printed by the
Federal Reserve Hoard in Federal Reserve
Statistical Release H.15(519) or for any other
reason Lessor is not able to obtain a quotation
from the Federal Reserve for the sale of such
Treasury Securities, then Lessor will promptly
give notice to Lessee and advise Lessee of a new
index for determining the interest rate to be used
in connection with this Lease, which rate, in the
good faith judgment of Lessor, will be
substantially equivalent to the Treasury Yield.
"Unavoidable Delays" means delays due to
strikes, lockouts, inability to procure materials
after the exercise of reasonable efforts, power
failure, acts of God, governmental restrictions,
enemy action, evil commotion, fire, unavoidable
casualty or other causes beyond the control of the
party responsible for performing an obligation
hereunder, provided that lack of funds shall not
be deemed a cause beyond the control of either
party hereto unless such lack of funds is caused
by the failure of the other party hereto to
perform any obligations of such other party under
this Lease.
"Unsuitable for Its Primary Intended Use" as
use anywhere in this Lease, shall mean that, by
reason of damage or destruction, or a partial
Taking, (i) the Facility i ; required to be
demolished pursuant to any Legal Requirement, (ii)
Lessee is unable within 12 months to obtain any
governmental approval pursuant to any Legal
Requirement, or (iii) in the good faith judgment
of Lessee, reasonably exercised, the Facility
cannot be profitably operated for its Primary
Intended Use, taking into account, among other
relevant factors, the number of usable suites and
number and diversity of the Residents and the
Tenants affected by such damage or destruction or
partial Taking.
SIGNATURES ON FOLLOWING PAGE
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IN WITNESS WHEREOF, the parties have caused
this Lease to be executed and their respective
corporate seals to be hereunto affixed and
attested by their respective officers thereunto
duly authorized as to the date first written
above.
LESSOR:
ALCO IV, L.L.C.,
a North Carolina limited liability company
By: /s/ Charles E. Trefzger
--------------------------------------
Its: Manager
LESSEE:
EMERITUS CORPORATION,
A Washington corporation
By: Michelle A. Bickford
------------------------------------
Its: V.P. - Business Development
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MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement")
is made and entered into as of September 10,1997,
between ALCO IV, L.L.C., a North Carolina limited
liability company with offices at 46 3rd Street,
N.W. , Hickory, North Carolina ("Owner"), and
EMERI'TUS CORPORATION, a Washington corporation
with offices at 3131 Elliott Avenue, Suite 500,
Seattle, Washington 98121 ("Manager").
WITNESSETH
WHEREAS, Owner is the owner of a 100-unit
assisted living facility being developed in
Urbana, Illinois, together with the equipment,
furnishings, and other tangible personal property
that will be used in Connection therewith (the
"Facility"); and
WHEREAS, Manager is engaged in the ownership
and operation of similar facilities and is
experienced in various phases of the management,
operation and ownership thereof; and
WHEREAS, Owner desires to engage Manager as
an independent contractor to manage the Facility
for Owner's account during the term herein
provided, and Manager desires to accept such
engagement, upon the terms and subject to the
conditions contained herein.
NOW, THEREFORE, in consideration of the
mutual promises and covenants herein contained,
and intending to be legally bound hereby, the
parties agree that the foregoing recitals are true
and correct and constitute an integral part of
this Agreement, and the parties further agree as
follows:
ARTICLE I
ENGAGEMENT OF MANAGER
1.1 ENGAGEMENT. During the term of this Agreement
and subject to a plan of operation for the
Facility to be developed by Manager and by Owner
(the "Plan of Operation"), Owner grants to Manager
the sole and exclusive right, and engages Manager
to supervise, manage, and operate the Facility in
the name and for the account of Owner upon the
terms and conditions hereinafter set forth. Owner
is contracting herein for an end result, and does
not intend to provide any day-to-day supervision
of Manager. Manager shall provide its own
management systems, which shall be considered
proprietary material and will remain the property
of Manager. The Plan of Operation shall include
the program design (in accordance with the
regulations of the state where the Facility is
located (the "State")) and define the capital
expenditure and operating budgets for the
Facility, as agreed to by the parties. The Plan of
Operation shall be reviewed on a monthly basis
and, if necessary, revised, upon the mutual
agreement of the parties.
1.2 ACCEPTANCE. Subject to the Plan of Operation,
Manager accepts such engagement and agrees that it
will (a) faithfully and diligently perform its
duties and responsibilities hereunder; (b) use its
best skills, efforts and attention to supervise
and direct the management and operation of the
Facility in an efficient manner, as an assisted
living facility, in substantial compliance with
all applicable laws and in Owner's best interest;
and (c) consult with Owner and keep Owner advised
of all major policy matters relating to the
Facility. Subject to the foregoing and to the
other provisions of this Agreement, Manager,
without the approval of the Owner (unless such
approval is herein specifically required), shall
have the control and discretion with regard to the
operation and management of the Facility for all
customary purposes (including the exercise of its
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rights and performance of its duties provided for
in Article 3 hereof), and the right to determine
policies affecting the appearance, maintenance,
standards of operation, quality of service, and
other matters reasonably relating to Manager's
interest hereunder, which affect the Facility or
the operation thereof, and Owner shall not attempt
to assert management control over Facility or its
employees during the term of this Agreement.
ARTICLE 2.
TERM
The term of this Agreement shall be for a
period of two years commencing on the date that
the first resident occupies one of the units in
the Facility (the "Commencement Date") and ending
on the earlier to occur of (i) a date two years
after the Commencement Date (ii) the occurrence of
the Commencement Date (as defined in the Lease
Agreement of even date herewith between Owner and
Manager with respect to the Facility), unless
terminated earlier pursuant to Article 8 or
Section 11.2 hereof. This Agreement shall be
automatically extended for additional terms of one
year each unless and until terminated pursuant to
the terms herein, or upon written notice by
Manager of its intent not to extend 90 days prior
to the end of the then term.
ARTICLE 3.
RIGHTS AND DUTIES OF THE MANAGER
During the term of this Agreement and in the
course of its management and operation of the
Facility, subject to the Plan of Operation:
3.1 EMPLOYEES. Manager shall hire, train,
promote, discharge, and supervise the work of the
Facility's executive director, department heads,
and a11 operating and service employees performing
services in and about the Facility. All of such
employees shall be employees of Owner, except the
executive director who shall be an employee of
Manager, and the aggregate compensation, including
fringe benefits with respect to such employees
(including the executive director) shall, within
the agreed Operating Budget, be charged to Owner
as an expense of the operation of the Facility.
Manager shall comply with all applicable laws
concerning employees, their compensation, and any
retirement or profit sharing plans, including
payroll deduction and tax reporting. The term
"fringe benefits" as used herein shall include but
not be limited to the employer's contributions of
FICA, unemployment compensation, and other
employment taxes, retirement plan contributions,
worker's compensation, group life, accident, and
health insurance premiums, profit sharing
contributions, disability, and other similar
benefits. All such employees shall be covered by
appropriate professional liability, workers'
compensation, unemployment and other liability
insurance, including errors and omission coverage,
as approved by Manager and Owner. The cost of same
shall be charged to Owner as an additional expense
of the operation of the Facility. Manager shall
provide Owner with evidence of any such insurance
upon request
3.2 LABOR CONTRACTS. Manager, if requested by
Owner, will negotiate, on Owner's behalf, with any
labor union lawfully entitled to represent the
employees at the Facility, but any collective
bargaining agreement or labor contract resulting
therefrom must first be approved by Owner, who
shall be the only person authorized to execute the
same. All such negotiations conducted by Manager
shall be at Owner's expense and shall be subject
to approval by Owner, which approval shall not be
unreasonably withheld.
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3.3 CONCESSIONAIRES, Etc. Manager shall
negotiate and consummate in the name of the Owner
contracts with concessionaires, licensees,
tenants, Residents and other intended users of the
Facility. Any fees and expenses incurred in
connection therewith shall, within the agreed
Operating Budget, be charged to Owner as an
expense of the operation of the Facility.
3.4 ANCILLARY SERVICES, UTILITIES, ETC.
Manager shall, within the agreed Operating Budget,
enter into such contracts in the name of and at
the expense of Owner as may be deemed necessary or
advisable for the furnishing of all ancillary
services, utilities, concessions, supplies and
other services as may be needed from time to time
for the maintenance and operation of the Facility.
Manager is authorized to contract for or to
provide ancillary services, including, but not
limited to, pharmacy (drug and IV), rehabilitation
and respiratory therapy services, and mobile
diagnostic services, through providers which may
be affiliates of Manager, provided that such
services are rendered at levels of quality and
pricing that are competitive with those provided
in the community.
3.5 PURCHASES. Manager shall be solely
responsible to arrange for the purchases of food,
beverages, operating supplies, and other materials
and supplies in the name of and for the account,
and at the expense of Owner, within the agreed
Operating Budget, as may be needed from time to
time for the maintenance and operation of the
Facility.
3.6 REPAIRS. At all times during the term of
this Agreement, Manager shall, within the agreed
Operating Budget, make or install or cause to be
installed at Owner's expense and in the name of
the Owner any proper repairs, replacements, and
improvements in and to the Facility and the
furnishings and equipment in order to keep and
maintain the same in good repair, working order
and condition, and outfitted and equipped for the
proper operation thereof in accordance with
industry standards comparable to those prevailing
in other 8imilar facilities, and all applicable
state or local rules, regulations, or ordinances.
All maintenance and repair work undertaken by
Manager shall be done in a workmanlike manner,
leaving the Facility free of liens for labor and
material to the extent funds are provided by
Owner. Manager hereby grants to Owner the right to
inspect and access to the Facility at all
reasonable times; provided, however, that Owner
shall have no duty to conduct any inspection.
3.7 LICENSES AND PERMITS. Manager shall apply
for, and use its best efforts to obtain and
maintain in the name and at the expense of the
Owner, all licenses and permits required in
connection with the management and operation of
the Facility. Owner agrees to cooperate with
Manager in applying for, obtaining and maintaining
such licenses and permits.
3.8 INSURANCE. Manager shall apply for,
obtain and maintain on behalf of Owner, and at
Owner' s expense, at all times during the term of
this Agreement, the following insurance in such
amounts and coverage as may be appropriate and
mutually agreed upon by Owner and Manager or as
may be required by any financing or lease
arrangements of Owner, whichever is greater:
(a) insurance on the Facility on a
replacement cost basis (including the equipment,
furnishings and other tangible personal property
used in connection therewith) against loss and
damage by fire and lightning with coverage
extended by means of an extended coverage
endorsement to a fire insurance policy so as to
include
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loss or damage arising out of windstorm, and hail,
provided such insurance is reasonably available,
and sprinkler damage, if reasonably available;
(b) insurance on the Facility against loss or
damage, including business interruption insurance,
for boilers and machinery, heating apparatus,
pressure vessels, and pressure pipes installed in
the Facility;
(c) commercial primary and excess general
liability, including automobile liability (as
needed), products liability bonds, professional
and other liability, and property damage
insurance, insuring Owner and Manager against loss
or liability for damages or personal injury,
death, or property damage arising or resulting
from the management, maintenance, operation and/or
use of the Facility;
(d) such workers' compensation and other
similar insurance as may be required by law or as
may be required to insure Owner and Manager
against loss or the payment of damages for such
liabilities as may be imposed by law;
(e) unemployment Compensation insurance
through the appropriate state agencies; and
fidelity and honesty insurance.
Forthwith after the effective date of this
Agreement, Manager shall submit to Owner for its
approval, which approval shall not be unreasonably
withheld, a proposal setting forth the lands and
amounts of insurance which Manager intends to
obtain, in connection with the operation of the
Facility (including, without limitation, insurance
of the kinds and in the respective amounts
described in Paragraphs [a] through [f] of this
section) and Owner shall be deemed to have
approved the proposal unless Owner has disapproved
in writing within ten days of submission of the
proposal by Manager.
All insurance provided for under the
foregoing provisions of this Section shall be
effected by policies issued by insurance companies
of good reputation, sound adequate financial
responsibility, and properly licensed and
qualified to do business in the State and which
are acceptable to any Secured Parties (hereinafter
defined).
All of the policies of insurance of the
character described in Paragraphs (a)-(b) of this
Section shall be carried in the names of Owner,
Manager, the secured parties, if any, under any
mortgage, deed of trust or security instrument
from time to time outstanding affecting the
Facility (the "Secured Parties"). Any losses
payable under such policies of insurance shall be
payable to Owner, Manager, and such Secured
Parties as their respective interests may appear.
Each of the policies of insurance referred to in
Paragraphs (c)-(f) of this Section shall insure
Owner and Manager. Owner, Manager and their
respective officers, partners, directors,
shareholders, managers and employees shall, to the
extent permissible, be named as additional
insureds under all such policies.
3.9 GOVERNMENTAL REGULATION.
(a) Manager shall perform its duties
hereunder to insure that the Facility and the
management thereof by Manager complies in all
material respects with all Federal, state and
local laws, rules, orders, determination,
regulations and ordinances affecting or issued in
connection with the Facility, or the management
thereof by Manager, including any laws and
regulations applicable to the Facility, and with
the prior written consent of Owner, Manager shall
make arrangements for any alterations or repairs
ordered or required thereby, if not included in
the Operating Budget.
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(b) Manager shall immediately provide to
Owner, as and when received by Manager, all
notices, reports or correspondence from
governmental agencies that assert deficiencies or
charges against Facility or that otherwise relate
w the suspension, revocation, or any other action
adverse to any approval, authorization,
certificate, determination, license or permit
required or necessary to own or operate the
Facility. Manager may appeal any action taken by
any governmental agency against the Facility ;
provided, however, that Owner shall adequately
secure and protect Manager from loss, cost, damage
or expense by bond or other means reasonably
satisfactory to Manager in order to contest by
proper legal proceedings the validity of any such
statute, ordinance, law, regulation or order,
provided that any such contest shall not result in
the suspension of operations of the Facility and,
provided, further, that Owner shall have no
obligation to secure and protect Manager from any
loss, cost, damage or expense that arise directly
out of Manager's negligence, misconduct, or breach
of any of its obligations under this Agreement.
3.10 TAXES. Manager shall give notice to
Owner of all taxes, assessments, penalties, fines,
and charges of every kind imposed upon the
Facility by any governmental authority within five
days of receipt of notification other than in the
normal course of business, including interest and
penalties thereon, and shall cause such items to
be paid when due if funds are available, except
that Manager shall not cause such payment to be
made if (i) same is in good faith being contested
by the Owner at its sole expense and without cost
to Manager, (ii) enforcement thereof is stayed,
and (iii) Owner shall have given Manager written
notice of such contest and authorized the
nonpayment thereof not less than ten days prior to
the date on which such tax assessment, penalty or
charge is due and payable.
3.11 DEPOSIT AND DISBURSEMENT OF FUNDS. Upon
the implementation of this Agreement, Owner shall
initiate an operating reserve fund in a financial
institution and available to Manager as Owner's
agent hereunder in an amount to be a upon by the
parties. Such reserve fund shall be used by
Manager to meet the financial payments noted below
until sufficient revenues are generated by
operation of the Facility to reasonably meet those
financial obligations on a monthly basis. Manager
shall promptly deposit in a banking institution
acceptable to Owner, which is a member of the
FDIC, in accounts in Manager's name as agent for
Owner, all Gross Revenues, as defined below, and
moneys and Facility income arising from the
operation of the Facility, or otherwise received
by Manager for and on behalf of Owner ("Facility
Funds"), which funds shall be Owner's funds. No
amounts deposited with Facility Funds shall in any
event be co-mingled with any other funds of
Manager. Manager shall pay from the reserve amount
and/or, once sufficient Facility Funds are
generated and received to meet the monthly
operating expenses of the Facility, Manager shall
pay from Facility Funds on behalf of and in the
name of Owner, and in the following order of
priority, and in each case, in such amounts and at
such times as are required to be made in
connection with:
(a) all costs and expenses arising out of
the ownership, maintenance, and operation of the
Facility, including the reimbursable expenses of
Manger hereunder pursuant to Exhibit A attached
hereto;
(b) payment of Facility Debt Services;
(c) Manager's Base Management Fee provided
for in Article 5, below 9including any accrued and
unpaid Base Management Fees for prior periods);
and
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(d) the balance of the Facility Funds shall
be disbursed to Owner within five days of receipt
of such funds.
It is expressly acknowledged that financial
responsibility for payment of the costs and
expenses noted above is that of the Owner. If the
available Facility funds previously deposited by
Manager, or the reserve amounts previously placed
the accounts by Owner are insufficient in any
month to pay all of the amounts described in
Paragraphs (a) - c, Owner shall promptly, upon the
request of Manager, advance to Manager, or pay
into those accounts described above, for use by
manger on Owner's behalf, any additional amounts
necessary and sufficient to allow Manger to pay
all amounts due hereunder. Manger shall not be
required to advance any sums on Owner's behalf to
meet any financial obligations of Owner pursuant
to the management of Facility. Owner's failure to
promptly advance funds, or to deposit any reserve
amounts where required hereunder and where written
demand has been made by Manger, shall be
considered a breach by Owner of this Agreement.
As used herein, "Facility Debt Service" means
scheduled payments of the principal and interest
with respect to:
(i) the indebtedness identified on Exhibit B
attached hereto, and,
(ii) any additional indebtedness incurred by
Owner for the
improvement, maintenance, or operation of the
Facility.
"Facility Debt Service" does not include any
amounts payable by reason of involuntary
prepayments or the acceleration of such
indebtedness for any reason.
3.12 STATEMENTS. Manager shall deliver or
cause to be delivered to Owner statements as
follows:
(a) On or about the 30th day after the end
of each calendar month (except for the final month
of the fiscal year as noted in 3.129b) below), a
profit and loss statement and balance sheet
statement (both prepared on an accrual basis)
showing the results of the operation of the
Facility for the preceding calendar month and the
year to date, and having annexed thereto a
computation of the management fee (as determined
under Article 5 thereof) for such preceding month
and the year to date.
(b) On or before 45 days after the close of
each fiscal year during the term of this
Agreement, Manager will also deliver or cause to
be delivered to Owner a balance sheet and related
statement of profit and loss showing the assets
employed in the operation of the Facility and the
liabilities incurred in connection therewith as of
the end of the fiscal year, and the results of the
operations of the facility during the preceding 12
moths then ended, and having annexed thereto (i) a
copy of the Medicate and Medicaid cost report, if
any, prepared by Manager with respect to the
Facility for such twelve-month period, and (ii) a
computation of the management fee for any such 12-
month period and payments made according to
Section 3.11. All costs and expenses incurred in
connection with the preparation of any statements,
schedules, computation, and other reports required
under this Section 3.12(b) shall be borne by
Owner.
(c) Within 30 days of filing, copies of the
10-Q and 10-K of Manager filed with the United
States Securities and Exchange Commission.
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(d) Within 45 days after the end of each
quarter, each of the following, certified by the
chief financial officer of Manager to be true and
correct:
(i) unaudited financial statements of
the Manager prepared in accordance with
generally accepted accounting principles
consistently applied, which statements shall
include a balance sheet and statement of
income and expenses for the quarter then
ended;
(ii) if requested by Owner, within 15
days of the end of each calendar month, an
aged accounts receivable report of the
Facility in sufficient detail to show amounts
due from each class of patient-mix (i. e. ,
private, Medicare (if any), Medicaid (if any)
and V. A. ) by the account age
classifications of 30 days, 60 days, 90
days,120 days, and over 120 days;
(iii) within 45 days after the end of
each calendar quarter, the quarterly
financial statement and census data for the
Facility, properly completed and certified by
Manager to be true and correct;
(iv) within ten days of filing or
receipt all cost reports required by any
regulatory or licensing agency and any
amendments thereto filed with respect to the
Facility and all responses and statements of
deficiencies (with plans of correction
attached thereto, if required, within the
period prescribed by law);
(v) within ten days of receipt, copies
of all licensure and certification survey
reports and statements of deficiencies (with
plans of correction attached thereto, if
required, within the period prescribed by
law);
(vi) within ten days of receipt, a copy
of the Medicaid rate calculation worksheet
(or the equivalent thereof, if any, issued by
the applicable Medicaid agency for the
Facility;
(vii) upon Owner's request, evidence of
payment of any applicable provider bed taxes
or similar taxes.
3.13 COMPLAINTS; INVESTIGATIONS; LEGAL
ACTIONS. Manager shall receive, consider, and
handle any complaints of residents, guests or
users of any of the services of the Facility.
Using reasonable judgment, Manager shall notify
Owner of all material written complaints regarding
the quality of resident care or operation of the
Facility received by Manger. Manager shall comply
with the procedures and policies for reporting of
adverse resident occurrences at the Facility to
the insurance company or to such other persons as
Owner may designate. Manager shall promptly notify
Owner of any pending, threatened or initiated
investigation, by any governmental or
administrative agency, regarding any aspect of
operation of the Facility. Manager shall promptly
notify Owner if it is served with process in any
legal action regarding any aspect of its operation
of the Facility. Manager shall institute, in its
own name or in the name of the Owner, at the
expense of the Owner, appropriate legal actions or
proceedings to collect charges, rent, or other
sums due the Facility or to lawfully oust or
dispossess Residents or other persons in
possession under (or lawfully cancel, modify or
terminate) any lease, license, or concession
agreement for the breach thereof or default
thereunder by the Resident, licensee or
concessionaire.
Unless otherwise directed by Owner, Manager
shall take, at Owner's expense, appropriate legal
steps with respect to any alleged violation, or
adverse order, rule, or
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regulation affecting the Facility. Any counsel to
be engaged under this or the next preceding
paragraph of this Section shall be approved by
Owner, which approval shall not be unreasonably
withheld. Manager shall promptly notify Owner of
all such actions.
3.14 MANAGEMENT SERVICE. Manager shall use
its best efforts to manage and operate the
Facility with a maximum of efficiency in a manner
to achieve optimal financial performance and
productivity of personnel and in a quality manner
for the residents of the Facility commensurate
with standards for comparable facilities in the
State, provided that this is done in a manner
consistent with good business practices.
3.15 DATA PROCESSING. Manager shall, directly
or through an affiliate or subcontractor (the cost
of which shall, within the agreed Operating
Budget, be borne by Owner), provide the data
processing required to maintain the financial,
payroll, and accounting records of the Facility.
3.16 INDEMNIFICATION. Manager shall at all
times indemnify and hold harmless Owner, its
agents, representatives, partners, joint
venturers, officers, directors, and shareholders,
from and against any and all claims, losses,
liabilities, actions, proceedings, and expenses
(including reasonable attorneys' fees and costs)
arising out of Manager's management or operation
of the Facility; provided that the foregoing
indemnity will not include Owner's willful acts or
negligence. The provisions of this Section 3.16
shall survive the termination or expiration of
this Agreement.
3.17 BOOKS AND RECORDS. Manager, on behalf of
Owner, shall supervise and direct the keeping of
full and accurate books of account and such other
records reflecting the results of operation of the
Facility in accordance with sound business and
accounting practices and as required by law.
3.18 OTHER DUTIES. Manager shall not take any
action or inaction that would constitute a default
under any note, loan agreement, mortgage, trust
deed, lease or other agreement executed by Owner
relating to the Facility. Owner shall deliver to
Manager a copy of each such agreement prior to
execution thereof.
3.19 SECURITY DEPOSITS. If required by state
law, Manager shall collect and disburse resident
security deposits in accordance with the
applicable rental agreements and all other
applicable state and federal laws and regulations.
Such deposits, if any, shall be deposited in a
separate FDIC insured trust account (maintained in
compliance with applicable law) held in the name
of Owner. The balance of such account shall at all
times equal or exceed the liability therefor to
all residents.
3.20 OPERATING BUDGET. Subject to the Plan of
Operation, Manager shall, 60 days prior to the
Commencement Date prepare a pro forma budget, and
about January 1 of each year thereafter, prepare
an operating budget for that year, based on the
immediately prior year's operating experience (the
"Operating Budget"). The Operating Budget shall
include, but not be limited to estimated revenues
and operating expenses for the ensuing year. If
Owner objects to the Operating Budget submitted by
Manager, Owner shall provide Manager with written
notice of such objection, stating the reasons for
such objections, within 30 days after receipt. If
Manager disagrees with Owner's objections, Manager
shall notify Owner of such disagreement within ten
days after Manager's receipt of Owner's
objections. If the parties cannot resolve any
dispute within ten days thereafter, then the
matter may be submitted to arbitration pursuant to
Article 10 hereof and the parties shall use the
Operating Budget for the previous period pending
the resolution of such arbitration proceeding. At
the same time as the Operating Budget is
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submitted to Owner, Manager shall submit, for
Owner's approval, a narrative report of Manager's
major management goals and intended actions for he
succeeding fiscal year so as to enable Owner to
evaluate Manager's intended conduct of the affairs
of the Facility during that period. Once the
budget is mutually agreed to by the parties,
Manager shall use its best efforts to manage and
operate the Facility within the budget. However,
Manager is not guaranteeing that Facility shall
make a profit at any time or that anticipated
financial projections can be met under this
Agreement. All expenses shall be charged to the
proper budget account and no expense may be
classified (or reclassified) for the purpose of
avoiding an excess in the annual budgeted amount
of any accounting category. The parties agree to
confer from time to time with regard to the budget
and to adjust the budget as is reasonably
necessary for the operation of the Facility. Owner
understands and agrees that there may be
emergencies that arise from time to time which
might require immediate expenditures by Manager to
assure the continuous operation of the Facility
which are not in the budget. Owner may specify the
format of the budget from time to time.
Manager shall, in addition, provide to Owner
a capital improvements budget (the "Capital
Expenditures Budget") covering all anticipated
capital improvements and expenditures. The Capital
Expenditures Budget is subject to Owner's approval
and the same procedures set forth above with
respect to the Operating Budget. Notwithstanding
anything contained herein to the contrary. Manager
shall not incur any expense or capital expenditure
in excess of $5,000 for any single item or $10,000
in any fiscal year above the approved budget
without Owner's specific written authorization;
provided, however, Manager shall have the
authority to incur such expenses and capital
expenditures without Owner's prior approval if
such expense ar capital expenditure is immediately
necessary for: (i) the health or safety of the
residents of the Facility, or (i) to comply with
any applicable law, rule or regulation governing
the operation of the Facility ("Emergency
Expenditures"). Manager shall promptly provide
Owner with written notice describing the cost and
reason for any such Emergency Expenditure. Owner
shall promptly review Manager's request for
authorization of expenses and capital expenditures
in excess of the aforesaid limits which are not
Emergency Expenditures.
3.21 FEES AND CHARGES. Subject to approval of
Owner, Manager shall establish, maintain, revise
and administer the overall charge structure of the
Facility, including, without limitation, monthly
fees, rentals, ar charges of any land, charges for
ancillary services, any and all items sold at the
Facility and any other services provided at the
Facility. Manager shall be responsible for the
timely billing and collection from residents or
third party payors of the amounts due and payable
from residents for the services provided by the
Facility. Manager shall be responsible for making
timely and complete rate filings as required by
law, and all posting or filing of notices, charges
and fees required by law.
3.22 RESIDENT-MANAGEMENT RELATIONS. Manager
will encourage and assist residents of the
Facility in forming and maintaining representative
organizations to promote their common interests
and will maintain good-faith communication with
such organizations so that problems affecting the
Facility and its residents may be avoided or
solved on the basis of mutual self interest.
3.23 CONSTRUCTION OF IMPROVEMENTS TO EXISTING
FACILITY. Except as otherwise provided herein,
Manager shall not make or cause to be made any
alterations, additions, replacements or
improvements on, in, about or to the Facility
without the prior written consist of Owner. The
entire cost of construction of any such new
improvements to the existing facility and all
expenses connected therewith, shall be
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borne and paid by Owner exclusively. Prior to the
commencement of any such alterations, additions,
replacements or improvements, Manager shall submit
to and obtain Owner's written approval of the
plans and specifications thereof. Manager agrees
that such plans and specifications shall require
the contractor to post an adequate performance
bond.
Manager agrees to make and construct all such
repairs, improvements and installations in
accordance with all laws, rules and regulations of
applicable governing bodies and agencies, to
diligently complete such construction once the
same has commenced. All improvements constructed
by Manager upon the Facility shall, upon
termination of this Agreement, belong to Owner.
Manager shall save and hold Owner harmless and the
Facility harmless from any and all liability of
any land on account of such work or improvement
while this Agreement remains in effect. Owner
shall have the right at any time to post the
Facility with such notices as may be required to
protect Owner's interest in the Facility from
mechanics' liens or other liens of a similar
nature. The failure to disapprove Manager's plans
and specifications within 60 days after receipt
thereof by Owner shall be automatically deemed
disapproval thereof.
3.24 USE OF THE FACILITY'S PROPERTY. Manager
shall not utilize any hazardous materials on the
Facility's property except in accordance with
applicable legal requirements and will not permit
any contamination which may require remediation
under applicable Hazardous Materials Law (as
defined herein). Manager shall not dispose of any
hazardous materials or substance within the sewage
system of the Facility's property, and that it
shall handle all "red bag" wastes in accordance
with applicable Hazardous Materials Laws.
"Hazardous Materials Law" shall mean any law,
regulation, or ordinance relating to environmental
conditions, medical waste or industrial hygiene,
including the Resource Conservation Recovery Act
of 1976 ("RCRA"), the Comprehensive Environmental
Response Compensation Liability Act of 1980
("CERCLA"), as amended by the Superfund Amendments
and Reauthorization Act of 1986 ("SARA"), the
Hazardous Materials Transportation Act, the
Federal Water Pollution Control Act, the Clean Air
Act, the Clean Water Act, the Toxic Substance
Control Act, the Safe Drinking Water Act, the
Atomic Energy Act and all similar federal, state
and local environmental statutes and ordinances,
whether heretofore or hereafter enacted or
effected and all regulations, orders, or decrees
therefore or hereafter promulgated thereunder.
3.25 ACCESS TO BOOKS, RECORDS AND DOCUMENTS.
In the event the Facility participates in the
Medicare/Medicaid programs, for purposes of
Section 1861(v)(1)(I) of the Social Security Act,
as amended, and any written regulation thereto, if
the value or cost of services rendered by Manager
to Owner is $10,000 or more over a 12-month
period, including without limitation services
rendered pursuant to this Agreement, Manager
agrees as follows:
(a) Until the expiration of four years after
the furnishing of such services, Manager shall,
upon written request, make available to the
Secretary of the Department of Health and Human
Services (the "Secretary"), the Secretary's duly
authorized representative, the Comptroller
General, or the Comptroller General's duly
authorized representatives, such books, documents,
and records as may be necessary to certify the
nature and extent of costs of such services; and
10
<PAGE>
(b) If any such services are performed by way
of subcontract with another organization and the
value or cost of such subcontracted services is
$10,000 or more over a 12-month period, such
subcontract shall contain and Manager shall
enforce a clause to the same effect as subsection
(a) immediately above.
The availability of Manager's books, documents and
records shall be subject at all times to all
applicable legal requirements, including without
limitation such criteria and procedures for seeing
and obtaining access as may be promulgated by the
Secretary by regulation.
ARTICLE 4.
RIGHTS AND DUTIES OF OWNER
During the term of this Agreement:
4.1 RIGHT OF INSPECTION. Owner (or its
representative) shall have the right to enter upon
any part of the Facility during regular business
hours upon reasonable advance notice to Manager
for the purpose of examining or inspecting same or
examining or making copies or extracts of books
and records of the Facility, but this shall be
done with as little disruption to the business of
the Facility as is practicable. However, the books
and records of the Facility shall not be removed
from the Facility without the expressed written
consent of Manager. Owner acknowledges that some
books and records will be maintained at Manager's
principal place of business, but that such books
and records shall be available for inspection by
Owner or its representative. The parties will
agree in writing as to which books and records
must be kept at the Facility.
Owner shall direct all inquiries regarding
operations, procedures, policies, employee
relations, patient care, and all other matters
concerning the Facility to the Manager's
divisional director of operations or other officer
of Manager as it may from time to time designate
in a written notice to Owner. Notwithstanding the
foregoing, Owner shall retain the right to contact
the executive director regarding matters pertinent
to the Facility.
4.2 COOPERATION WITH MANAGER. Subject to the
provisions of Article 5 below, Owner shall
cooperate with Manager in operating and
supervising the Facility and shall reimburse
Manager for all funds reasonably expended or costs
and expenses reasonably incurred to which Manager
is entitled to reimbursement pursuant to Exhibit A
of this Agreement and all out of pocket expenses
paid or incurred by Manager for the operation of
die Facility, including reasonable and necesary
traveling expenses of executives of Manager, and
all reasonable costs and expenses of any business
promotion or personnel training program of the
Facility, as reflected in the Operating Budget.
4.3 CAPITAL IMPROVEMENTS. Subject to the
Capital Expenditures Budget, Owner shall provide
Manager by depositing into the reserve account or
Facility Funds such amount of funds as may be
required from time to time to make all necessary
capital improvements to the Facility, in order to
maintain and continue of operation of the Facility
as a retirement community and assisted living care
center. If Manager in its professional judgment
determines that additional capital improvement
funds are required, Manager shall notify Owner
thereof in writing for Owner's consent which shall
not be unreasonably withheld. Upon such consent,
Owner shall provide Manager with such increase in
capital improvement funds, by depositing the funds
in the reserve account or Facility Funds within 30
days thereafter.
11
<PAGE>
4.4 INDEMNIFICATION. Owner shall at all times
indemnify and hold harmless Manager, its agents,
representatives, partners, joint venturers,
officers, directors, and shareholders, from and
against any and all claims, losses, liabilities,
actions, proceedings, and expenses (including
reasonable attorneys' fees and costs) arising out
of Owner's operation of the Facility prior to the
Commencement Date and Owner's ownership of the
Facility. Such claims, losses, liabilities,
actions, proceedings and expenses are considered
the responsibility of Owner absent documentation
of responsibility for such claims by Manager. The
provisions of this Section 4.4 shall survive the
termination or expiration of this Agreement.
ARTICLE 5.
COMPENSATION AND DISTRIBUTIONS
5.1 MANAGEMENT FEES. As full compensation for
all of the services to be rendered by Manager
during the term of this Agreement (but not
including reimbursement for costs or expenses
incurred by Manager on behalf of Owner or the
Facility hereunder), Owner shall pay to Manager at
its principal office, or at such other place as
Manager may from time to time designate in
writing, and at the times herein after specified,
a management fee equal to five percent of Gross
Revenues (as defined below) derived from the
operation of the Facility on a monthly basis
determined on the accrual method of accounting.
Such management fee (the "Base Management Fee")
shall be payable from Facility Funds monthly upon
delivery to Owner of the monthly financial
statement referred to in Section 3.12 (each such
date being hereinafter referred to as a "Payment
Date") and shall be calculated based upon the
Facility's Gross Revenues during the preceding
month as set forth in such financial statements.
5.2 GROSS REVENUES. For the purposes of
determining such management fees, "Gross Revenues"
for any period shall be determined on the basis of
all revenues and income of any land derived,
directly or indirectly, from the operation of the
Facility during such period (including rental or
other payment from concessionaires, licensees,
Residents, and other users of the Facility, but
excluding therefrom all bequests, gifts, or
similar donations) whether on a cash basis or on
credit, as determined in accordance with generally
accepted accounting principles consistently
applied, excluding, however:
(a) federal, state, and municipal excise,
sales, and use taxes collected directly from
residents as a part of the sales prices of any
goods and services;
(b) proceeds of any life insurance policies;
(c) gains arising from the sale or other
disposition of capital assets;
(d) any reversal of any contingency or tax
reserve;
(e) interest earned on sinking funds, Social
Security Accounts, bonds funds, etc. originally
and specifically formed as a requirement of any
bond issue utilized to finance the Facility ; and
any refunds, contractual adjustments, income set-
offs or bad debt expense.
12
<PAGE>
The proceeds of business interruption
insurance or proceeds received as a result of
Medicare and Medicaid audits shall be included in
Gross Revenues from the Facility. However, funds
required to be repaid as a result of Medicare and
Medicaid audits shall be deducted from Gross
Revenues of the Facility.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF OWNER
Owner and shareholders of Owner represent and
warrant to Manager as follows:
6.1 ORGANIZATION AND STANDING OF OWNER. Owner
is a limited liability company duly organized,
validly existing and in good standing under the
laws of the State of North Carolina and is
qualified to do business in each other
jurisdiction where such qualification is
necessary, or shall be qualified within thirty
(30) days hereof. Copies of the Articles of
Organization and Operating Agreement of Owner, and
all amendments thereof to date, have been, if
requested, delivered to Manager and are complete
and correct. The Owner has the power and authority
to own the property and assets now owned by it and
to conduct the business currently being conducted
by it.
6.2 ABSENCE OF CONFLICTING AGREEMENTS.
Neither the execution or delivery of this
Agreement, including all Schedules and Exhibits
hereto, or any of the other instruments and
documents required or contemplated hereby and
thereby ("Transaction Documents") by Owner, nor
the performance by Owner of the transactions
contemplated hereby and thereby, conflicts with,
or constitutes a breach of or a default or
requires the consent of any third party under (i)
the Articles of Incorporation or By-Laws of Owner,
or (ii) to the best of its knowledge after due
inquiry, any applicable law, rule, judgment,
order, writ, injunction, or decree of any court,
currently in effect; or (iii) to the best of its
knowledge after due inquiry, any applicable rule
or regulation of any administrative agency or
other governmental authority currently in effect;
or (iv) any agreement, indenture, contract or
instrument to which Owner is now a party or by
which the assets of Owner are bound.
6.3 CONSENTS. Except as set forth in Schedule
6.3, no authorization, consent, approval, license,
exemption by, filing or registration with any
court or governmental department, commission,
board, bureau, agency or instrumentality, domestic
or foreign, is or will be necessary in connection
with the execution, delivery and performance of
this Agreement by the Owner.
6.4 LEGAL PROCEEDINGS. Other than as set
forth on Schedule 6.4, there are no claims,
actions, suits or pr or arbitrations, either
administrative or judicial, pending or, to the
knowledge of Owner, overtly threatened against or
affecting Owner, its affiliates or shareholders,
or their ability to consummate the transactions
contemplated herein, at law or in equity or
otherwise, before or by any court or governmental
agency or body, domestic or foreign, or before an
arbitrator of any land.
6.5 ABSENCE OF CERTAIN EVENTS. Except as set
forth on Schedule 6.5, Owner has not:
(a) sold, assigned or transferred any of its
assets or properties, except in the ordinary
course of business;
13
<PAGE>
(b) mortgaged, pledged or subjected to any
lien, pledge, mortgage, security interest,
conditional sales contract or other encumbrance of
any nature whatsoever, the Facility's assets;
(c) made of suffered any amendment or
termination of any material contract, commitment,
instrument or agreement other than in the ordinary
course of business;
(d) failed to pay or discharge when due any
liabilities, the failure to pay or discharge which
has caused or will cause any actual material
damage or give rise to the risk of a material loss
to Owner;
(e) changed any of the accounting principles
followed by them or the methods of applying such
principles;
(f) entered into any material transaction
other than in the ordinary course of business; or
(g) received any notice of any adverse
determination made by any licensing authority or
reimbursement source which may reasonable be
expected to have a material adverse effect on the
revenues or operations of the Facility. Owner
shall report to Manger, within five business days
after receipt thereof, any written notices that
Owner or the Facility is not in compliance in any
material respect with any of the foregoing.
6.6 COMPLIANCE WITH LAWS. Except for
notices of non-compliance as to which Owner has
taken corrective action acceptable to the
applicable governmental agency, and as set forth
in Schedule 6.6, Owner has not within the period
of twelve moths preceding the date of this
Agreement, received any written notice that it
fails to comply in any material respect with any
applicable federal, state, local or other
governmental laws or ordinances, or any applicable
order, rule or regulation of any Federal, state,
local or other governmental agency having
jurisdiction over Owner ("Governmental
Requirements"). Owner shall report to Manger,
within five business days after receipt thereof,
any written notices that Owner is not in
compliance in any material respect with any of the
foregoing.
ARTICLE 7.
REPRESENTATIONS AND WARRANTIES OF MANAGER
Manager represents and warrants to Owner as
follows:
7.1 ORGANIZATION AND STANDING OF MANAGER.
Manger is a corporation duly organized, validly
existing and in good standing under the laws of
the State of Washington. Copies of the Articles
of Incorporation and By-Laws of Manger, and all
amendments thereof to date, have been, if
requested, delivered to Owner and are complete and
correct. Manger has the power and authority to won
the property and assets now owned by it and to
conduct the business currently being conducted by
it.
7.2 ABSENCE OF CONFLICTING AGREEMENTS.
Neither the execution of delivery of this
Agreement, including all Schedules and Exhibits
hereto, or any of the other instruments and
documents required or contemplated hereby and
thereby Manger, nor the performance by Manger of
the transactions contemplated hereby and thereby,
14
<PAGE>
conflicts with, or constitutes a breach of or a
default or requires the consent of any third party
under (i) the Articles of Incorporation or By-Laws
of Manger, of (ii) to the best of its knowledge
after due inquiry, any applicable law, rule,
judgment, order, writ, injunction, or decree of
any court, currently in effect; or (iii) to the
best of its knowledge after due inquiry, any
applicable rule or regulation of any
administrative agency or other governmental
authority currently in effect; or (iv) any
agreement, indenture, contract or instrument to
which Manager is now a party or by which the
assets of Manager are bound.
7.3 CONSENTS. Except as set forth in Schedule
7.3, no authorization, consent, approval, license,
exemption by, filing or registration with any
court or governmental department, commission,
board, bureau, agency or instrumentality, domestic
or foreign, is or will be necessary in connection
with the execution, delivery and performance of
this Agreement by the Manager.
7.4 LEGAL PROCEEDINGS. Other than as set
forth on Schedule 7.4, there are no claims,
actions, suits or proceedings or arbitrations,
either administrative or judicial, pending or, to
the knowledge of Manager, overtly threatened
against or affecting Manager, its affiliates or
shareholders, which affect their ability to
consummate the transactions contemplated herein,
at law or in equity or otherwise, before or by any
court or governmental agency or body, domestic or
foreign, or before an arbitrator of any land.
7.5 COMPLIANCE WITH LAWS. Except for notices
of non-compliance as to which Manager has taken
corrective action acceptable to the applicable
governmental agency, and as set forth in Schedule
7.5, Manager has not within the period of 12
months preceding the date of this Agreement,
received any written notice that it fails to
comply in any material respect with any applicable
federal, state, local or other governmental laws
or ordinances, or any applicable order, rule or
regulation of any Federal, state, local or other
governmental agency having jurisdiction over
Manager. Manager shall report to Owner, within
five business days after receipt thereof, any
written notices that Manager is not in compliance
in any material respect with any of the foregoing.
ARTICLE 8.
TERMINATION RIGHTS
This Agreement may be terminated and, except
as to liabilities or claims of either party hereto
which have accrued prior to the effective date of
termination, the obligations of the parties with
respect to this Agreement may be terminated only
upon the occurrence of any of the following
events:
8.1 TERMINATION BY OWNER. If at any time or
from time to time during the term of this
Agreement any of the following events shall occur
and not be remedied within the applicable period
of time herein specified, namely:
(a) Manager applies for or consents to the
appointment of a receiver, trustee, or liquidator
of Manager of all or a substantial part of its
assets, files a voluntary petition in bankruptcy
or is the subject of an involuntary bankruptcy
proceeding, makes a general assignment with
creditors or takes advantage of any insolvency
law, or if an order, judgment or decree is entered
by any court of competent jurisdiction, on the
application of a creditor, adjudicating Manager as
bankrupt or insolvent or approving a petition
seeking reorganization of Manager or appointing a
receiver, trustee, or liquidator of
15
<PAGE>
Manager or of all or a substantial part of its
assets, and such order, judgment or decree
continues unstayed and in effect for any period of
90 consecutive days;
(b) Manager shall fail to keep, observe, or
perform any material covenant, agreement, term or
provision of this Agreement to be kept, observed,
or performed by Manager; or Manager's failure to
substantially comply with state and local
regulations concerning the development and
operating of similar facilities, and such material
default or failure to substantially comply with
state and local regulations shall continue
unabated for a period of 60 days after written
notice thereof by Owner to Manager ;
(c) The license or licenses required for the
operation of the Facility are at any time
suspended, terminated, or revoked beyond the
applicable appeal period for any reason due to
acts of commission or omission of Manager; or
(d) The Facility or any portion thereof is
damaged or destroyed by fire or other casualty and
(i) Owner fails to undertake to repair, restore,
rebuild, or replace any such damage or destruction
within 60 days after such fire or other casualty,
or fails to complete such work diligently, and
(ii) Owner fails to permit Manager to undertake to
repair, restore, rebuild, or replace any such
damage or destruction within 60 days after such
fire or casualty;
then in case of any such event and upon the
expiration of the period of grace applicable
thereto, except for an event under Sections 8.1(c)
or 8.1(d) there being no grace period, this
Agreement shall terminate at Owner's option and
upon ten days written notice to Manager; provided,
however, that if an event under Sections 8.1(c) or
8.1(d) occurs, this Agreement shall terminate
immediately upon notice to Manager.
8.2 TERMINATION BY MANAGER. If at any time or
from time to time during the term of this
Agreement any of the following events shall occur
and not be timely cured:
(a) Owner fails to keep, observe, or perform
any material covenant, agreement, term or
provision of this Agreement to be kept, observed,
or performed by Owner, and such default continues
for a period of 60 days after written notice
thereof by Manager to Owner;
(b) The Facility or any portion thereof is
damaged or destroyed by fire or other casualty and
(i) Owner fails to undertake to repair, restore,
rebuilt, or replace any such damage or destruction
within 60 days after such fire or other casualty,
or fails to complete such work diligently, and
(ii) Owner fails to permit Manager to undertake to
repair, restore, rebuilt, or replace any such
damage or destruction within 60 days after such
fire or casualty;
(c) Owner applies for or consents to the
appointment of a receiver, trustee, or liquidator
of Owner or of all or a substantial part of its
assets, files a voluntary petition in bankruptcy
or admits in writing its inability to pay its
debts as they become due, makes a general
assignment for the benefit of creditors, files a
petition or any answer seeking reorganization or
arrangement with creditors or to take advantage of
any insolvency law, or if an order, judgment or
decree is entered by a court of competent
jurisdiction, on the application of a creditor,
adjudicating Owner bankrupt or appointing a
receiver, trustee, or liquidator of Owner or with
respect to all or a substantial part of the assets
of Owner, and such order, judgment or decree
continues unstayed and in effect for any period of
90 consecutive days;
16
<PAGE>
(d) Any license, lease or sub-lease necessary
for the operation of the Facility is suspended,
terminated, or revoked and such suspension,
termination, or revocation continues unstayed and
in effect for
a period of 60 consecutive days; or
then in case of any such event and upon the
expiration of the period of grace applicable
thereto, this Agreement shall terminate at
Manager's option and upon ten days written notice
to Owner.
8.3 SURVIVING RIGHTS UPON TERMINATION. If
either party exercises its option to terminate
pursuant to this Article 8, each party shall
forthwith, but in no event later than ten days
after the termination date of this Agreement,
account for and pay to the other all sums due and
owing pursuant to the terms of this Agreement. All
other rights and obligations of the parties under
this Agreement shall terminate, except the
obligations of the parties for damages caused by a
breach of this Agreement, a duty of a party
required under applicable law or regulation, or
the indemnification provisions contained in this
Agreement or as expressly stated herein.
ARTICLE 9.
CONDEMNATION
If the whole of the Facility is taken or
condemned in any eminent domain, condemnation,
compulsory acquisition, or like proceeding, by a
competent authority for any public or quasi-public
use or purpose, or if a portion thereof is taken
or condemned so as to make the balance of the
Facility unsuitable for its primary intended use,
then this Agreement shall terminate on the date on
which the Owner is required to surrender
possession of the Facility. Manager shall continue
to supervise and direct the management of the
Facility until such time as Owner is required to
surrender possession of the Facility by reason of
such taking or condemnation.
If only a part of the Facility is taken or
condemned and the taking or condemnation of such
part does not make the balance unsuitable for its
primary intended use, this Agreement shall not
terminate.
In the event that the parties are unable,
within a period of 30 days after controversy
arising between them, to agree upon the
apportionment of any award or are otherwise in
dispute as to any matter arising under this
Article, any such dispute shall be resolved by
arbitration in accordance with the provisions of
Article 11 below, and the costs thereof or
incurred therein shall be borne or apportioned and
paid as determined by said arbitration.
ARTICLE 10.
ARBITRATION
If any controversy should arise between the
parties relating to this Agreement, involving any
matter, either party may serve upon the other a
written notice stating that such party desires to
have the controversy determined by a single
arbitrator. If the parties cannot agree within 15
days from the service of such notice as to the
selection of such
17
<PAGE>
arbitrator, an arbitrator shall be selected or
designated by the American Arbitration Association
upon written request of either party hereto.
Arbitration of such controversy, disagreement, or
dispute shall be conducted in accordance with the
rules then in force of the American Arbitration
Association, and the decision and award of the
arbitrator so selected shall be binding upon Owner
and Manager. The arbitration will be held in the
city and state where the Facility is located.
Notwithstanding the foregoing, if a dispute arises
between the parties to this Agreement that also
involves or is related to a third party or parties
Manager: EMERITUS CORPORATION
3131 Elliott Avenue
Suite 500
Seattle, Washington 98121
or to such other address, and to the attention of
such other person or officer as either party may
designate in writing by notice.
12.2 NO PARTNERSHIP OR JOINT VENTURE. Nothing
contained in the Agreement shall constitute or be
construed to be or create a partnership or joint
venture between Owner, its successors, or assigns
on the one part and Manager, its successors, or
assigns on the other part.
12.3 MODIFICATIONS AND CHANGES. This
Agreement cannot be changed or modified except by
written agreement of the parties.
12.4 UNDERSTANDING AND AGREEMENTS. This
Agreement constitutes the entire understanding and
agreement between the parties with respect to
Manager's operation and management of the
Facility, and supersede any and all understandings
or agreements, whether written or oral, concerning
any matters described herein. No subsequent
agreements or understandings between the parties
concerning any matter herein can after the terms
of this Agreement except by written agreement of
the parties.
12.5 HEADINGS. The article and paragraph
headings contained herein are for convenience of
reference only and are not intended to define,
limit, or describe the scope of intent of any
provision of this Agreement.
12.6 APPROVAL OR CONSENT. Whenever under any
provisions of this Agreement, the approval or
disapproval of either party is required, notice of
such approval or disapproval shall be promptly
given and any requested approval shall not be
unreasonably withheld. Whenever, under any
provision of this Agreement, the approval or
disapproval of Owner is required, such approval or
disapproval may be given by the person or any one
of the persons, as the case may be, designated in
a notification signed by or on behalf of Owner.
For all purposes under this Agreement, Manager may
rely upon the latest such notification received by
it, notwithstanding any knowledge to the contrary.
12.7 GOVERNING. This Agreement shall be
deemed to have been made and shall be construed
and interpreted in accordance with the laws of the
State.
12.8 SEVERABILITY. If any provision of this
Agreement is held to be unenforceable or invalid
for any reason, it shall be adjusted rather than
voided, if possible, in order to achieve the
intent of the parties to the extent possible. In
any event,
18
<PAGE>
all other provisions of this Agreement shall be
deemed valid and enforceable to the fullest
extent.
12.9 COUNTERPARTS. This Agreement may be
executed in two or more counterparts, each of
which shall be deemed an original, but all of
which shall constitute one and the same
instrument.
12.10 THIRD-PARTY RIGHTS. Nothing expressed
or referred to in this Agreement will be construed
to give any person other than the parties to this
Agreement and the Lender any legal or equitable
rights or remedy or claim under or with respect to
this Agreement or any provision of this Agreement.
The Agreement and all of its provisions and
conditions are for the sole and exclusive benefit
of the parties to this Agreement and the Lender
and their successors and assigns. Lender is an
intended third-party beneficiary of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have
executed and delivered this Agreement effective as
of the day and year first above written.
OWNER
ALCO IV, L.L.C.
By: /s/ Charles E. Trefzger
-------------------------
Charles E. Trefzger,
Managing Member
MANAGER
EMERITUS CORPORATION
By: /s/ Michelle a. Bickford
---------------------------
Its: V.P. - Business Development
19
<PAGE>
Eastman Estates
FACILITY LEASE AGREEMENT
MEDITRUST ACQUISITION CORPORATION I
(A Massachusetts corporation)
as
Lessor
AND
ESC I, L.P.
(A Washington limited partnership)
as
Lessee
Dated as of September 30,1997
For Premises Located At
2920 North Eastman Road
Longview, Texas
<PAGE>
FACILITY LEASE AGREEMENT
This FACILITY LEASE AGREEMENT ("Lease") is
dated as of the 30th day of September, 1997 and is
between MEDITRUST ACQUISITION CORPORATION I
("Lessor"), a Massachusetts corporation having its
principal office at 197 First Avenue, Needham
Heights, Massachusetts 02194, and ESC I, L.P.
("Lessee"), a Washington limited partnership whose
sole General Partner is ESC G.P. I, Inc., having
its principal office at c/o Emeritus Corporation,
3131 Elliott Avenue, Suite 500, Seattle,
Washington 98121-2162.
ARTICLE 1
LEASED PROPERTY; TERM; CONSTRUCTION; EXTENSIONS
1.1 LEASED PROPERTY. Upon and subject to the
terms and conditions hereinafter set forth, Lessor
leases to Lessee and Lessee rents and leases from
Lessor all of Lessor's rights and interests in and
to the following real and personal property
(collectively, the "Leased Property"):
(a) the real property described in
EXHIBIT A attached hereto (the "Land");
(b) all buildings, structures, Fixtures
(as hereinafter defined) and other
improvements of every kind including, but not
limited to, alleyways and connecting tunnels,
sidewalks, utility pipes, conduits and lines,
and parking areas and roadways appurtenant to
such buildings and structures presently or
hereafter situated upon the Land
(collectively, the "Leased Improvements");
(c) all easements, rights and
appurtenances of every nature and description
now or hereafter relating to or benefitting
any or all of the Land and the Leased
Improvements;
(d) all equipment, machinery, building
fixtures, and other items of property
(whether realty, personalty or mixed),
including all components thereof, now or
hereafter located in, on or used in
connection with, and permanently affixed to
or incorporated into the Leased Improvements,
including, without limitation, all furnaces,
boilers, heaters, electrical equipment,
heating, plumbing, lighting, ventilating,
refrigerating, incineration, air and water
pollution control, waste disposal, air-
cooling and air-conditioning systems and
apparatus, sprinkler systems and ire and
theft protection equipment, and built-in
oxygen and vacuum systems, all of which, to
the greatest extent permitted by law, are
hereby deemed by the parties hereto to
constitute real estate, together with all
replacements, modifications, alterations and
additions thereto, but specifically excluding
all items included within the category of
Tangible Personal Property (as hereinafter
defined) which are not permanently affixed to
or incorporated in the Leased Property
<PAGE>
(collectively, the "Fixtures"); and
(e) Lessor's Personal Property.
The Leased Property is leased in its present
condition, AS IS, without representation or
warranty of any kind, express or implied, by
Lessor and subject to: (i) the rights of
parties in possession; (ii) the existing
state of title including all covenants,
conditions, Liens (as hereinafter defined)
and other matters of record (including,
without limitation the matters set forth in
EXHIBIT B); (iii) all applicable laws and
(iv) all matters, whether or not of a similar
nature, which would be disclosed by an
inspection of the Leased Property or by an
accurate survey thereof.
1.2 TERM. The term of this Lease shall
consist of: the "Initial Term", which shall
commence on September __, 1997 ("Commencement
Date") and end on April 30, 2009 (the "Expiration
Date"); provided, however, that this Lease may be
sooner terminated as hereinafter provided. In
addition, Lessee shall have the option(s) to
extend the Term (as hereinafter defined) as
provided for in Section 1.3.
1.3 EXTENDED TERMS. Provided that this Lease
has not been previously terminated, and as long as
there exists no Lease Default (as hereinafter
defined) at the time of exercise and on the last
day of the Initial Term or the then current
Extended Term (as hereinafter defined), as the
case may be, Lessee is hereby granted the option
to extend the Initial Term of this Lease for-four
(4) additional periods (collectively, the
"Extended Terms") as follows: four (4) successive
five (5) year periods for a maximum 'Term, if all
such options are exercised, which ends on April
30, 2029. Lessee's extension option rights shall
be exercised by Lessee by giving written notice to
Lessor of each such extension at least one hundred
eighty (180) days, but not more than three hundred
sixty (360) days, prior to the termination of the
Initial Term or the then current Extended Term, as
the case may be. Lessee shall have no right to
rescind any such notice once given. Lessee may not
exercise its option for more than one Extended
Term at a time. During each effective Extended
Term, all of the terms and conditions of this
Lease shall continue in full force and effect,
except that the Base Rent (as hereinafter defined)
for each such Extended Term shall be adjusted as
set forth in Section 3.1(a).
Notwithstanding anything to the contrary set
forth herein, Lessee's rights to exercise the
options granted in this Section 1.3 are subject to
the further condition that concurrently with the
exercise of any extension option hereunder, Lessee
shall have exercised its option to extend the
terms of all of the Related Leases in accordance
with the provisions of the Agreement Regarding
Related Transactions and the provisions of Section
1.3 of each of the Related Leases.
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ARTICLE 2
DEFINITIONS AND RULES OF CONSTRUCTION
2.1 DEFINITIONS. For all purposes of this
Lease and the other Lease Documents (as
hereinafter defined), except as otherwise
expressly provided or unless the context otherwise
requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article
and include the plural as well as the singular and
(ii) all references in this Lease or any of the
other Lease Documents to designated "Articles",
"Sections" and other subdivisions are to the
designated Articles, Sections and other
subdivisions of this Lease or the other applicable
Lease Document.
ACCOUNTS: As defined in the UCC.
ACCREDITATION BODY: Any person, including any
Person having or claiming jurisdiction over the
accreditation, certification, evaluation or
operation of the Facility.
ADDED VALUE PERCENTAGE: The proportion of the
Fair Market Added Value of Capital Additions paid
for or financed by Lessee to the Fair Market Value
of the entire Leased Property, expressed as a
percentage. .
ADDITIONAL CHARGES: As defined in Article 3.
ADDITIONAL LAND: As defined in Section 9.3.
ADDITIONAL RENT: As defined in Article 3.
ADDITIONAL RENT COMMENCEMENT DATE: As defined
in Article 3.
AFFILIATE: With respect to any Person (i) any
other Person which, directly or indirectly,
controls or is controlled by or is under common
control with such Person, (ii) any other Person
that owns, beneficially, directly or indirectly,
five percent (5%) or more of the outstanding
capital stock, shares or equity interests of such
Person or (iii) any officer, director, employee,
general partner or trustee of such Person, or any
other Person controlling, controlled by, or under
common control with, such Person (excluding
trustees and Persons serving in a fiduciary or
similar capacity who are not otherwise an
Affiliate of such Person). For the purposes of
this definition, "control" (including the
correlative meanings of the terms "controlled by"
and "under common control with"), as used with
respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or
cause the direction of the management and policies
of such Person, through the ownership of voting
securities, partnership interests or other equity
interests provided, however, that, (a)
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for purposes of determining a Related Party
Default, the percentage of outstanding capital
stock, shares or equity interests referenced in
(ii) above shall be fifty percent (50%) and (b)
any Person who is an Affiliate by virtue of the
ownership thereof by Daniel R. Baty or his status
therein as an officer or director shall not be
deemed an Affiliate for purposes of determining a
Related Party Default.
AFFILIATED PAR SUBORDINATION AGREEMENT: That
certain Affiliated Party Subordination Agreement
of even date by and among Lessee, the Guarantor,
various Affiliates of Lessee and various
Affiliates of Lessor.
AGREEMENT REGARDING RELATED TRANSACTIONS: The
Amended and Restated Agreement Regarding Related
Transactions (Acquisition) dated of even date, as
amended from time to time, between Lessee, Lessor
and any Related Party that is party to any Related
Lease or Related Party Agreement. Lessor and
Lessee anticipate that the Agreement Regarding
Related Transactions will be amended from time to
time to include Affiliates of Lessor and Lessee as
parties thereto in connection with future
transactions and acknowledge and agree that for
all purposes under this Lease Agreement such
amendments shall be deemed to be included in this
definition.
ANNUAL FACILITY UPGRADE EXPENDITURE: An
aggregate annual amount equal to the product of
TWO HUNDRED DOLLARS ($200) (as increased as of the
first day of each Lease Year in which the Annual
Facility Upgrade Expenditure is to be made by an
amount equal to the product of the CPI Increase
multiplied by TWO HUNDRED DOLLARS ($200)) times
the number of units in the Facility, such amount
to be spent-on Upgrade Renovations. The term
"CPI Increase" means a fraction, the numerator of
which is the Price Index in effect as of the first
day of the Lease Year in which the Annual Facility
Upgrade Expenditure is to be made and the
denominator of which is the Price Index in effect
as of the date hereof. The term "Price Index"
means the Consumer Price Index for Urban Wage
Earners and Clerical Workers, All Items Series A
(1982-84=100), published by the Bureau of Labor
Statistics, U.S. Department of Labor. If the
Bureau of Labor Statistics should cease to publish
such Price Index in its present form and
calculated on the present basis, then the most
similar index published by the same Bureau shall
be used for the same purpose. If all is no such
similar index, a substitute index which is then
generally recognized as being similar to such
Price Index, such substitute index to be
reasonably selected by Lessor.
APPURTENANT AGREEMENTS: Collectively, all
instruments, documents and other agreements that
now or hereafter create any utility, access or
other rights or appurtenances benefiting or
relating to the Leased Property.
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AWARD: All compensation, sums or anything of
value awarded, paid or received on a total or
partial Condemnation.
BASE GROSS REVENUES: The annualized Gross
Revenues of the Facility for the period from and
including October 1, 1998 through and including
September 30, 1999, initially as shown by Lessee's
certified Consolidated Financial Statements and as
later verified by Lessee's Consolidated Financial
Statements.
BASE RENT: As defined in Section 3.1.
BUSINESS DAY: Any day which is not a Saturday
or Sunday or a public holiday under the laws of
the United States of America, the Commonwealth of
Massachusetts, the State or the state in which
Lessor's depository bank is located.
CAPITAL ADDITIONS: Collectively, all new
buildings and additional structures annexed to any
portion of any of the Leased Improvements and
material expansions of any of the Leased
Improvements which are constructed on any portion
of the Land during the Term, including, without
limitation, the construction of a new wing or new
story, the renovation of any of the Leased
Improvements on the Leased Property and any
expansion; construction, renovation or conversion
in connection therewith (a) in order to provide a
functionally new facility that is needed or used
to provide services not previously offered or (b)
in order to (i) increase the bed capacity of a
Facility, (ii) change the purpose for which such
beds are utilized and/or (iii) change the
utilization of any material portion of any of the
Leased Improvements.
CAPITAL ADDITION COST: The cost of any
Capital Addition made by Lessee whether paid for
by Lessee or Lessor. Such cost shall include all
costs and expenses of every nature whatsoever
incurred directly or indirectly in connection with
the development, permitting, construction and
financing of a Capital Addition as reasonably
determined by, or to the reasonable satisfaction
of, Lessor.
CASH COLLATERAL: As defined in the Deposit
Pledge Agreement.
CASH FLOW: The Consolidated Net Income (or
Consolidated Net Loss) before federal and state
income taxes for any period plus (i) the amount of
the provision for depreciation and amortization
actually deducted on the books of the applicable
Person for the purposes of computing such
Consolidated Net Income (or Consolidated Net Loss)
for the period involved, plus (ii) Rent and
interest on all other Indebtedness which is fully
subordinated to the Lease Obligations, plus (iii)
any indebtedness which is fully subordinated to
the Lease Obligations pursuant to the Affiliated
Party Subordination Agreement or the Management
Subordination Agreement.
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CASUALTY: As defined in Section I 3.1.
CHATTEL PAPER: As defined in the UCC.
CLOSING DATE: As defined in Section 18.3.1.
CODE: The Internal Revenue Code of 1986, as
amended.
COLLATERAL: All of the property in which
security interests are granted to Lessor and the
other Meditrust Entities pursuant to the Lease
Documents and the Related Party Agreements to
secure the Lease Obligations, including, without
limitation, the Cash Collateral.
COMPETITIVE ACTIVITY: As defined in Section
11.5.
CONDEMNATION: With respect to the Leased
Property or any interest therein or right accruing
thereto or use thereof (i) the exercise of any
governmental authority, whether by legal
proceedings or otherwise, by a Condemnor or (ii) a
voluntary sale or transfer by Lessor to any
Condemnor, either under threat of Condemnation or
Taking or while legal proceedings for Condemnation
or Taking are pending.
CONDEMNOR: Any public or quasi-public
authority, or private corporation or individual,
having the power of condemnation.
CONSOLIDATED: The consolidated accounts of
the relevant Person and its Subsidiaries
consolidated in accordance with GAAP.
CONSOLIDATED FINANCIALS: For any fiscal year
or other accounting period for any Person and its
consolidated Subsidiaries, statements of earnings
and retained earnings and of changes in financial
position for such period and for the period from
the beginning of the respective fiscal year to the
end of such period and the related balance sheet
as at the end of such period, together with the
notes thereto, all in reasonable detail and
setting forth in comparative form the
corresponding figures for the corresponding period
in the preceding fiscal year, and prepared in
accordance with GAAP, and disclosing all
liabilities of such Person and its consolidated
Subsidiaries, including, without limitation,
contingent liabilities.
CONSULTANTS: Collectively, the architects,
engineers, inspectors, surveyors and other
consultants that are engaged from time to time by
Lessor to perform services for Lessor in
connection with this Lease.
CONTRACTS: All agreements (including, without
limitation, Provider Agreements, to the extent
applicable, and any Residency Agreement),
contracts (including without limitation,
construction contracts, subcontracts, and
architects' contracts), contract rights,
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warranties and representations, franchises, and
records and books of account benefiting, relating
to or affecting the Leased Property or the
ownership, construction, development, maintenance,
management, repair, use, occupancy, possession, or
operation thereof, or the operation of any
programs or services in conjunction with the
Facility and all renewals, replacement and
substitutions therefor, now or hereafter issued to
any member of the Leasing Group by, or entered
into by any member of the Leasing Group with, any
Governmental Authority, Accreditation Body or
Third Party Payor or maintained or used by any
member of the Leasing Group or entered into by any
member of the Leasing Group with any third Person.
CURRENT ASSETS: All assets if all Person
which would, in accordance with GAAP, be
classified as current assets.
CURRENT LIABILITIES: All liabilities if all
Person which would, in accordance with GAAP, be
classified as current liabilities.
DATE OF TAKING: The date the Condemnor has
the right to possession of the property being
condemned.
DEBT COVERAGE RATIO: The ratio of (i) Cash
Flow for each applicable period to (ii) the total
of all Rent (excluding Additional Rent due under
this Lease) paid or payable during such period or
accrued for such period.
DECLARATION: As defined in Article 23.
DEPOSIT: As defined in Section 18.3.
DEPOSIT PLEDGE AGREEMENT: The pledge and
security agreement so captioned and dated as of
even date herewith between Lessee and Lessor.
DOCUMENTS: As defined in the UCC.
ELECTION NOTICE: As defined in Section
18.3.1.
ENCUMBRANCE: As defined in Section 20.3.
ENVIRONMENTAL INDEMNITY AGREEMENT: The
Environmental Indemnity Agreement of even date
herewith by and among Lessee the Guarantor and
Lessor.
ENVIRONMENTAL LAWS: As defined in the
Environmental Indemnity Agreement.
ERISA: The Employment Retirement Income
Security Act of 1974, as amended.
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EVENT OF DEFAULT: As defined in Article 16.
EXCESS GROSS REVENUES: Gross Revenues less
Base Gross Revenues.
EXPIRATION DATE: As defined in Section 1.2.
EXTENDED TERMS: As defined in Section 1.4.
FACILITY: The 71 unit fully licensed assisted
living facility known as Eastman Estates on the
Land (together with related parking and other
amenities).
FAILURE TO OPERATE: As defined in Article 16.
FAILURE TO PERFORM: As defined Article 16.
FAIR MARKET ADDED VALUE: The Fair Market
Value of the Leased Property (including all
Capital Additions) minus the Fair Market Value of
the Leased Property determined as if no Capital
Additions paid for by Lessee had been constructed.
FAIR MARKET VALUE OF THE CAPITAL ADDITION:
The amount by which the Fair Market Value of the
Leased Property upon the completion of a
particular Capital Addition exceeds the Fair
Market Value of the Leased Property just prior to
the construction of the particular Capital
Addition.
FAIR MARKET VALUE OF THE LEASED PROPERTY: The
fair market value of the Leased Property,
including all Capital Additions, and including the
Land and all other portions of the Leased
Property, and (a) assuming the same is
unencumbered by this Lease, (b) determined in
accordance with the appraisal procedures set forth
in Section 18.2 or in such other manner as shall
be mutually acceptable to Lessor and Lessee and
(c) not taking into account any reduction in value
resulting from any Lien to which the Leased
Property is subject and which Lien Lessee or
Lessor is otherwise required to remove at or prior
to closing of the transaction. However, the
positive or negative effect on the value of the
Leased Property attributable to the interest rate,
amortization schedule, maturity date, prepayment
provisions and other terms and conditions of any
Lien on the Leased Property which is not so
required or agreed to-be removed shall be taken
into account in determining the Fair Market Value
of the Leased Property. The Fair Market Value
shall be determined as the overall value based on
due consideration of the "income" approach, the
"comparable sales" approach, and the "replacement
cost" approach.
FEE MORTGAGE: As defined in Section 20.3.
FEE MORTGAGEE: As defined in Section 20.3.
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FINANCING PARTY: Any Person who is or may be
participating with Lessor in any way in connection
with the financing if all Capital Addition.
FINANCING STATEMENTS: Uniform Commercial Code
financing statements evidencing the security
interests granted to Lessor in connection with the
Lease Documents.
FISCAL QUARTER: Each of the three (3) month
periods commencing on January 1st, April 1st, July
1st and October 1st.
FISCAL YEAR: The twelve (12) month period
from January 1st to December 31st.
FIXTURES: As defined in Article 1.
GAAP: Generally accepted accounting
principles, consistently applied throughout the
relevant period.
GENERAL INTANGIBLES: As defined in the UCC.
GENERAL PARTNER: ESC G.P. I, Inc., a
Washington corporation.
GOVERNMENTAL AUTHORITIES: Collectively, all
agencies, authorities, bodies, boards,
commissions, courts, instrumentalities,
legislatures, and offices of any nature whatsoever
of any government, quasi-government unit or
political subdivision, whether with a federal,
state, county, district, municipal, city or
otherwise and whether now or hereinafter in
existence.
GROSS REVENUES: Collectively, all revenues
generated by reason of the operation of the Leased
Property (including any Capital Additions),
directly or indirectly received or to be received
by Lessee or any Affiliate of Lessee, including,
without limitation, all resident revenues received
or receivable for the use of, or otherwise by
reason of, all rooms, units and other facilities
provided, meals served, services performed, space
or facilities subleased or goods sold on or from
the Leased Property and further including, without
limitation, except as otherwise specifically
provided below, any consideration received under
any subletting, licensing, or other arrangements
with any Person relating to the possession or use
of the Leased Property and ail revenues from all
ancillary services provided at or relating to the
Leased Property; provided, however, that Gross
Revenues shall not include non-operating revenues
such as interest income or gain from the sale of
assets not sold in the ordinary course of
business; and provided, further, that there shall
be excluded or deducted (as the case may be) from
such revenues:
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(i) all applicable contractual
allowances (relating to any period during the
Term of this Lease and thereafter until the
Rent hereunder is paid in full), if any, for
billings not paid by or received from the
appropriate Governmental Agencies or Third
Party Payors,
(ii) all applicable allowances according
to GAAP for uncollectible accounts,
(iii) all proper resident billing
credits and adjustments according to GAAP, if
any, relating to health care accounting,
(iv) federal, state or local sales,
use, gross receipts and excise taxes and any
tax based upon or measured by said Gross
Revenues which is added to or made a part of
the amount billed to the resident or other
recipient of such services or goods, whether
included in the billing or stated separately,
(v) provider discounts for hospital or
other medical facility utilization contracts,
if any,
(vi) the cost, if any, of any federal,
state or local governmental program imposed
specially to provide or finance indigent
resident care (other than Medicare, Medicaid
and the like),
(vii) deposits refundable to residents
of the Facility, and
(viii) payments received on behalf of,
and paid to, Persons who are not Affiliates
of Lessee.
To the extent that the Leased Property is
subleased or occupied by an Affiliate of Lessee,
Gross Revenues calculated for all purposes of this
Lease (including, without limitation, the
determination of the Additional Rent payable under
this Lease) shall include the Gross Revenues of
such Sublessee with respect to the premises
demised under the applicable Sublease (i.e., the
Gross Revenues generated from the operations
conducted on such subleased portion of the Leased
Property) and the rent received or receivable from
such Sublessee pursuant to such Subleases shall be
excluded from Gross Revenues for all such
purposes. As to any Sublease between Lessee and a
non-Affiliate of Lessee, only the rental actually
received by Lessee from such non-Affiliate shall
be included in Gross Revenues.
GROUP FOUR ACQUISITION FACILITIES: As defined
in the Agreement Regarding Related Transactions.
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GUARANTOR: Emeritus Corporation, a Washington
corporation, and its successors and assigns.
GUARANTY OF LEASE OBLIGATIONS: The Guaranty
of Lease Obligations of even date executed by
Guarantor in favor of Lessor, relating to the
Lease Obligations.
HAZARDOUS SUBSTANCES: As defined in the
Environmental Indemnity Agreement.
IMPOSITIONS: Collectively, all taxes
(including, without limitation, all capital stock
and franchise taxes of Lessor, all ad valorem,
property, sales and use, single business, gross
receipts, transaction privilege, rent or similar
taxes), assessments (including, without
limitation, all assessments for public
improvements or benefits, whether or not commenced
or completed prior to the date hereof and whether
or not to be completed within the Term), ground
rents, water and sewer rents, water charges or
other rents and charges, excises, tax levies, fees
(including, without limitation, license, permit,
inspection, authorization and similar fees),
transfer taxes and recordation taxes imposed as a
result of this Lease or any extensions hereof, and
all other governmental charges, in each case
whether general or special, ordinary or
extraordinary, or foreseen or unforeseen, of every
character in respect of either or both of the
Leased Property and the Rent (including all
interest and penalties thereon due to any failure
in payment by Lessee), which at any time prior to,
during or in respect of the Term hereof and
thereafter until the Leased Property is
surrendered to Lessor as required by the terms of
this Lease, may be assessed or imposed on or in
respect of or be a Lien upon (a) Lessor or
Lessor's interest in the Leased Property, (b) the
Leased Property or any rent therefrom or any
estate, right, title or interest therein, or (c)
any occupancy, operation, use or possession of,
sales from, or activity conducted on, or in
connection with, the Leased Property or the
leasing or use of the Leased Property.
Notwithstanding the foregoing, nothing contained
in this Lease shall be construed to require Lessee
to pay (1) any tax based on net income (whether
denominated as a franchise or capital stock or
other tax) imposed on Lessor or any other Person,
except Lessee or its successors, (2) any net
revenue tax of Lessor or any other Person, except
Lessee and its successors, (3) any tax imposed
with respect to the sale, exchange or other
disposition by Lessor of the Leased Property or
the proceeds thereof, or (4) except as expressly
provided elsewhere in this Lease, any principal or
interest on any Encumbrance on the Leased
Property; provided, however, the provisos set
forth in clauses (1) and (2) of this sentence
shall not be applicable to the extent that any
real or personal property tax, assessment, tax
levy or charge which Lessee is obligated to pay
pursuant to the first sentence of this definition
and which is in effect at any time during the Term
hereof is totally or partially repealed, and a
tax, assessment, tax levy or charge set forth in
clause (1) or
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(2) is levied, assessed or imposed expressly in
lieu thereof. In computing the amount of any
franchise tax or capital stock tax which may be or
become an Imposition, the amount payable by Lessee
shall be equitably apportioned based upon all
properties owned by Lessor that are located within
the particular jurisdiction subject to any such
tax.
INDEBTEDNESS: The total of all obligations of
a Person, whether current or long-term, which in
accordance with GAAP would be included as
liabilities upon such Person's balance sheet at
the date as of which Indebtedness is to be
determined, and shall also include (i) all capital
lease obligations and (ii) all guarantees,
endorsements (other than for collection of
instruments in the ordinary course of business),
or other arrangements whereby responsibility is
assumed for the obligations of others, whether by
agreement to purchase or otherwise acquire the
obligations of others, including any agreement
contingent or otherwise to furnish funds through
the purchase of goods, supplies or services for
the purpose of payment of the obligations of
others.
INDEMNIFIED PARTIES: As defined in Section
12.2.2.
INDEX:. The rate of interest of actively
traded marketable United States Treasury
Securities bearing a fixed rate of interest
adjusted for a constant maturity of ten ( 10)
years as calculated by the Federal Reserve Board.
INITIAL TERM: As defined in Section 1.2.
INSTRUMENTS: As defined in the UCC.
INSURANCE REQUIREMENTS: All terms if all
insurance policy required by this Lease, all
requirements of the issuer of any such policy with
respect to the Leased Property and the activities
conducted thereon and the requirements of any
insurance board, association or organization or
underwriters' regulations pertaining to the Leased
Property.
LAND: As defined in Article 1.
LEASE: As defined in the preamble of this
Lease.
LEASE DEFAULT: The occurrence of any default
or breach of condition continuing beyond any
applicable notice and/or grace periods under this
Lease and/or any of the other Lease Documents.
LEASE DOCUMENTS: Collectively, this Lease,
the Guaranty of Lease Obligations, the Agreement
Regarding Related Transactions, the Security
Agreement, the Deposit Pledge Agreement, the
Negative Pledge Agreement, the Permits Assignment,
the Financing Statements, the
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Affiliated Party Subordination Agreement, the
Environmental Indemnity Agreement and any and all
other instruments, documents, certificates or
agreements executed or furnished by any member of
the Leasing Group in connection with the
transactions evidenced by the Lease and/or any of
the foregoing documents.
LEASE OBLIGATIONS: Collectively, all
indebtedness, covenants, liabilities, obligations;
agreements and undertakings (other than Lessor's
obligations) under this Lease and the other Lease
Documents.
LEASE YEAR: A twelve month period ending on
September 3.0,1997 of each year; provided, hat the
first Lease Year shall begin on the Commencement
Date and shall end on September 30, 1998 and the
final Lease Year shall end at the end of the Term.
LEASED IMPROVEMENTS: As defined in Article 1.
LEASED PROPERTY: As defined in Article 1.
LEASING COMMITMENT FEE: None.
LEASING GROUP: Collectively, Lessee, the
General Partner, the Guarantor, any Sublessee
which is an Affiliate of Lessee and any Manager
which is an Affiliate of Lessee.
LEGAL REQUIREMENTS: Collectively, all
statutes, ordinances, by-laws, codes, rules,
regulations, restrictions, orders, judgments,
decrees and injunctions (including, without
limitation, all applicable building, health code,
zoning, subdivision, and other land use and
assisted living licensing statutes, ordinances, by-
laws, codes, rules and regulations), whether now
or hereafter enacted, promulgated or issued by any
Governmental Authority, Accreditation Body or
Third Party Payor affecting Lessor, any member of
the Leasing Group or the Leased Property or the
ownership, construction, development, maintenance,
management, repair, use, occupancy, possession or
operation thereof or the operation of any programs
or services in connection with the Leased
Property, including, without limitation, any of
the foregoing which may (i) require repairs,
modifications or alterations in or to the Leased
Property, (ii) in any way affect (adversely or
otherwise) the use and enjoyment of the Leased
Property or (iii) require the assessment
monitoring, clean-up, containment, removal,
remediation or other treatment of any Hazardous
Substances on, under or from the Leased Property.
Without limiting the foregoing, the term Legal
Requirements includes all Environmental Laws and
shall also include all Permits and Contracts
issued or entered into by any Governmental
Authority, any Accreditation Body and/or any Third
Party Payor and all Permitted Encumbrances.
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LESSEE: As defined in the preamble of this
Lease and its successors and assigns.
LESSEE'S ELECTION NOTICE: As defined in
Section 14.3.
LESSOR: As defined in the preamble of this
Lease and its successors and assigns.
LESSOR'S PERSONAL PROPERTY: All machinery,
equipment, furniture, furnishings, movable walls
or partitions, computers or trade fixtures, goods,
inventory, supplies, and other personal property
owned by Lessor and used in the operation of the
Leased Property.
LIEN: With respect to any real or personal
property, any mortgage, easement, restriction,
lien, pledge, collateral assignment,
hypothecation, charge, security interest, title
retention agreement, levy, execution, seizure,
attachment, garnishment or other encumbrance of
any kind in respect of such Property, whether or
not inchoate, vested or perfected.
LIMITED PARTIES: As defined in Section
11.5.4; provided, however, in no event shall the
term Limited Parties include any Person in its
capacity as a shareholder of a public entity,
unless such shareholder is a member of the Leasing
Group or an Affiliate thereof.
MANAGED CARE PLANS: All health maintenance
organizations, preferred provider organizations,
individual practice associations, competitive
medical plans, and similar arrangements.
MANAGEMENT AGREEMENT: Any agreement, whether
written or oral, between Lessee or any Sublessee
and any other Person pursuant to which Lessee or
such Sublessee provides any payment, fee or other
consideration to any other Person to operate or
manage the Facility.
MANAGEMENT SUBORDINATION AGREEMENT: The
Management Subordination Agreement between Lessee
and Lessor.
MANAGER: Any Person who has entered into a
Management Agreement with Lessee or any Sublessee.
MATERIAL STRUCTURAL WORK: Any (i) structural
alteration, (ii) structural repair or (iii)
structural renovation to the Leased Property,
which would customarily require or which require
the design and/or involvement of a structural
engineer or architect or which would require the
issuance of a Permit.
MEDICAID: The medical assistance program
established by Title XIX of the Social Security
Act (42 USC Section 1396 et seq.) and any statute
succeeding thereto.
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MEDICARE: The health insurance program for
the aged and disabled established by Title XVIII
of the Social Security Act (42 USC Section 1395 et
seq.) and any statute succeeding thereto.
MEDITRUST: As defined in Article 23.
MEDITRUST/EMERITUS FACILITIES: As defined in
the Agreement Regarding Related Transactions.
MEDITRUST/EMERITUS TRANSACTION AFFILIATE: An
Affiliate of Lessee, the business and activities
of which are limited to those subject to
Meditrust/Emeritus Transaction Documents (other
than the Affiliated Party Subordination Agreement,
the Agreement Regarding Related Transactions and
comparable agreement now or hereafter in effect
among Affiliates of Lessee and of Lessor) to which
such Affiliate is a party.
MEDITRUST/EMERITUS TRANSACTION DOCUMENTS: As
defined in the Agreement Regarding Related
Transactions.
MEDITRUST ENTITIES: Collectively, Meditrust,
Lessor and any other Affiliate of Lessor which may
now or hereafter be a party to any Related Party
Agreement.
MEDITRUST INVESTMENT: The sum of (i) the
Original Meditrust Investment plus (ii) the
aggregate amount of all Subsequent Investments
plus the sum of any Net Award Amounts and/or Net
Proceeds Amounts.
MONTHLY DEPOSIT DATE: As defined in Section
4.6.
NEGATIVE PLEDGE AGREEMENT The Group Four
Negative Pledge Agreement (Acquisition) dated May
1, 1997 by and between Guarantor, Lessee and
Lessor, as amended from time to time.
NET AWARD AMOUNT: As defined in Section 3.7.
NET INCOME (OR NET LOSS): The net income (or
net loss, expressed as a negative number) of a
Person for any period, after all taxes actually
paid or accrued and all expenses and other charges
determined in accordance with GAAP.
NET PROCEEDS AMOUNT: As defined in Section
3.7.
NET WORTH: An amount determined in accordance
with GAAP equal to the total assets of any Person,
minus the total liabilities of such Person.
Provided, however, that for purposes of
calculating the Net Worth
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of the Guarantor, those certain Thirty-Two Million
Dollars ($32,000,000) of 6.25% convertible,
unsecured, subordinated debentures due in 2006,
which were issued by the Guarantor on February
15,1996, shall not be included in total
liabilities.
OBLIGATIONS: Collectively, the Lease
Obligations and the Related Party Obligations.
OFFER: As defined in Section 18.3.1.
OFFERED PROPERTY: As defined in Section 18.3.
OFFICER'S CERTIFICATE: A certificate of
Lessee signed on behalf of Lessee by the Chairman
of the Board of Directors, the President, any Vice
President or the Treasurer of Lessee's General
Partner, or another officer authorized to so sign
by the Board of Directors or By-Laws of Lessee's
General Partner, or any other Person whose power
and authority to act has been authorized by
delegation in writing by any of the Persons
holding the foregoing offices.
ORIGINAL MEDITRUST INVESTMENT: The sum of
Five Million Four Hundred Ninety-Two Thousand Two
Hundred Twenty-Eight and 00/100 Dollars
($5,492,228.00).
OTHER PERMITTED USES: To the extent permitted
under applicable Legal Requirements and under
Insurance Requirements, and so long as the same do
not detract in any material manner from the
Primary Intended Use and do not occupy more than
ten percent (10%) of the useable floor area of the
building comprising the Facility, such uses as
Lessee reasonably determines are appropriate and
incidental to the Primary Permitted Use.
OVERDUE RATE: On any date, a rate of interest
per annum equal to the greater of: (i) a variable
rate of interest per annum equal to one hundred
twenty percent ( 120%) of the Prime Rate, or (ii)
eighteen percent (18%) per annum; provided,
however, in no event shall the Overdue Rate be
greater than the maximum rate then permitted under
applicable law to be charged by Lessor.
PBGC: Pension Benefit Guaranty Corporation.
PERMITS: Collectively, all permits, licenses,
approvals, qualifications, rights, variances,
permissive uses, accreditation, certificates,
certifications, consents, agreements, contracts,
contract rights, franchises, interim licenses,
permits and other authorizations of every nature
whatsoever required by, or issued under,
applicable Legal Requirements relating or
affecting the Leased Property or the construction,
development, maintenance, management, use or
operation thereof, or the
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operation of any programs or services in
conjunction with the Facility and all renewals,
replacements and substitutions therefor, now or
hereafter required or issued by any Governmental
Authority, Accreditation Body or Third Party Payor
to any member of the Leasing Group, or maintained
or used by any member of the Leasing Group, or
entered into by any member of the Leasing Group
with any third Person with respect to the Leased
Property. .
PERMITS ASSIGNMENT: The Collateral Assignment
of Permits, Licenses and Contracts of even date
granted by Lessee to Lessor.
PERMITTED ENCUMBRANCES: As defined in Section
10.1.18.
PERMITTED PRIOR SECURITY INTERESTS: As
defined in Section 6.1.2.
PERSON: Any individual, corporation, general
partnership, limited partnership, joint venture,
stock company or association, company, bank,
trust, trust company, land trust, business trust,
unincorporated organization, unincorporated
association, Governmental Authority or other
entity of any kind or nature.
PLANS AND SPECIFICATIONS: As defined in
Section 13.1.2.
PRIMARY INTENDED USE: The use of the Facility
as an assisted living facility with a total of 71
units and having 80 fully licensed beds or such
additional number of units or beds as may
hereafter be permitted under this Lease, and such
ancillary uses as are permitted by law and may be
necessary in connection therewith or incidental
thereto.
PRIME RATE: The variable rate of interest per
annum from time to time announced by the Reference
Bank as its prime rate of interest and in the
event that the Reference Bank no longer announces
a prime rate of interest, then the Prime Rate
shall be deemed to be the variable rate of
interest per annum which is the prime rate of
interest or base rate of interest from time to
time announced by any other major bank or other
financial institution reasonably selected by
Lessor.
PRINCIPAL PLACE OF BUSINESS: As defined in
Section 10. 1.28.
PROCEEDS: As defined in the UCC.
PROVIDER AGREEMENTS: All participation,
provider and reimbursement agreements or
arrangements, if any, now or hereafter in effect
for the benefit of Lessee or any Sublessee in
connection with the operation of the Facility
relating to any right of payment or other claim
arising out of or in connection with Lessee's or
such Sublessee's participation in any Third Party
Payor Program.
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PURCHASER: As defined in Section 11.5.
RECEIVABLES: Collectively, (i) all rights to
payment for goods sold or leased or services
rendered by Lessee or any other party, whether now
in existence or arising from time to time
hereafter and whether or not yet earned by
performance, including, without limitation,
obligations evidenced by an account, note,
contract, security agreement, chattel paper, or
other evidence of indebtedness, including Accounts
and Proceeds, and (ii) a license to use such
Instruments, Documents, Accounts, Proceeds,
General Intangibles and Chattel Paper as are
reasonably required for purposes of exercising the
rights set forth in (i) above.
REFERENCE BANK: Fleet Bank of Connecticut,
N.A.
RELATED LEASES: The Group Four Acquisition
Facility Leases (as defined in the Agreement
Regarding Related Transactions), together with
such other new leases identified from time to time
in the Agreement Regarding Related Transactions.
RELATED PARTIES: Collectively, each Person
that may now or hereafter be a party to any
Related Party Agreement other than the Meditrust
Entities.
RELATED PARTY AGREEMENT: Any agreement,
document or instrument now or hereafter evidencing
or securing any Related Party Obligation,
including, without limitation, the Related Leases.
RELATED PARTY DEFAULT: The occurrence of a
default or breach of condition continuing beyond
the expiration of any applicable notice and grace
periods, if any, under the terms of any Related
Party Agreement.
RELATED PARTY OBLIGATIONS: Collectively, all
indebtedness, covenants, liabilities, obligations,
agreements and undertakings due to, or made for
the benefit of, Lessor or any of the other
Meditrust Entities by Lessee or any other member
of the Leasing Group or any of their respective
Affiliates in connection with any of the
properties described in Exhibit F to the Agreement
Regarding Related Transactions, as the same may be
modified and amended from time to time; whether
such indebtedness, covenants, liabilities,
obligations, agreements and/or undertakings are
direct or indirect, absolute or contingent,
liquidated or unliquidated, due or to become due,
joint, several or joint and several, primary or
secondary, now existing or hereafter arising.
RENT: Collectively, the Base Rent, Additional
Rent, the Additional Charges and all other sums
payable under this Lease and the other Lease
Documents.
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RENT ADJUSTMENT DATE: The first day if all of
the Extended Terms.
RENT ADJUSTMENT RATE: 320 basis points over
the Index.
RENT INSURANCE PROCEEDS: As defined in
Section 13.8.
RESIDENCE AGREEMENT: All contracts,
agreements and consents executed by or on behalf
of any resident or other Person seeking services
at the Facility, including, without limitation,
assignments of benefits and guarantees.
RETAINAGE: As defined in Section 13.1.4.
RIGHT OF FIRST REFUSAL: As defined in Section
18.3.1.
SECURITY AGREEMENT: The Security Agreement as
of even date herewith between Lessee and Lessor.
STATE: The state or commonwealth in which the
Leased Property is located.
SUBLEASE: Collectively, all subleases,
licenses, use agreements, concession agreements,
tenancy at will agreements and other occupancy
agreements of every kind and nature (but excluding
any Residency Agreement), whether oral or in
writing, now in existence or subsequently entered
into by Lessee, encumbering or affecting the
Leased Property.
SUBLESSEE: Any sublessee, licensee,
concessionaire, tenant or other occupant under any
of the Subleases.
SUBSEQUENT INVESTMENTS: The aggregate amount
of all sums expended and liabilities incurred by
Lessor in connection with Capital Additions.
SUBSIDIARY OR SUBSIDIARIES: With respect to
any Person, any corporation or other entity of
which such Person, directly, or indirectly,
through another entity or otherwise, owns, or has
the right to control or direct the voting of,
fifty percent (50%) or more of the outstanding
capital stock or other ownership interest having
general voting power (under ordinary
circumstances).
TAKING: A taking or voluntary conveyance
during the Term of the Leased Property, or any
interest therein or right accruing thereto, or use
thereof, as the result of, or in settlement of,
any Condemnation or other eminent domain
proceeding affecting the Leased Property whether
or not the same shall have actually been
commenced.
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TANGIBLE PERSONAL PROPERTY: All machinery,
equipment, furniture, furnishings, movable walls
or partitions, computers or trade fixtures, goods,
inventory, supplies, and other personal property
owned or leased (pursuant to equipment leases) by
Lessee and used in the operation of the Leased
Property.
TERM: Collectively, the Initial Term and each
Extended Term which has become effective pursuant
to Section 1.4, as the context may require, unless
earlier terminated pursuant to the provisions
hereof.
THIRD PARTY PAYOR PROGRAMS: Collectively, all
third party payor programs in which Lessee or any
Sublessee presently or in the future may
participate, including without limitation,
Medicare, Medicaid, Blue Cross and/or Blue Shield,
Managed Care Plans, other private insurance plans
and employee assistance programs.
THIRD PARTY PAYORS: Collectively, Medicare,
Medicaid, Blue Cross and/or Blue Shield private
insurers and any other Person which presently or
in the future maintains Third Party Payor
Programs.
UCC: The Uniform Commercial Code as in effect
from time to time in the State.
UNITED STATES TREASURY SECURITIES: The
uninsured treasury securities issued by the United
States Federal Reserve Bank.
UNSUITABLE FOR ITS PRIMARY INTENDED USE: As
used anywhere in this Lease, the term "Unsuitable
For Its Primary Intended Use" shall mean that, by
reason of Casualty, or a partial or temporary
Taking by Condemnation, in the good faith judgment
of Lessor, the Facility cannot be operated on a
commercially practicable basis for the Primary
Intended Use, taking into account, among other
relevant factors, the number of usable units or
beds affected by such Casualty or partial or
temporary Taking.
UNAVOIDABLE DELAY: Delays due to strikes,
lockouts, inability to procure materials, power
failure, acts of God, governmental restrictions,
enemy action, civil commotion, fire, unavoidable
casualty or other causes beyond the control of the
party responsible for performing an obligation
hereunder, provided that lack of funds shall not
be deemed a cause beyond the control of either
party hereto.
UPGRADE RENOVATIONS: Repair and refurbishing
other than normal janitorial, cleaning and
maintenance activities.
WORK: As defined in Section 13.1.1.
WORK CERTIFICATES: As defined in Section
13.1.4.
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WORKING CAPITAL LOAN: As defined in Section
6.12.
WORKING CAPITAL STOCK PLEDGE: As defined in
Section 16.1(h).
2.2 RULES OF CONSTRUCTION. The following
rules of construction shall apply to the Lease and
each of the other Lease Documents: (a) references
to "herein", "hereof' and "hereunder" shall be
deemed to refer to this Lease or the other
applicable Lease Document, and shall not be
limited to the particular text or section or
subsection in which such words appear; (b) the use
of any gender shall include all genders and the
singular number shall include the plural and vice
versa as the context may require; (c) references
to Lessor's attorneys shall be deemed to include,
without limitation, special counsel and local
counsel for Lessor; (d) reference to attorneys'
fees and expenses shall be deemed to include all
costs for administrative, paralegal and other
support staff and to exclude any fees and expenses
of attorneys who are employees of an Affiliate of
Lessor; (e) references to Leased Property shall be
deemed to include references to all of the Leased
Property and references to any portion thereof;
(f) references to the Lease Obligations shall be
deemed to include references to all of the Lease
Obligations and references to any portion thereof;
(g) references to the Obligations shall be deemed
to include references to all of the Obligations
and references to any portion thereof; (h) the
term "including", when following any general
statement, will not be construed to limit such
statement to the specific items or matters as
provided immediately following the term
"including" (whether or not non-limiting language
such as "without limitation" or "but not limited
to" or words of similar import are also used), but
rather will be deemed to refer to all of the items
or matters that could reasonably fall within the
broadest scope of the general statement; (i) any
requirement that financial statements be
Consolidated in form shall apply only to such
financial statements as relate to a period during
any portion of which the relevant Person has one
or more Subsidiaries. (j) all accounting terms not
specifically defined in the Lease Documents shall
be construed in accordance with GAAP and (k) all
exhibits annexed to any of the Lease Documents as
referenced therein shall be deemed incorporated in
such Lease Document by such annexation and/or
reference.
ARTICLE 3
RENT
3.1 RENT FOR LAND LEASED IMPROVEMENTS RELATED
RIGHTS AND FIXTURES. Lessee will pay to Lessor, in
lawful money of the United States of America, at
Lessor's address set forth herein or at such other
place or to such other Person as Lessor from time
to time may designate in writing, rent for the
Leased Property, as follows.
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3.1.1 BASE RENT: From and after the
Commencement Date, Lessee shall pay to Lessor
a base rent (the "Base Rent") per annum which
is equal to Five Hundred Nine Thousand Six
Hundred Seventy-eight and 76/100 Dollars
($509,678.76) and that is payable in advance
in equal, consecutive monthly installments
due on the first day of each calendar month,
commencing on October 1, 1997; provided,
however, that on each Rent Adjustment Date,
the Base Rent shall be adjusted to equal the
greater of (i) the then current Base Rent or
(ii) an amount equal to the Meditrust
Investment multiplied by the Rent Adjustment
Rate then in effect on such Rent Adjustment
Date and further, provided, however, that on
the Commencement Date, Lessee shall pay to
Lessor the proportionate share of the Base
Rent due for the period from (and including)
the Commencement Date through the end of the
calendar month during which the Commencement
Date occurred.
3.1.2 ADDITIONAL RENT: In addition to
the Base Rent, Lessee shall also pay to
Lessor additional rent (the "Additional
Rent") in an amount equal to five percent
(5%) of Excess Gross Revenues. Additional
Rent shall accrue commencing on October
1,1999 (the "Additional Rent Accrual Date")
and shall be payable during the Term,
quarterly in arrears, commencing on the first
day of the first Fiscal Quarter occurring
following the Additional Rent Accrual Date
("Additional Rent Commencement Date") and
there shall be an annual reconciliation as
provided in Section 3.2 below.
3.2 CALCULATION AND PAYMENT OF ADDITIONAL
RENT; ANNUAL RECONCILIATION.
3.2.1 OFFICER'S CERTIFICATE AND
PRORATION. Each quarterly payment of
Additional Rent shall be delivered to Lessor,
together with an Officer's Certificate
setting forth the calculation thereof, within
thirty (30) days after the end of the
corresponding quarter. Additional Rent due
for any portion of any calendar year shall be
prorated accordingly.
3.2.2 ANNUAL STATEMENT. In addition, on
or before the first day of April of each year
following any calendar year for which
Additional Rent is payable hereunder, Lessee
shall deliver to Lessor an Officer's
Certificate, reasonably acceptable to Lessor
and certified by the chief financial officer
of Lessee, setting forth the Gross Revenues
for the immediately preceding calendar year.
3.2.3 DEFICITS. If the Additional Rent,
as finally determined for any calendar year
(or portion thereof, exceeds the sum of the
quarterly payments of Additional Rent
previously paid by Lessee with respect to
said calendar year, within thirty (30) days
after such determination is required to be
made hereunder,
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Lessee shall pay such deficit to Lessor and,
if the deficit exceeds five percent (5%) of
the Additional Rent which was previously paid
to Lessor with respect to said calendar year,
then Lessee shall also pay Lessor interest on
such deficit at the Overdue Rate from the
date that such payment should have been made
by Lessee to the date that Lessor receives
such payment.
3.2.4 OVERPAYMENTS. If the Additional
Rent, as finally determined for any calendar
year (or portion thereof, is less than the
amount previously paid with respect thereto
by Lessee, Lessee shall notify Lessor either
(a) to pay to Lessee an amount equal to such
difference or (b) to grant Lessee a credit
against Additional Rent next coming due in
the amount of such difference.
3.2.5 FINAL DETERMINATION. The
obligation to pay Additional Rent shall
survive the expiration or earlier termination
of the Term (as to Additional Rent payments
that are due and payable prior to the
expiration or earlier termination of the Term
and during any periods that Lessee remains in
possession of the Leased Property), and a
final reconciliation, taking into account,
among other relevant adjustments, any
contractual allowances which related to Gross
Revenues that accrued prior to the date of
such expiration or earlier termination, but
which have been determined to be not payable
and Lessee's good faith best estimate of the
amount of any unresolved contractual
allowances, shall be made not later than two
(2) years after said expiration or
termination date. Within sixty (60) days
after the expiration or earlier termination
of the Term, Lessee shall advise Lessor of
Lessee's best estimate of the approximate
amount of such adjustments, which estimate
shall not be binding on Lessee or have any
legal effect whatsoever.
3.2.6 BEST EFFORTS TO MAXIMIZE. Lessee
further covenants that the operation of the
Facility shall be conducted in a manner
consistent with the prevailing standards and
practices recognized in the assisted living
industry as those customarily utilized by
reputable business operations. Subject to any
applicable Legal Requirements, the members of
the Leasing Group shall use their best
efforts to maximize the Facility's Gross
Revenues.
3.3 CONFIRMATION AND AUDIT OF ADDITIONAL
RENT.
3.3.1 MAINTAIN ACCOUNTING SYSTEMS.
Lessee shall utilize, or cause to be
utilized, an accounting system for the Leased
Property in accordance with usual and
customary practices in the assisted living
industry and in accordance with GAAP which
will accurately record all Gross Revenues.
Lessee shall retain, for at least three (3)
years after the expiration of each calendar
year
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(and in any event until the final
reconciliation described in Section 32 above
has been made), adequate records conforming
to such accounting system showing all Gross
Revenues for such calendar year.
3.3.2 AUDIT BY LESSOR. Lessor, at its
own expense except as provided hereinbelow,
shall have the right from time to time to
have its accountants or representatives audit
the information set forth in the Officer's
Certificate referred to in Section 3.2 and in
connection with such audits, to examine
Lessee's records with respect thereto
(including supporting data, income tax and
sales tax returns), subject to any
prohibitions or limitations on disclosure of
any such data under applicable law or
regulations.
3.3.3 DEFICIENCIES AND OVERPAYMENTS. If
any such audit discloses a deficiency iii the
reporting of Gross Revenues, and either
Lessee agrees with the result of such audit
or the matter is compromised, Lessee shall
forthwith pay to Lessor the amount of the
deficiency in Additional Rent which would
have been payable by it had such deficiency
in reporting Gross Revenues not occurred, as
finally agreed or determined, together with
interest on the Additional Rent which should
have been payable by it, calculated at the
Overdue Rate, from the date when said payment
should have been made by Lessee to the date
that Lessor receives such payment.
Notwithstanding anything to the contrary
herein, with respect to any audit that is
commenced more than two (2) years after the
date Gross Revenues for any calendar year are
reported by Lessee to Lessor, the deficiency,
if any, with respect to Additional Rent shall
bear interest as permitted herein only from
the date such determination of deficiency is
made, unless such deficiency is the result of
gross negligence or willful misconduct on the
part of Lessee (or any Affiliate thereof). If
any audit conducted for Lessor pursuant to
the provisions hereof discloses that (a) the
Gross Revenues actually received by Lessee
for any calendar year exceed those reported
by Lessee by more than five percent (5%),
Lessee shall pay the reasonable cost of such
audit and examination or (b) Lessee has
overpaid Additional Rent, Lessor shall so
notify Lessee and Lessee shall direct Lessor
either (i) to refund the overpayment to
Lessee or (ii) grant a credit against
Additional Rent next coming due in the amount
of such difference.
3.3.4 SURVIVAL. The obligations of
Lessor and Lessee contained in this Section
shall survive the expiration or earlier
termination of this Lease.
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3.4 ADDITIONAL CHARGES. Subject to the rights
to contest as set forth in Article 15, in addition
to the Base Rent and Additional Rent, (a) Lessee
will also pay and discharge as and when due and
payable all Impositions, all amounts, liabilities
and obligations under the Appurtenant Agreements
and all other amounts, liabilities and obligations
which Lessee assumes or agrees to pay under this
Lease, and (b) in the event if all failure on the
part of Lessee to pay any of those items referred
to in clause (a) above, Lessee will also promptly
pay and discharge every fine, penalty, interest
and cost which may be added for non-payment or
late payment of such items (the items referred to
in clauses (a) and (b) above being referred to
herein collectively as the "Additional Charges"),
and Lessor shall have all legal, equitable and
contractual rights, powers and remedies provided
in this Lease, by statute or otherwise, in the
case of non-payment of the Additional Charges, as
well as the Base Rent and Additional Rent. To the
extent that Lessee pays any Additional Charges to
Lessor pursuant to any requirement of this Lease,
Lessee shall be relieved of its obligation to pay
such Additional Charges to any other Person to
which such Additional Charges would otherwise be
due.
3.5 NET LEASE. The Rent shall be paid
absolutely net to Lessor, so that this Lease shall
yield to Lessor the full amount of the
installments of Base Rent, and the payments of
Additional Rent and, if and to the extent payable
to Lessor, Additional Charges throughout the Term.
3.6 NO LESSEE TERMINATION OR OFFSET.
3.6.1 No Termination. Except as may be
otherwise specifically and expressly provided
in this Lease, Lessee, to the extent not
prohibited by applicable law, shall remain
bound by this Lease in accordance with its
terms and shall neither take any action
without the consent of Lessor to modify,
surrender or terminate the same, nor seek nor
be entitled to any abatement, deduction,
deferment or reduction of Rent, or set-off
against the Rent, nor shall the respective
obligations of Lessor and Lessee be otherwise
affected by reason of (a) any Casualty or any
Taking of the Leased Property, (b) the lawful
or unlawful prohibition of, or restriction
upon, Lessee's use of the Leased Property or
the interference
with such use by any Person (other than
Lessor, except to the extent permitted
hereunder) or by reason of eviction by
paramount title; (c) any claim that Lessee
has or might have . against Lessor, (d) any
default or breach of any warranty by Lessor
or any of the other Meditrust Entities under
this Lease, any other Lease Document or any
Related Party Agreement, (e) any bankruptcy,
insolvency, reorganization, composition,
readjustment, liquidation, dissolution,
winding up or other proceedings affecting
Lessor or any assignee or transferee of
Lessor or (f) for any other cause whether
similar or dissimilar to any of the
foregoing, other than a
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discharge of Lessee from any of the Lease
Obligations as a matter of law.
3.6.2 WAIVER. Lessee to the fullest
extent not prohibited by applicable law,
hereby specifically waives all rights,
arising from any occurrence whatsoever, which
may now or hereafter be conferred upon it by
law to (a) modify, surrender or terminate
this Lease or quit or surrender the Leased
Property or (b) entitle Lessee to any
abatement, reduction, suspension or deferment
of the Rent or other sums payable by Lessee
hereunder, except as otherwise specifically
and expressly provided in this Lease.
3.6.3 INDEPENDENT COVENANT. The
obligations of Lessor and Lessee hereunder
shall be separate and independent covenants
and agreements and the Rent and all other
sums payable by Lessee hereunder shall
continue to be payable in all events unless
the obligations to pay the same shall be
terminated pursuant to the express provisions
of this Lease or (except in those instances
where the obligation to pay expressly
survives the termination of this Lease) by
termination of this Lease other than by
reason of an Event of Default.
3.7 ABATEMENT OF RENT LIMITED. There shall be
no abatement of Rent on account of any Casualty,
Taking or other event, except that (a) in the
event of a partial Taking or a temporary Taking as
described in Section 14.3, the Base Rent shall be
abated as follows: (i) in the case of such a
partial Taking, the Meditrust Investment shall be
reduced for the purposes of calculating Base Rent
pursuant to Section 3.1 by subtracting therefrom,
as applicable, the net amount of the Award
received by Lessor, and (ii) in the case of such a
temporary Taking, by reducing the Base Rent for
the period of such a temporary Taking, by the net
amount of the Award received by Lessor and (b) in
the event of a Casualty, the Base Rent shall be
abated as follows: the Meditrust Investment shall
be reduced for the purposes of calculating Base
Rent pursuant to Section 3.1 by subtracting
therefrom, as applicable, the net amount of the
insurance proceeds.
For the purposes of this Section 3.7, the
"net amount of the Award received by Lessor" shall
mean the Award paid to Lessor or Lessor's
mortgagee on account of such Taking, minus all
costs and expenses incurred by Lessor in
connection therewith, and minus any amounts paid
to or for the account of Lessee to reimburse for
the costs and expenses of reconstructing the
Facility following such Taking in order to create
a viable and functional Facility under all of the
circumstances ("Net Award Amount") and the "net
amount of the insurance proceeds" shall mean
the insurance proceeds paid to Lessor or Lessor's
mortgagee on account of such Casualty, minus all
costs and expenses incurred by Lessor in
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connection therewith and minus any amounts paid to
or for the account of Lessee to reimburse for the
costs and expenses of reconstructing the Facility
following such Casualty in order to create a
viable and functional Facility under all of the
circumstances ("Net Proceeds Amount").
3.8 LEASING COMMITMENT FEE: The Lessee shall
pay to the Lessor the Leasing Commitment Fee
simultaneously with the execution of this Lease;
provided, however, that, at the Lessor's option,
the Leasing Commitment Fee shall be held in an
escrow account established with a Person
designated by the Lessor pursuant to an escrow
arrangement satisfactory to the Lessor, with
interest thereon benefiting the Lessor. If the
Lessor exercises its option to require that the
Leasing Committee Fee be held in such an escrow
account (a) the Leasing Commitment Fee shall be
disbursed from said escrow account only upon the
joint instructions of the Lessee and the Lessor
(which instructions from the Lessee shall be
immediately given upon the request of the Lessor)
and in no event shall the Leasing Commitment Fee
be disbursed therefrom, in whole or in part,
unless and until so requested by the Lessor and
(b) the Lessor shall bear the risk of loss of or
misappropriation of the Leasing Commitment Fee by
such escrow agent.
ARTICLE 4
IMPOSITIONS: TAXES: UTILITIES;
INSURANCE PAYMENTS
4.1 PAYMENT OF IMPOSITIONS.
4.1.1 LESSEE TO PAY. Subject to the
provisions of Article 15, Lessee will pay or
cause to be paid all Impositions before any
fine, penalty, interest or cost may be added
for non-payment, such payments to be made
directly to the taxing authority where
feasible, and Lessee will promptly furnish
Lessor copies of official receipts or other
satisfactory proof evidencing payment not
later than the last day on which the same may
be paid without penalty or interest. Subject
to the provisions of Article 15 and Section
4.1.2, Lessee's obligation to pay such
Impositions shall be deemed absolutely fixed
upon the date such Impositions become a lien
upon the Leased Property or any part thereof.
4.1.2 INSTALLMENT ELECTIONS. If any such
Imposition may, at the option of the
taxpayer, lawfully be paid in installments
(whether or not interest shall accrue on the
unpaid balance of such Imposition), Lessee
may exercise the option to pay the same (and
any accrued interest on the unpaid balance of
such Imposition) in installments and, in such
event, shall pay such installments during the
Term hereof(subject to Lessee's right to
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contest pursuant to the provisions of Section
4.1.5 below) as the same respectively become
due and before any fine, penalty, premium,
further interest or cost may be added
thereto.
4.1.3 RETURNS AND REPORTS. Lessor, at
its expense, shall, to the extent permitted
by applicable law, prepare and file all tax
returns and reports as may be required by-
Governmental Authorities in respect of
Lessor's net income, gross receipts,
franchise taxes and taxes on its capital
stock, and Lessee, at its expense, shall, to
the extent permitted by applicable laws and
regulations, prepare and file all other tax
returns and reports in respect if all
Imposition as may be required by Governmental
Authorities. Lessor and Lessee shall, upon
request of the other, provide such data as is
maintained by the party to whom the request
is made with respect to the Leased Property
as may be necessary to prepare any required
returns and reports. In the event that any
Governmental Authority classifies any
property covered by this Lease as personal
property, Lessee shall file all personal
property tax returns in such jurisdictions
where it may legally so file. Lessor, to the
extent it possesses the same, and Lessee, to
the extent it possesses the same, will
provide the other party, upon request, with
cost and depreciation records necessary for
filing returns for any portion of Leased
Property so classified as personal property.
Where Lessor is legally required to file
personal property tax returns, if Lessee
notifies Lessor of the obligation to do so in
each year at least thirty (30) days prior to
the date any protest must be filed, Lessee
will be provided with copies of assessment
notices so as to enable Lessee to file a
protest.
4.1.4 REFUNDS. If no Lease Default shall
have occurred and be continuing, any refund
due from any taxing authority in respect of
any Imposition paid by Lessee shall be paid
over to or retained by Lessee. If a Lease
Default shall have occurred and be
continuing, at Lessor's option, such funds
shall be paid over to-Lessor and/or retained
by Lessor and applied toward Lease
Obligations which relate to the Leased
Property in accordance with the Lease
Documents.
4.1.5 PROTEST. Upon giving notice to
Lessor, at Lessee's option and sole cost and
expense, and subject to compliance with the
provisions of Article 15, Lessee may contest,
protest, appeal, or institute such other
proceedings as Lessee may deem appropriate to
effect a reduction of any Imposition and
Lessor, at Lessee's cost and expense as
aforesaid, shall fully cooperate in a
reasonable manner with Lessee in connection
with such protest, appeal or other action.
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4.2 .NOTICE OF IMPOSITIONS. Lessor shall give
prompt notice to Lessee of all Impositions payable
by Lessee hereunder of which Lessor at any time
has knowledge, but Lessor's failure to give any
such notice shall in no way diminish Lessee's
obligations hereunder to pay such Impositions.
4.3 ADJUSTMENT OF IMPOSITIONS. Impositions
imposed in respect of the period during which the
expiration or earlier termination of the Term
occurs shall be adjusted and prorated between
Lessor and Lessee, whether or not such Impositions
are imposed before or after such expiration or
termination, and Lessee's obligation to pay its
prorated share thereof shall survive such
expiration or termination.
4.4 UTILITY CHARGES. Lessee will pay or
cause to be paid all charges for electricity,
power, gas, oil, water, telephone, cable
television and other utilities used in the Leased
Property during the Term and thereafter until
Lessee surrenders the Leased Property in the
manner required by this Lease.
4.5 INSURANCE PREMIUMS. Lessee will pay or
cause to be paid all premiums for the insurance
coverage required to be maintained pursuant to
Article 12 during the Term, and thereafter until
Lessee yields up the Leased Property in the manner
required by this Lease. All such premiums shall be
paid annually in advance and Lessee shall furnish
Lessor with evidence satisfactory to Lessor that
all such premiums have been so paid prior to the
commencement of the Term and thereafter at least
thirty (30) days prior to the due date of each
premium which thereafter becomes due.
Notwithstanding the foregoing, Lessee may pay such
insurance premiums to the insurer in monthly
installments so long as the applicable insurer is
contractually obligated to give Lessor not less
than a sixty (60) days notice of non-payment and
so long as no Lease Default has occurred and is
continuing. In the event of the failure of Lessee
either to comply with the insurance requirements
in Article 12, or to pay the premiums for such
insurance, or to deliver such policies or
certificates thereof to Lessor at the times
required hereunder, Lessor shall be entitled, but
shall have no obligation, to effect such insurance
and pay the premiums therefor, which premiums
shall be a demand obligation of Lessee to Lessor.
4.6 DEPOSITS.
4.6.1 LESSOR'S OPTION. At the option of
Lessor upon the occurrence of an event or
circumstance which, with the giving of notice
and/or the passage of time, would constitute
a Lease Default, which may be exercised at
any time thereafter, Lessee shall, upon
written request of Lessor, on the first day
on the calendar month immediately following
such request, and on the first day of each
calendar month thereafter during the Term
(each
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of which dates is referred to as a "Monthly
Deposit Date"), pay to and deposit with
Lessor a sum equal to one-twelfth (1/12th) of
the Impositions to be levied, charged, filed,
assessed or imposed upon or against the
Leased Property within one (1) year after
said Monthly Deposit Date and a sum equal to
one-twelfth (1/12th) of the premiums for the
insurance policies required pursuant to
Article 12 which are payable within one (1)
year after said Monthly Deposit Date. If the
amount of the Impositions to be levied,
charged, assessed or imposed or insurance
premiums to be paid within the ensuing one
(1) year period shall not be fixed upon any
Monthly Deposit Date; such amount for the
purpose of computing the deposit to be made
by Lessee hereunder shall be estimated by
Lessor based upon the most recent available
information concerning said Impositions with
an appropriate adjustment to be promptly made
between Lessor and Lessee as soon as such
amount becomes determinable. In addition,
Lessor may, at its option, from time to time
require that any particular deposit be
greater than one-twelfth (1/12th) of the
estimated amount payable within one (1 ) year
after said Monthly Deposit Date, if such
additional deposit is required in order to
provide to Lessor a sufficient fund from
which to make payment of all Impositions on
or before the next due date of any
installment thereof, or to make payment of
any required insurance premiums not later
than the due date thereof.
4.6.2 USE OF DEPOSITS. The sums
deposited by Lessee under this Section 4.6
shall be held by Lessor and shall be applied
in payment of the Impositions or insurance
premiums, as the case may be, when due. Any
such deposits may be commingled with other
assets of Lessor, and shall be deposited by
Lessor at such bank as Lessor may, from time
to time select, and, provided that Lessor has
invested such deposits in one or more of the
investment vehicles described on SCHEDULE
4.6.2 attached hereto and incorporated by
reference, Lessor shall not be liable to
Lessee or any other Person (a) based on
Lessor's (or such bank's) choice of
investment vehicles, (b) for any consequent
loss of principal or interest or (c) for any
unavailability of funds based on such choice
of investment. Furthermore, Lessor shall bear
no responsibility for the financial condition
of, nor any act or omission by, Lessor's
depository bank. The income from such
investment or interest on such deposit shall
be paid to Lessee on a semi-annual basis as
long as no Lease Default has occurred and is
then continuing, and as long as no fact or
circumstance exists which, with the giving of
notice and/or the passage of time, would
constitute a Lease Default. Lessee shall give
not less than ten (10) days prior written
notice to Lessor in each instance when an
Imposition or insurance premium is due,
specifying the Imposition or premium to be
paid
and the amount thereof, the place of payment,
and the last day on
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which the same may be paid in order to comply
with the requirements of this Lease. If
Lessor, in violation of its obligations under
this Lease, does not pay any Imposition or
insurance premium when due, for which a
sufficient deposit exists, Lessee shall not
be in default hereunder by virtue of the
failure of Lessor to pay such Imposition or
such insurance premium and Lessor shall pay
any interest or fine assessed by virtue of
Lessor's failure to pay such Imposition or
insurance premium.
4.6.3 DEFICITS. If for any reason any
deposit held by Lessor under this Section 4.6
shall not be sufficient to pay an Imposition
or insurance premium within the time
specified therefor in this Lease, then,
within ten (10) days after demand by Lessor,
Lessee shall deposit an additional amount
with Lessor, increasing the deposit held by
Lessor so that Lessor holds sufficient funds
to pay such Imposition or premium in full (or
in installments as otherwise provided for
herein), together with any penalty or
interest due thereof. Lessor may change its
estimate of any Imposition or insurance
premium for any period on the basis of a
change in an assessment or tax rate or on the
basis of a prior miscalculation or for any
other good faith reason; in which event,
within ten (10) days after demand by Lessor,
Lessee shall deposit with Lessor the amount
in excess of the sums previously deposited
with Lessor for the applicable period which
would theretofore have been payable under the
revised estimate.
4.6.4 OTHER PROPERTIES. If any
Imposition shall be levied, charged, filed,
assessed, or imposed upon or against the
Leased Property, and if such Imposition shall
also be a levy, charge, assessment, or
imposition upon or for any other real or
personal property that does not constitute a
part of the Leased Property but for which a
lien exists or can exist upon the Leased
Property, then, at Lessor's reasonable
discretion, the computation of the amounts to
be deposited under this Section 4.6 shall be
based upon the entire amount of such
Imposition and Lessee shall not have the
right to apportion any deposit with respect
to such-Imposition.
4.6.5 TRANSFERS. In connection with any
assignment of Lessor's interest under this
Lease, the original Lessor named herein and
each successor in interest shall transfer all
amounts deposited pursuant to the provisions
of this Section 4.6 and still in its
possession to such assignee (as the
subsequent holder of Lessor's interest in
this Lease) and upon such transfer, the
original Lessor named herein or the
applicable successor in interest transferring
the deposits shall thereupon be completely
released from all liability with respect to
such deposits so transferred and Lessee
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shall look solely to said assignee, as the
subsequent holder of Lessor's interest under
this Lease, in reference thereto.
4.6.6 SECURITY. All amounts deposited
with Lessor pursuant to the provisions of
this Section 4.6 shall be held by Lessor as
additional security for the payment and
performance of the Obligations and, upon the
occurrence if all Lease Default, Lessor may,
in its sole and absolute discretion, apply
said amounts towards payment or performance
of such Obligations.
4.6.7 RETURN. Upon the expiration or
earlier termination of this Lease, provided
that all of the Lease Obligations relating to
the Leased Property have been fully paid and
performed, any sums then held by Lessor under
this Section 4.6 shall be refunded to Lessee.
4.6.8 RECEIPTS. Lessee shall deliver to
Lessor copies of all notices, demands,
claims, bills and receipts in relation to the
Impositions and insurance premiums upon the
earlier to occur of(a) ten (10) days
following receipt thereof by Lessee and (b)
in the case of an invoice, demand or bill for
the payment of an Imposition, prior to the
date when such Imposition is due and payable.
ARTICLE 5
OWNERSHIP OF LEASED PROPERTY AND PERSONAL
PROPERTY; INSTALLATION, REMOVAL AND REPLACEMENT OF
PERSONAL PROPERTY;
5.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee
acknowledges that the Leased Property is the
property of Lessor and that Lessee has only the
right to the exclusive possession and use of the
Leased Property upon the terms and conditions of
this Lease.
5.2 .PERSONAL PROPERTY; REMOVAL AND
REPLACEMENT OF PERSONAL PROPERTY.
5.2.1 LESSEE TO EQUIP FACILITY. If and
to the extent not included in the Leased
Property, Lessee, at its sole cost and
expense, shall install, affix or assemble or
place on the Leased Property, sufficient
items of Tangible Personal Property, to
enable the. operation of the Facility in
accordance with the requirements of this
Lease for the Primary Intended Use, and such
Tangible Personal Property and replacements
thereof, shall be at all times the property
of Lessee.
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5.2.2 SUFFICIENT PERSONAL PROPERTY.
Lessee shall maintain, during the entire
Term, the Tangible Personal Property and
Lessor's Personal Property in good order and
repair and shall provide at its expense all
necessary replacements thereof, as may be
necessary in order to operate the Facility in
compliance with all applicable Legal
Requirements and Insurance Requirements and
otherwise in accordance with customary
practice in the industry for the Primary
Intended Use and, if applicable, Other
Permitted Uses. In addition, Lessee shall
furnish all necessary replacements of such
obsolete items of the Tangible Personal
Property and Lessor's Personal Property
during the Term as are necessary to enable
the operation of the Facility in accordance
with the requirements of this Lease for the
Primary Intended Use.
5.2.3 REMOVAL AND REPLACEMENT: LESSOR'S
OPTION TO PURCHASE. Lessee shall not remove
from the Leased Property any one or more
items of Tangible Personal Property or
Lessor's Personal Property (whether now owned
or hereafter acquired), the fair market value
of which exceeds TWENTY-FIVE THOUSAND DOLLARS
($25,000), individually or ONE HUNDRED
THOUSAND DOLLARS ($100,000.00) collectively,
if such Tangible Personal Property or
Lessor's Personal Property is necessary to
enable the operation of the Facility in
accordance with the requirements of this
Lease for the Primary Intended Use. At its
sole cost and expense, Lessee shall restore
the Leased Property to the condition required
by Article 8, including repair of all damage
to the Leased Property caused by the removal
of the Tangible Personal Property or Lessor's
Personal Property, whether effected by Lessee
or Lessor. Upon the expiration or earlier
termination of this Lease, Lessor shall have
the option, which may be exercised by giving
notice thereof within twenty (20) days prior
to such expiration or termination, of (a)
acquiring the Tangible Personal Property
(pursuant to a bill of sale and assignments
of any equipment leases, all in such forms as
are reasonably satisfactory to Lessor) upon
payment of its fair market value or (b)
requiring Lessee to remove the Tangible
Personal Property. If Lessor exercises its
option to purchase the Tangible Personal
Property, the price to be paid by Lessor
shall be (i) reduced by the amount of all
payments due on any equipment leases or any
other Permitted Prior Security Interests
assumed by Lessor and (ii) applied to the
Lease Obligations before any payment to
Lessee. If Lessor requires the removal of the
Tangible Personal Property, then all of the
Tangible Personal Property that is not
removed by Lessee within ten (10) days
following such request shall be considered
abandoned by Lessee and may be appropriated,
sold, destroyed or otherwise disposed of by
Lessor
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without first giving notice thereof to
Lessee, without any payment to Lessee and
without any obligation to account therefor.
ARTICLE 6
SECURITY FOR LEASE OBLIGATIONS
6.1 SECURITY FOR LESSEE'S OBLIGATIONS.
PERMITTED PRIOR SECURITY INTERESTS.
6.1.1 SECURITY. In order to secure the
payment and performance of all of the
Obligations, Lessee agrees to provide or
cause there to be provided the following
security:
(a) a first lien and exclusive
security interest in the Collateral, as
more particularly provided for in the
Security Agreement;
(b) the Cash Collateral.
(c) a first lien and exclusive
pledge and assignment of, and security
interest in, all Permits and Contracts,
as more particularly provided for in the
: Collateral Assignment of Permits and
Contracts; and
(d) in the event that, at any time
during the Term, Lessee holds the fee
title to or a leasehold interest in any
real property and/or personal property
which is used as an integral part of the
operation of the Leased Property (but is
not subject to this Lease), Lessee shall
(i) provide Lessor with prior notice of
such acquisition and (ii) shall take
such actions and enter into such
agreements as Lessor shall reasonably
request in order to grant Lessor a first
priority mortgage or other security
interest in such real property and
personal property, subject only to the
Permitted Encumbrances and other Liens
reasonably acceptable to Lessor. Without
limiting the foregoing, it is
acknowledged and agreed that all
revenues generated from the operation of
such additional real property shall be
included in the determination of Gross
Revenues (subject to such adjustments as
agreed upon hereunder).
Notwithstanding the foregoing,
Lessor shall subordinate its security
interest in Receivables to a prior
security interest to secure a working
capital line as provided in Section
6.1.3.
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6.1.2 PURCHASE-MONEY SECURITY INTERESTS
AND EQUIPMENT LEASES. Notwithstanding any
other provision hereof regarding the creation
of Liens, Lessee may (a) grant priority
purchase money security interests in items of
Tangible Personal Property, (b) lease
Tangible Personal Property from equipment
lessors as long as: (i) the aggregate value
of such Tangible Personal Property shall not
exceed TWO HUNDRED THOUSAND DOLLARS
($200,000) or (ii) (A) the secured party or
equipment lessor enters into an intercreditor
agreement with, and satisfactory to, Lessor,
pursuant to which, without limiting the
foregoing, (1) Lessor shall be afforded the
option of curing defaults and the option of
succeeding to the rights of Lessee and (2)
Lessor's security interest in Tangible
Personal Property shall be subordinated to
the security interest granted to such secured
party, (B) all of the terms, conditions and
provisions of the financing, security
interest or lease are reasonably acceptable
to Lessor, (C) Lessee provides a true and
complete copy, as executed, of each such
purchase money security agreement, financing
document and equipment lease and all
amendments thereto and (D) no such security
interest, financing agreement or lease is
cross-defaulted or cross collateralized with
any other obligation. Security interests
granted by Lessee in full compliance with the
provisions of this Section 6.12 are referred
to as "Permitted Prior Security Interests".
6.1.3 RECEIVABLES FINANCING.
Notwithstanding any other provision hereof
regarding the creation of Liens, Lessee shall
also be permitted to grant a prior security
interest in Receivables (with the Lessor
retaining a junior security interest therein)
to an institutional lender which is providing
a working capital line of credit (a "Working
Capital Loan") for the exclusive use of
Guarantor, Lessee and Affiliates of Lessee as
long as such Lender enters into an
intercreditor agreement with, and
satisfactory to, Lessor pursuant to which,
without limiting the foregoing, (1) Lessor
shall be provided with notice with respect to
defaults under the Working Capital Loan
simultaneously with the delivery of such
notice to Lessee and shall be afforded the
option of curing defaults thereunder, (2)
such lender's use of Instruments, Documents,
General Intangibles and Chattel Paper shall
be limited to a license only for the purpose
of collecting Receivables and (3) the
subordination of Lessor's interest in the
Receivables shall be of no force and effect
and Lessor's first priority security interest
shall be reinstated from and after the
occurrence of an Event of Default if, upon or
following such Event of Default, Lessor
either exercises any of its remedies set
forth in Article 16 or Lessor notifies in
writing such lender of Lessor's intention to
invoke its right to reinstate its first
priority security interest in the
Receivables.
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6.2 GUARANTY. . All of the Lease Obligations
shall be unconditionally and irrevocably
guaranteed by the Guarantor pursuant to the
Guaranty of Lease Obligations.
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTY; MANAGEMENT
AGREEMENTS
7.1 CONDITION OF THE LEASED PROPERTY. Lessee
acknowledges that Lessee has caused the Leased
Property to be sold to Lessor and has concurrently
entered into this Lease. Lessee acknowledges
receipt and delivery of possession of the Leased
Property and that Lessee has examined and
otherwise has acquired knowledge of the condition
of the Leased Property prior to the execution and
delivery of this Lease and has found the same to
be in good order and repair and satisfactory for
its purposes hereunder. Lessee is leasing the
Leased Property "AS-IS" in its present condition.
Lessee waives any claim or action against Lessor
in respect of the condition of the Leased
Property. LESSOR MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT
TO THE LEASED PROPERTY, EITHER AS TO ITS FITNESS
FOR ANY PARTICULAR PURPOSE OR USE, ITS DESIGN OR
CONDITION OR OTHERWISE, OR AS TO DEFECTS IN THE
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN,
LATENT OR PATENT; IT BEING AGREED THAT ALL RISKS
RELATING TO THE DESIGN, CONDITION AND/OR USE OF
THE LEASED PROPERTY ARE TO BE BORNE BY LESSEE.
LESSEE HEREBY ASSUMES ALL RISK OF THE PHYSICAL
CONDITION OF THE LEASED PROPERTY, THE SUITABILITY
OF THE LEASED PROPERTY FOR LESSEE'S PURPOSES, AND
THE COMPLIANCE OR NON-COMPLIANCE OF THE LEASED
PROPERTY WITH ALL APPLICABLE REQUIREMENTS OF LAW,
INCLUDING BUT NOT LIMITED TO ENVIRONMENTAL LAWS
AND ZONING OR LAND USE LAWS.
Upon the request of Lessor, at any time and
from time to time during the Term, Lessee shall
engage one (1) or more independent professional
consultants, engineers and inspectors, qualified
to do business in the State and acceptable to
Lessor to perform any environmental and/or
structural investigations and/or other inspections
of the Leased Property and the Facility as Lessor
may reasonably request in order to detect (a) any
structural deficiencies in the Leased Improvements
or the utilities servicing the Leased Property or
(b) the presence if all condition that (i) may be
harmful or present a health hazard to the
residents and other occupants of the Leased
Property or (ii) constitutes a breach or violation
of any of the Lease Documents. In the event that
Lessor reasonably determines that the results of
such testing or inspections are unsatisfactory,
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within thirty (30) days of notice from Lessor,
Lessee shall commence such appropriate remedial
actions as may be reasonably requested by Lessor
to correct such unsatisfactory conditions and,
thereafter, shall diligently and continuously
prosecute such remedial actions to completion
within the time limits prescribed in this Lease or
the other Lease Documents.
7.2 USE OF THE LEASED PROPERTY; COMPLIANCE;
MANAGEMENT.
7.2.1 OBLIGATION TO OPERATE. Lessee
shall continuously operate the Leased
Property in accordance with the Primary
Intended Use and the Other Permitted Uses and
maintain its qualifications for licensure and
accreditation as required by all applicable
Legal Requirements.
7.2.2 PERMITTED USES. During the entire
Term, Lessee shall use the Leased - Property,
or permit the Leased Property to be used,
only for the Primary Intended Use and, if
applicable, the Other Permitted Uses. Lessee
shall not use the Leased Property or permit
the Leased Property to be used for any other
use without the prior written consent of
Lessor, which consent may be withheld in
Lessor's sole and absolute discretion.
7.2.3 COMPLIANCE WITH INSURANCE
REQUIREMENTS. No use shall be made or
permitted to be made of the Leased Property
and no acts shall be done which will cause
the cancellation of any insurance policy
covering the Leased Property, nor shall
Lessee, any Manager or any other Person sell
or otherwise provide to residents, other
occupants or invitees therein, or permit to
be kept, used or sold in or about the Leased
Property, any article which may be prohibited
by any of the Insurance Requirements.
Furthermore, Lessee shall, at its sole cost
and expense, take whatever other actions that
may be necessary to comply with and to insure
that the Leased Property complies with all
Insurance Requirements.
7.2.4 NO WASTE. Lessee shall not commit
or suffer to be committed any waste on, in or
under the Leased Property, nor shall Lessee
cause or permit any nuisance thereon.
7.2.5 NO IMPAIRMENT. Lessee shall
neither permit nor knowingly suffer the
Leased Property to be used in such a manner
as (a) might reasonably tend to impair
Lessor's title thereto or (b) may reasonably
make possible a claim or claims of adverse
usage or adverse possession by the public or
of implied dedication of the Leased Property.
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7.2.6 NO LIENS. Except as permitted
pursuant to Section 6.1.2, Lessee shall not
permit or suffer any Lien to exist on the
Tangible Personal Property and shall in no
event cause, permit or suffer any Lien to
exist with respect to the Leased Property
other than as set forth in Section 11.52.
7.3 COMPLIANCE WITH LEGAL REQUIREMENTS.
Lessee covenants and agrees that the Leased
Property shall not be used for any unlawful
purpose and that Lessee, at its sole cost and
expense, will promptly (a) comply with, and shall
cause every other member of the Leasing Group to
comply with, all applicable Legal Requirements
relating to the use, operation, maintenance,
repair and restoration of the Leased Property,
whether or not compliance therewith shall require
structural change in any of the Leased Property or
interfere with the use and enjoyment of the Leased
Property and (b) procure, maintain and comply with
(in all material respects), and shall cause every
other member of the Leasing Group to procure,
maintain and comply with (in all material
respects), all Contracts and Permits necessary or
desirable in order to operate the Leased Property
for the Primary Intended Use and/or, if
applicable, Other Permitted Uses, and for
compliance with all of the terms and conditions of
this Lease. Unless a Lease Default has occurred or
any event has occurred which, with the passage of
time and/or the giving
of notice would constitute a Lease Default, Lessee
may, upon prior written notice to Lessor, contest
any Legal Requirement to the extent permitted by,
and in accordance with, Article 15 below.
7.4 MANAGEMENT AGREEMENTS. Throughout the
Term, Lessee shall not enter into any Management
Agreement without the prior written approval of
Lessor, in each instance, which approval shall not
be unreasonably withheld. Lessee shall not,
without the prior written approval of Lessor, in
each instance, which approval shall not be
unreasonably withheld, agree to or allow: (a) any
change in the Manager or change in the ownership
or control of the Manager, (b) the termination of
any Management Agreement (other than in connection
with the exercise by Lessee of any of its remedies
under the Management Agreement as a result of any
default by the Manager thereunder), (c) any
assignment by the Manager of its interest under
the Management Agreement or (d) any material
amendment of the Management Agreement. In
addition, Lessee shall, at its sole cost and
expense, promptly and fully perform or cause to be
performed every covenant, condition, promise and
obligation of the licensed operator of the Leased
Property under any Management Agreement.
Each Management Agreement shall provide that
Lessor shall be provided notice of any defaults
thereunder and, at Lessor's option, an opportunity
to cure such default. Lessee shall furnish to
Lessor, within three (3) days after receipt
thereof, or after the mailing or service thereof
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by Lessee, as the case may be, a copy of each
notice of default which Lessee shall give to, or
receive from any Person, based upon the
occurrence, or alleged occurrence, of any default
in the performance of any covenant, condition,
promise or obligation under any Management
Agreement.
Whenever and as often as Lessee shall fail to
perform, promptly and fully, at its sole cost and
expense, any covenant, condition, promise or
obligation on the part of the licensed operator of
the Leased Property under and pursuant to any
Management Agreement, Lessor, or a lawfully
appointed receiver of the Leased Property, may, at
their respective options (and without any
obligation to do so), after five (5) days' prior
notice to Lessee (except in the case of an
emergency) enter upon the Leased Property and
perform, or cause to be performed, such work,
labor, services, acts or things, and take such
other steps and do such other acts as they may
deem advisable, to cure such defaulted covenant,
condition, promise or obligation, and any amount
so paid or advanced by Lessor or such receiver and
all costs and expenses reasonably incurred in
connection therewith (including, without
limitation, attorneys' fees and expenses and court
costs), shall be a demand obligation of Lessee to
Lessor or such receiver, and, Lessor shall have
the same rights and remedies for failure to pay
such costs on demand as for Lessee's failure to
pay any other sums due hereunder.
7.5 PARTICIPATION IN THIRD PARTY PAYOR
PROGRAMS. No provision of this Lease shall be
deemed to require Lessee to commence participation
in any Third Party Payor Program or any Managed
Care Plan.
ARTICLE 8
REPAIRS: RESTRICTIONS
8.1 MAINTENANCE AND REPAIR.
8.1.1 LESSEE'S RESPONSIBILITY. Lessee,
at its sole cost and expense, shall keep the
Leased Property and all private roadways,
sidewalks and curbs appurtenant thereto which
are under Lessee's control in good order and
repair (whether or not the need for such
repairs occurs as a result of Lessee's use,
any prior use, the elements or the age of the
Leased Property or such private roadways,
sidewalks and curbs or any other cause
whatsoever other than Lessor's gross
negligence or willful misconduct) and,
subject to Articles 9,13 and 14, Lessee shall
promptly, with the exercise of all reasonable
efforts, undertake and diligently complete
all necessary and appropriate repairs,
replacements, renovations, restorations,
alterations and modifications thereof of
every kind and nature, whether interior or
exterior, structural or
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non-structural, ordinary or extraordinary, .
foreseen or unforeseen or arising by reason
of a condition (concealed or otherwise)
existing prior to the commencement of, or
during, the Term and thereafter until Lessee
surrenders the Leased Property in the manner
required by this Lease. In addition, Lessee,
at its sole cost and expense, shall make all
repairs, modifications, replacements,
renovations and alterations of the Leased
Property (and such private roadways,
sidewalks and curbs) that are necessary to
comply with all applicable Legal Requirements
and Insurance Requirements so that the Leased
Property can be legally operated for the
Primary Intended Use and, if applicable, the
Other Permitted Uses. All repairs,
replacements, renovations, alterations, and
modifications required by the terms of this
Section 8.1 shall be (a) performed in a good
and workmanlike manner in compliance with all
applicable Legal Requirements, Insurance
Requirements and the requirements of Article
9 hereof, using new materials well suited for
their intended purpose and (b) consistent
with the operation of the Facility in a
reputable manner. Lessee will not take or
omit to take any action the taking or
omission of which might materially impair the
value or the usefulness of the Leased
Property for the Primary Intended Use and, if
applicable, the Other Permitted Uses. To the
extent that any of the repairs, replacements,
renovations, alterations or modifications
required by the terms of this Section 8.1
constitute Material Structural Work, Lessee
shall obtain Lessor's prior written approval
(which approval shall not be unreasonably
withheld) of the specific repairs,
replacements, renovations, alterations and
modifications to be performed by or on behalf
of Lessee in connection with such Material
Structural Work. Notwithstanding the
foregoing, in the event of a bona fide
emergency during which Lessee is unable to
contact the appropriate representatives of
Lessor, Lessee may commence such Material
Structural Work as may be necessary in order
to address such emergency without Lessor's
prior approval, provided, however, that
Lessee shall immediately thereafter advise
Lessor of such emergency and the nature and
scope of the Material Structural Work
commenced and shall obtain Lessor's approval
of the remaining Material Structural Work to
be completed.
8.1.2 NO LESSOR OBLIGATION. Lessor shall
not, under any circumstances, be required to
build or rebuild any improvements on the
Leased Property (or any private roadways,
sidewalks or curbs appurtenant thereto), or
to make any repairs, replacements,
renovations, alterations, restorations,
modifications, or renewals of any nature or
description to the Leased Property (or any
private roadways, sidewalks or curbs
appurtenant thereto), whether ordinary or
extraordinary, structural or non-structural,
foreseen or unforeseen, or to make any
expenditure whatsoever with respect thereto
in connection with this Lease, or to maintain
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the Leased Property (or any private roadways,
sidewalks or curbs appurtenant thereto) in
any way.
8.1.3 LESSEE MAY NOT OBLIGATE LESSOR.
Nothing contained herein nor any action or
inaction by Lessor shall be construed as (a)
constituting the consent or request of
Lessor, express or implied, to any
contractor, subcontractor, laborer,
materialman or vendor to or for the
performance of any labor or services for any
construction, alteration, addition, repair or
demolition of or to the Leased Property or
(b) except as otherwise: provided in this
Lease, giving Lessee any right, power or
permission to contract for or permit the
performance of any labor or services or the
furnishing of any materials or other property
in such fashion as would permit the making of
any claim against Lessor for the payment
thereof or to make any agreement that may
create, or in any way be the basis for, any
right, title or interest in, or Lien or claim
against, the estate of Lessor in the Leased
Property. Without limiting the generality of
the foregoing and except as otherwise
provided in this Lease, the right title and
interest of Lessor in and to the Leased
Property shall not be subject to liens or
encumbrances for the performance if all labor
or services or the furnishing of any
materials or other property furnished to the
Leased Property at or by the request of
Lessee or any other Person other than Lessor.
Lessee shall notify any contractor,
subcontractor, laborer, materialman or vendor
providing any labor, services or materials to
the Leased Property of this provision.
8.2 .ENCROACHMENTS: TITLE RESTRICTIONS. If
any of the Leased Improvements shall, at any time,
encroach upon any property, street or right-of way
adjacent to the Leased Properly, or shall violate
the agreements or conditions contained in any
lawful restrictive covenant or other Lien now or
hereafter affecting the Leased Property, or shall
impair the rights of others under any easement,
right-of way or other Lien to which the Leased
Property is now or hereafter subject, then
promptly upon the request of Lessor, Lessee shall,
at its sole cost and expense, subject to Lessee's
right to contest the existence if all
encroachment, violation or impairment as set forth
in Article 15, (a) obtain valid and effective
waivers or settlements of all claims, liabilities
and damages resulting from each such encroachment,
violation or impairment or (b) make such
alterations to the Leased Improvements, and take
such other actions, as Lessee in the good faith
exercise of its judgment deems reasonably
practicable, to remove such encroachment, or to
end such violation or impairment, including, if
necessary, the alteration of any of the Leased
Improvements. Notwithstanding the foregoing,
Lessee shall, in any event, take all such actions
as may be reasonably necessary in order to be able
to continue the operation of the Leased
Improvements for the Primary Intended Use and, if
applicable, the Other Permitted Uses substantially
in the manner
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and to the extent that the Leased Improvements
were operated prior to the assertion of such
encroachment, violation or impairment and nothing
contained herein shall limit Lessee's obligations
to operate the Leased Property in accordance with
its Primary Intended Use. Any such alteration made
pursuant to the terms of this Section 8.2 shall be
completed in conformity with the applicable
requirements of Section 8.1 and Article 9.
Lessee's obligations under this Section 8.2 shall
be in addition to and shall in no way discharge or
diminish any obligation of any insurer under any
policy of title or other insurance. If and to the
extent any obligation of an insurer under any
policy of title or other insurance exists and
Lessee has incurred costs and expenses with
respect to the subject matter of such obligation
and provided Lessor is reasonably satisfied with
the resolution of such subject matter, at the
request of Lessee, Lessor, at Lessor's option,
shall either assign to Lessee any right it may
have to proceed against such insurer or remit to
Lessee any amount which Lessor recovers from such
insurer, minus any amounts needed to reimburse
Lessor for its reasonable costs and expenses, for
the costs and expenses incurred by Lessee in
reconstructing the Facility or taking such other
action reasonably required in order to create a
viable and functional Facility under all of the :
circumstances.
ARTICLE 9
MATERIAL STRUCTURAL WORK AND
CAPITAL ADDITIONS
9.1 LESSOR'S APPROVAL. Without the prior
written consent of Lessor, which consent may be
withheld by Lessor, in its sole and absolute
discretion, Lessee shall make no Capital Addition
or Material Structural Work to the Leased Property
(including, without limitation, any change in the
size or unit capacity of the Facility), except as
may be otherwise expressly required pursuant to
Article 8.
9.2 GENERAL PROVISIONS AS TO CAPITAL
ADDITIONS AND CERTAIN MATERIAL STRUCTURAL WORK. As
to any Capital Addition or Material Structural
Work (other than such Material Structural Work
that is required to be performed pursuant to the
terms of Section 8.1) for which Lessor has granted
its prior written approval, the following terms
and conditions shall apply unless otherwise
expressly set forth in Lessor's written approval.
9.2.1 NO LIENS. Lessee shall not be
permitted to create any Lien on the Leased
Property in connection with any Capital
Addition or Material Structural Work
(including, without limitation, Liens
relating to the provision of financing for a
Capital
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Addition) other than Liens expressly
permitted by the terms and provisions of this
Lease Agreement.
9.2.2 LESSEE' PROPOSAL REGARDING
CAPITAL ADDITION AND MATERIAL STRUCTURAL
WORK. If Lessee desires to undertake any
Capital Addition or Material Structural Work,
Lessee shall submit to Lessor in writing a
proposal setting forth in reasonable detail
any proposed Capital Addition or Material
Structural Work and shall provide to Lessor
copies of, or information regarding, the
applicable plans and specifications, Permits,
Contracts and any other materials concerning
the proposed Capital Addition or Material
Structural Work, as the case may be, as
Lessor may reasonably request. Without
limiting the generality of the foregoing,
each such proposal pertaining to any Capital
Addition shall indicate the approximate
projected cost of constructing such Capital
Addition, the use or uses to which it will be
put and a good faith estimate of the change,
if any, in the Gross Revenues that Lessee
anticipates will result from the construction
of such Capital Addition.
9.2.3 LESSOR'S OPTIONS REGARDING CAPITAL
ADDITIONS AND MATERIAL STRUCTURAL WORK.
Lessor shall have the options of.. (a)
denying permission for the construction of
the applicable Capital Addition or Material
Structural Work, (b) offering to finance the
construction of the Capital Addition pursuant
to Section 9.3 on such terms as may be
specified by Lessor, including the terms of
any amendment to this Lease, including,
without limitation, an increase in Base Rent
based on Lessor's then existing terms and
prevailing conditions to compensate Lessor
for the additional funds advanced by it, (c)
allowing Lessee to separately pay for or
finance the construction of the Capital
Addition, subject to compliance with the
terms and conditions of Section 9.2.1,
Section 9.4, Section 13.1.3, all applicable
Legal Requirements, all other requirements of
this Lease and to such other terms and
conditions as Lessor may in its discretion
reasonably impose or (d) any combination of
the foregoing. Unless Lessor notifies Lessee
in writing of a contrary election within
thirty (30) days of Lessee's request or
unless Lessor is required to consent thereto
pursuant to this Section 9.2.3, Lessor shall
be deemed to have denied the request for the
Capital Addition or Material Structural Work.
In the event and to the extent Lessor has
granted permission for the construction of
the applicable Capital Addition or Material
Structural Work and (x) Lessor has not
offered to finance the construction of the
same or (y) Lessee declines to accept the
financing offered by Lessor, Lessee may
separately finance such construction, subject
to the limitation on Liens set forth in
Section 9.2.1, or pay for such construction
itself. In the event Lessee declines to
accept the financing offered by
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Lessor or if Lessor has not offered such
financing to Lessee and proposes to obtaining
financing from another Person, Lessee shall
inform Lessor in writing of the terms and
conditions of such financing and shall
provide Lessor with a copy of a commitment
letter evidencing the same and Lessor may, by
giving notice thereof to Lessee within twenty
(20) days following being so informed, elect_
to provide financing to Lessee at the
effective rate of interest as such financing.
Lessor shall not unreasonably withhold its
permission for the construction of Material
Structural Work which is necessary to protect
the safety or welfare of residents of the
Facility.
9.2.4 LESSOR MAY ELECT TO FINANCE
CAPITAL ADDITIONS. If Lessor elects to offer
financing for the proposed Capital Addition
and Lessee accepts Lessor's financing
proposal, the provisions of Section 9.3 shall
apply.
9.3 CAPITAL ADDITIONS FINANCED BY LESSOR.
9.3.1 ADVANCES. All advances of funds
for any such financing shall be made in
accordance with Lessor's then standard
construction loan requirements and
procedures, which may include, without
limitation, the requirements and procedures
applicable to Work under Sections 13.1.3 and
13.1.4.
9.3.2 LESSOR'S GENERAL REQUIREMENTS. If
Lessor agrees to finance the proposed Capital
Addition and Lessee accepts Lessor's proposal
therefor, in addition to all other items
which Lessor or any applicable Financing
Party may reasonably require, Lessee shall
provide to Lessor the following:
(a) prior to any advance of funds,
(i) any information, opinions
certificates, Permits or documents
reasonably requested by Lessor or any
applicable Financing Party which are
necessary to confirm that Lessee is
reasonably expected to be able to use
the Capital Addition upon completion
thereof in accordance with the Primary
Intended Use and/or, if applicable, the
Other Permitted Uses and (ii) evidence
satisfactory to Lessor and any
applicable Financing Party that all
Permits required for the construction
and use of the Capital Addition have
been received, are in full force and
effect and are not subject to appeal,
except only for those Permits which
cannot in the normal course be obtained
prior to commencement or completion of
the construction; provided, that Lessor
and any applicable Financing Party are
furnished with reasonable evidence that
the same is reasonably expected to be
available in the normal course of
business without unusual condition;
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(b) prior to any advance of funds,
an Officer's Certificate and, if
requested, a certificate from Lessee's
architect, setting forth in reasonable
detail the projected (or actual, if
available) Capital Addition Cost;
(c) bills of sale, instruments of
transfer and other documents required by
Lessor so as to vest title to the
Capital Addition in Lessor free and
clear of all Liens (except to the extent
a Lien is being duly contested in
accordance with the terms and provisions
of this Lease), and amendments to this
Lease and any recorded notice or
memorandum thereof, duly executed and
acknowledged, in
form and substance reasonably
satisfactory to Lessor, providing for
any changes required by Lessor
including, without limitation, changes
in the Base Rent and the legal
description of the Land;
(d) upon payment therefor, a deed
conveying to Lessor title to any land
acquired for the purpose of constructing
the Capital Addition ("Additional Land")
free and clear of any Liens except those
approved by Lessor;
(e) upon completion of the Capital
Addition, a final as-built survey
thereof reasonably satisfactory to
Lessor, if required by Lessor;
(f) during and following the
advance of funds and the completion of
the Capital Addition, endorsements to
any outstanding policy of title
insurance covering the Leased Property
satisfactory in form and substance to
Lessor (i) updating the same without any
additional exception except as may be
reasonably permitted by Lessor and (ii)
increasing the coverage thereof by an
amount equal to the Fair Market Value of
the Capital Addition and/or increasing
the coverage thereof by an amount equal
to the Fair Market Value of the
Additional Land and including the
Additional Land in the premises covered
by such title insurance policy;
(g) simultaneous with the initial
advance of funds, if appropriate, (i) an
owner's policy of title insurance
insuring fee simple title to any
Additional Land conveyed to Lessor
pursuant to subparagraph (d) free and
clear of all Liens except those approved
by Lessor and (ii) an owner's policy of
title insurance reasonably satisfactory
in form and substance to Lessor and a
lender's policy of title insurance
reasonably satisfactory in form and
substance to any applicable Financing
Party;
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(h) following the completion of the
Capital Addition, if reasonably deemed
necessary by Lessor, an appraisal of the
Leased Property by an M.A.I. appraiser
acceptable to Lessor, which states that
the Fair Market Value of the Leased
Property upon completion of the Capital
Addition exceeds the Fair Market Value
of the Leased Property prior to the
commencement of such Capital Addition by
an amount not less than one hundred
twenty-five percent (125%) of the
Capital Addition Cost; and
(i) during or following the
advancement of funds, prints of
architectural and engineering drawings
relating to the Capital Addition and
such other materials, including, without
limitation, the modifications to
outstanding policies of title insurance
contemplated by subsection (f) above,
opinions of counsel, appraisals,
surveys, certified copies of duly
adopted resolutions of the board of
directors of Lessee authorizing the
execution and delivery of the lease
amendment and any other documents and
instruments as may be reasonably
required by Lessor and any applicable
Financing Party.
9.3.3 PAYMENT OF COSTS. By virtue of
making a request to finance a Capital
Addition, whether or not such financing is
actually consummated, Lessee shall be deemed
to have agreed to pay, upon demand, all costs
and expenses reasonably incurred by Lessor
and any Person participating with Lessor in
any way in the financing of the Capital.
Addition Cost, including, but not limited to
(a) fees and expenses of their respective
attorneys, (b) all photocopying expenses, if
any, (c) the amount of any filing,
registration and recording taxes and fees,
(d) documentary stamp taxes and intangible
taxes (e) title insurance charges and
appraisal fees.
9.4 GENERAL LIMITATIONS. Without in any way
limiting Lessor's options with respect to proposed
Capital Additions or Material Structural Work: (a)
no Capital Addition or Material Structural Work
shall be completed that could, upon completion,
significantly alter the character or purpose or
detract from the value or operating efficiency of
the Leased Property, or significantly impair the
revenue-producing capability of the. Leased
Property, or adversely affect the ability of
Lessee to comply with the terms of this Lease; (b)
no Capital Addition or Material Structural Work
shall be completed which would tie in or connect
any Leased Improvements on the Leased Property
with any other improvements on property adjacent
to the Leased Property (and not part of the Land
covered by this Lease) including, without
limitation, tie-ins of buildings or other
structures or utilities, unless Lessee shall have
obtained the prior written
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approval of Lessor, which approval may be withheld
in Lessor's sole and absolute discretion and (c)
all proposed Capital Additions and Material
Structural Work shall be architecturally
integrated and consistent with the Leased
Property.
9.5 NON-CAPITAL ADDITIONS. Lessee shall have
the obligation and right to make repairs,
replacements and alterations which are not Capital
Additions as required by the other Sections of
this Lease, but in so doing, Lessee shall always
comply with and satisfy the conditions of Section
9.4. Lessee shall have the right, from time to
time, to make additions, modifications or
improvements to the Leased Property which do not
constitute Capital Additions or Material
Structural Work as it may deem to be desirable or
necessary for its uses and purposes, subject to
the same limits and conditions imposed under
Section 9.4. The cost of any such repair,
replacement, alteration, addition, modification or
improvement shall be paid by Lessee and the
results thereof shall be included under the terms
of this Lease and become a part of the Leased
Property, without payment therefor by Lessor at
any time. Notwithstanding the foregoing, all such
additions, modifications and improvements which
affect the structure of any of the Leased
Improvements, or which involve the expenditure of
more than FIFTY THOUSAND DOLLARS ($50,000.00),
shall be undertaken only upon compliance with the
provisions of Section 13.1.3, all applicable Legal
Requirements and all other applicable requirements
of this Lease; provided, however, that in the
event of a bona fide emergency during which Lessee
is unable to contact the appropriate
representatives of Lessor, Lessee may commence
such additions, modifications and improvements as
may be necessary in order to address such
emergency without Lessor's prior approval, as long
as Lessee immediately thereafter advises Lessor of
such emergency and the nature and scope of the
additions, modifications and improvements
performed and obtains Lessor's approval of the
remaining work to be completed. Any such addition,
modification and improvement which affects the
structure if all of the Leased Improvements which
is not a Capital Addition or Material Structural
Work shall be exempt from the requirements of
Section 9.2 hereof.
9.6 COMPENSATION TO LESSEE FOR CAPITAL
ADDITIONS PAID FOR OR FINANCED BY LESSEE. Upon the
expiration or earlier termination of this Lease,
except by reason of the default by Lessee
hereunder, Lessor shall compensate Lessee for all
Capital Additions paid for or financed by Lessee
in any of the following ways, determined in the
sole discretion of Lessor:
(a) By purchasing all Capital Additions paid
for or financed by Lessee from Lessee for cash in
the amount of the Fair Market Added Value
(determined as of the date of such purchase) of
all such Capital Additions paid for or financed by
Lessee; or
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(b) By purchasing such Capital Addition from
Lessee by delivering to Lessee Lessor's purchase
money promissory note in the amount of said Fair
Market Added Value, due and payable no later than
eighteen (18) months after the date of expiration
or other termination of this Lease, bearing
interest at a rate equal to one hundred ten
percent ( 110%) of the applicable federal rate
(determined at the time of execution of such note
pursuant to Section 1274 of the Code or any
successor section thereto), compounded
semiannually, or, if no such rate exists, or such
rate is in excess of that permitted under
applicable law, at the Prime Rate, which interest
shall be payable monthly, and which note shall be
secured by a mortgage on the Leased Property,
subject to all Liens on the Leased Property at the
time of such purchase; or
(c) By Lessor assigning to Lessee under
appropriate written instruments the right to
receive an amount equal to the Added Value
Percentage (determined as of the expiration of
earlier termination of this Lease) from all rent
and other consideration receivable by Lessor under
any re-letting or other disposition of the Leased
Property, after deducting all costs and expenses
incurred by Lessor in connection with such re-
letting or other disposition of the leased
Property and all costs and expenses of operating
and maintaining the Leased Property during any
such new lease which are not borne by the tenant
thereunder. The provisions of this Subparagraph
(c) shall remain in effect until the sale or other
final disposition of the Leased Property in which
event Lessor shall pay to Lessee the outstanding
balance of the Fair Market Added Value in
accordance with Subparagraph (a), (b), or (d) of
this Section 9.6, after deducting any amounts
received by Lessee under this Subparagraph (c); or
(d) Such other arrangement regarding such
compensation as shall be mutually acceptable to
Lessor and Lessee.
ARTICLE 10
WARRANTIES AND REPRESENTATIONS
10.1 REPRESENTATIONS AND WARRANTIES. Lessee
hereby represents and warrants to, and covenants
and agrees with, Lessor that:
10.1.1 EXISTENCE; POWER; QUALIFICATION.
Lessee is a limited partnership duly
organized, validly existing and in good
standing under the laws of the State of
Washington. The General Partner is a
corporation duly organized, validly existing
and in good standing under the laws of the
State of Washington. The Lessee and the
General Partner each have all requisite power
to own and operate their respective
properties and to carry on their respective
businesses as presently conducted and as
proposed to be conducted and each is duly
qualified to transact
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business and is in good standing in each
jurisdiction where such qualification is
necessary or desirable in order to carry out
its business as presently conducted and as
proposed to be conducted. As of the date of
this Agreement, neither the Lessee nor
General Partner of Lessee has any
Subsidiaries or is a member of any
partnership or joint venture. Attached hereto
as EXHIBIT C is a true and correct list of
all of the Persons owning any interest in the
Lessee and their respective ownership
interests in the Lessee and all of the
Persons owning any interest in the General
Partner and their respective ownership
interest in the General Partner. The General
Partner is the sole general partner of
Lessee.
10.1.2 VALID AND BINDING. Lessee is duly
authorized to make and enter into all of the
Lease Documents to which Lessee is a party
and to carry out the transactions
contemplated therein. All of the Lease
Documents to which Lessee is a party have
been duly executed and delivered by Lessee,
and each is a legal, valid and binding
obligation of Lessee, enforceable in
accordance with its terms.
10.1.3 SINGLE PURPOSE. Lessee is, and
during the entire time that this Lease
remains in force and effect shall be, engaged
in no business, trade or activity other than
the operation and development of the Leased
Property for the Primary Intended Use and
such other activities in which Lessee may be
permitted to engage by the provisions of
Meditrust/Emeritus Transaction Documents. The
fiscal year of Lessee, and the Guarantor is
the Fiscal Year.
10.1.4 NO VIOLATION. The execution,
delivery and performance of the Lease
Documents by the members of the Leasing Group
and the consummation by the members of the
Leasing Group of the transactions thereby
contemplated shall not result in any breach
of, or constitute a default under, or result
in the acceleration of, or constitute an
event which, with the giving of notice or the
passage of time, or both, could result in
default or acceleration of any obligation of
any such member of the Leasing Group under
any of the Permits or Contracts or any other
contract, mortgage, lien, lease, agreement,
instrument, franchise, arbitration award,
judgment, decree, bank loan or credit
agreement, trust indenture or other
instrument to which any member of the Leasing
Group is a party or by which any member of
the Leasing Group may be bound or affected
and do not violate or contravene any Legal
Requirement.
10.1.5 CONSENTS AND APPROVALS. Except as
already obtained or filed, as the case may
be, no consent or approval or
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other authorization of, or exemption by, or
declaration or filing with, any Person and no
waiver of any right by any Person is required
to authorize or permit, or is otherwise
required as a condition of the execution,
delivery and performance of its obligations
under the Lease Documents by any member of
the Leasing Group or as a condition to the
validity (assuming the due authorization,
execution and delivery by Lessor of the Lease
Documents to which it is a party) and the
first priority of any Liens granted under the
Lease Documents, except the filing of the
Financing Statements.
10.1.6 NO LIENS OR INSOLVENCY
PROCEEDINGS. Each member of the Leasing Group
in existence as of the date hereof is
financially solvent and there are no actions,
suits, investigations or proceedings
including, without limitation, outstanding
federal or state tax liens, garnishments or
insolvency or bankruptcy proceedings, pending
or, to the best of Lessee's knowledge and
belief, threatened:
(a) against or affecting any member
of the Leasing Group, which if adversely
resolved to such member of the Leasing
Group, would materially adversely affect
the ability of any of the foregoing to
perform their respective obligations
under the Lease Documents;
(b) against or affecting the Leased
Property or the ownership, construction,
development, maintenance, management,
repair, use, occupancy, possession or
operation thereof; or
(c) which may involve or affect the
validity, priority or enforceability of
any of the Lease Documents, at law or in
equity, or before or by any arbitrator
or Governmental Authority.
10.1.7 Intentionally deleted.
10.1.8 COMMERCIAL ACTS. Lessee's
performance of and compliance with the
obligations and conditions set forth herein
and in the other Lease Documents will
constitute commercial acts done and performed
for commercial purposes.
10.1.9 ADEQUATE CAPITAL. NOT INSOLVENT.
After giving effect to the consummation of
the transactions contemplated by the Lease
Documents, each member of the Leasing Group:
(a) will be able to pay its debts
as they become due;
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(b) will have sufficient funds or
available capital to carry on its
business as now conducted or as
contemplated to be conducted (in
accordance with the terms of the Lease
Documents); and
(c) will not be rendered insolvent
as determined by applicable law.
10.1.10 NOT DELINQUENT. Except as
permitted under Section 11.3.8, no member of
the Leasing Group which exists as of the date
hereof is delinquent or claimed to be
delinquent under any obligation for the
payment of borrowed money.
10.1.11 NO AFFILIATE DEBT. Neither
Lessee nor the General Partner, on behalf of
Lessee, has created, incurred, guaranteed,
endorsed, assumed or suffered to exist any
liability (whether direct or contingent) for
borrowed money from the Guarantor (or any of
its Affiliates) or any Affiliate of Lessee
which has not been fully subordinated to the
Lease Obligations.
10.1.12 TAXES CURRENT. Each member of
the Leasing Group which exists as of the date
hereof has filed all federal, state and local
tax returns which are required to be filed as
to which extensions are not currently in
effect and has paid all taxes, assessments,
impositions, fees and other governmental
charges (including interest and penalties)
which have become due pursuant to such
returns or pursuant to any assessment or
notice of tax claim or deficiency received by
each such member of the Leasing Group. No tax
liability has been asserted by the Internal
Revenue Service against any member of the
Leasing Group or any other federal, state or
local taxing authority for taxes,
assessments, impositions, fees or other
governmental charges (including interest or
penalties thereon) in excess of those already
paid.
10.1.13 FINANCIALS COMPLETE AND
ACCURATE. The financial statements of each
member of the Leasing Group given to Lessor
in connection with the execution and delivery
of the Lease Documents were true, complete
and accurate, in all material respects, and
fairly presented the financial condition of
each such member of the Leasing Group as of
the date thereof and for the periods covered
thereby, having been prepared in accordance
with GAAP and such financial statements
disclosed all liabilities, including, without
limitation, contingent liabilities, of each
such member of the Leasing Group as of the
date thereof. There has been no material
adverse change since such date with respect
to the Net Worth of any such member of the
Leasing Group
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or with respect to any other matters
contained in such financial statements, nor
have any additional material liabilities,
including, without limitation, contingent
liabilities, of any such member of the
Leasing Group arisen or been incurred or
asserted since such date except as otherwise
disclosed to Lessor. The projections
heretofore delivered to Lessor continue to be
reasonable (with respect to the material
assumptions upon which such projections are
based) and Lessee reasonably anticipates
based on information currently available to
it after due inquiry the results projected
therein will be achieved, there having been
(a) no material adverse change in the
business, assets or condition, financial or
otherwise of any such member of the Leasing
Group or the Leased Property and (b) no
material depletion of the cash or decrease in
working capital of any such member of the
Leasing Group.
10.1.14 PENDING ACTIONS. NOTICES AND
REPORTS.
There is no action or investigation
pending or, to the best knowledge and belief
of Lessee, threatened, anticipated or
contemplated (nor, to the knowledge of
Lessee, is there any reasonable basis
therefor) against or affecting the Leased
Property or any member of the Leasing Group
(or any Affiliate thereof) before any
Governmental Authority which could prevent or
hinder the consummation of the transactions
contemplated hereby or call into question the
validity of any of the Lease Documents or any
action taken or to be taken in connection
with the transactions contemplated thereunder
or which in any single case or in the
aggregate might result in any material
adverse change in the business, prospects,
condition, affairs of any member of the
Leasing Group or the Leased Property
(including, without limitation, any action to
revoke, withdraw or suspend any Permit
necessary or desirable for the operation of
the Leased Property in accordance with its
Primary Intended Use and any action to
transfer or relocate any such Permit to a
location other than the Leased Property) or
any material impairment of the right or
ability of any member of the Leasing Group to
carry on its operations as presently
conducted or proposed to be conducted with
respect to the Leased Property or with
respect to its obligations under the Lease
Documents.
10.1.15 COMPLIANCE WITH LEGAL AND OTHER
REQUIREMENTS.
(a) Lessee and the Leased Property and
the ownership, construction, development,
maintenance, management, repair, use,
occupancy, possession and operation thereof
comply with all applicable Legal Requirements
and there is no claim of any
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violation thereof known to Lessee. Without
limiting the foregoing, Lessee has obtained
all Permits that are necessary or desirable
to operate the Leased Property in accordance
with its Primary Intended Use.
(b) Except as previously delivered to
Lessor, there are no outstanding notices of
deficiencies, notices of proposed action or
orders of any kind relating to the Leased
Property, if any, issued by any Governmental
Authority requiring conformity to any of the
applicable Legal Requirements.
10.1.16 NO ACTION BY GOVERNMENTAL
AUTHORITY OR ACCREDITATION BODY. There is no
action pending or, to the best knowledge and
belief of Lessee, recommended, by any
Governmental Authority to revoke, repeal,
cancel, modify, withdraw or suspend any
Permit or Contract or to take any other
action of any other type which could have a
material adverse effect on the Leased
Property.
10.1.17 PROPERTY MATTERS.
(a) The Leased Property is free and clear of
agreements, covenants and Liens to which this
Lease is expressly subject, except those
agreements, covenants and Liens to which this
Lease is expressly subject, whether presently
existing, as are listed on EXHIBIT B or were
listed on the UCC lien search results delivered to
Lessor at or prior to the execution and delivery
of this Lease (and were not required to be
terminated as a condition of the execution and
delivery of this Lease), or which may hereafter be
created in accordance with the terms hereof
(collectively referred to herein as the "Permitted
Encumbrances"); and Lessee shall warrant and
defend Lessor's title to the Leased Property
against any and all claims and demands of every
kind and nature whatsoever;
(b) There is no Condemnation or similar
proceeding pending with respect to or
affecting the Leased Property, and Lessee is
not aware, to the best of Lessee's knowledge
and belief, that any such proceeding is
contemplated;
(c) No part of the Collateral or the
Leased Property has been damaged by any fire
or other casualty. The Leased Improvements
are in good operating condition and repair,
ordinary wear and tear excepted, free from
known defects in construction or design;
(d) None of the Permitted Encumbrances
has or is likely to have a material adverse
impact upon, nor interfere with or impede,
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in any material respect, the operation of the
Leased Property in accordance with the
Primary Intended Use;
(e) All buildings, facilities and other
improvements necessary, both legally and
practically, for the proper and efficient
operation of the Facility are located upon
the Leased Property and all real property and
personal property currently utilized by
Lessee is included within the definition of
the Leased Property or the Collateral;
(f) The Leased Property abuts on and
has direct vehicular access to a public road
or access to a public road via permanent,
irrevocable, appurtenant easements;
(g) The Leased Property constitutes a
parcel(s) for real estate tax purposes
separate from any real property that does not
constitute a portion of the Leased Property
and no portion of any real property that does
not constitute a portion of the Leased
Property is part of the same tax parcel as
any part of the Leased Property;
(h) All utilities necessary for the use
and operation of the Facility are available
to the lot lines of the Leased Property:
(i) in sufficient supply and
capacity;
(ii) through validly created and
existing easements of record appurtenant
to or encumbering the Leased Property
(which easements shall not impede or
restrict the operation of the Facility);
and
(iii) without need for any Permits
and/or Contracts to be issued by or
entered into with any Governmental
Authority, except as already obtained or
executed, as the case may be, or as
otherwise shown to the satisfaction of
Lessor to be readily obtainable; and
(i) Lessee has made no structural
alterations or improvements to any of the
Leased Improvements that changed the foot-
print of any of the Leased Improvements,
added an additional story to any of the
Leased Improvements, decreased the amount of
parking available on the Leased Property or
otherwise involved any alteration which would
be regulated by applicable zoning
requirements, in each case without the
express written consent of Lessor. Except for
matters which have been disclosed to Lessor
or concerning which Lessor has independent
actual knowledge, Lessee has no actual
knowledge of any such structural alteration
or improvement made to any of the Leased
Improvements during the last ten ( 10) years
and has no knowledge of any such structural
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alteration or renovation made to any of the
Leased Improvements or any such decrease in
parking during such period.
10.1.18 THIRD PARTY PAYOR AGREEMENTS.
Neither Lessee with respect to the
Facility nor the Facility is qualified as a
provider of services under or participates in
any Third Party Payor Programs and neither
Lessee with respect to the Facility nor the
Facility is accredited by any Accreditation
Body.
10.1.19 RATE LIMITATIONS. The State
currently imposes no restrictions or
limitations on rates which may be charged to
private pay residents receiving services at
the Facility.
10.1.20 FREE CARE. There are no
Contracts, Permits or applicable Legal
Requirements which require that, a percentage
of units in any program at the Facility be
reserved for Medicaid or Medicare eligible
residents or that the Facility provide a
certain amount of welfare, free or charity
care or discounted or government assisted
resident care.
10.1.21 NO PROPOSED CHANGES. Lessee has
no actual knowledge of any applicable Legal
Requirements which have been enacted,
promulgated or issued within the eighteen (
18) months preceding the date of this Lease
or any proposed applicable Legal Requirements
currently pending in the State which may
materially adversely affect rates at the
Facility (or any program operated by a member
of the Leasing Group in conjunction with the
Facility) or may result in the likelihood of
increased competition at the Facility or the
imposition of Medicaid, Medicare, charity,
free care, welfare or other discounted or
government assisted residents at the Facility
or require that Lessee or the Facility obtain
a certificate of need, Section 1122 approval
or the equivalent, which Lessee or the
Facility does not currently possess.
10.1.22 ERISA. No employee pension
benefit plan maintained by any member of the
Leasing Group has any accumulated funding
deficiency within the meaning of the ERISA,
nor does any member of the Leasing Group have
any material liability to the PBGC
established under ERISA (or any successor
thereto) in connection with any employee
pension benefit plan (or other class of
benefit which the PBGC has elected to
insure), and there have been no "reportable
events" (not waived) or "prohibited
transactions" with respect to any such plan,
as those terms are defined in Section 4043 of
ERISA and Section 4975 of the Internal
Revenue Code of 1986, as now or hereafter
amended, respectively.
10.1.23 NO BROKER. No member of the
Leasing Group nor any of their respective
Affiliates has dealt with any broker or
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agent in connection with the transactions
contemplated by the Lease Documents.
10.1.24 NO IMPROPER PAYMENTS. No member
of the Leasing Group nor any of their
respective Affiliates has:
(a) made any contributions,
payments or gifts of its funds or
property to or for the private use of
any government official, employee, agent
or other Person where either the payment
or the purpose of such contribution,
payment or gifts is illegal under the
laws of the United States, any state
thereof or any other .jurisdiction
(foreign or domestic);
(b) knowingly established or
maintained any unrecorded fund or asset
for any purpose or knowingly made any
false or artificial entries on any of
its books or records for any reason;
(c) made any payments to any Person
with the intention or understanding that
any part of such payment was to be used
for any other purpose other than that
described in the documents supporting
the payment; or .
(d) made any contribution, or
reimbursed any political gift or -
contribution made by any other Person,
to candidates for public office, whether
federal, state or local, where such
contribution would be in violation of
applicable law.
10.1.25 NOTHING OMITTED. Neither this
Lease, nor any of the other Lease Documents,
nor any certificate, agreement, statement or
other document, including, without
limitation, any financial statements
concerning the financial condition of any
member of the Leasing Group, furnished to or
to be furnished to Lessor or its attorneys in
connection with the transactions contemplated
by the Lease Documents, contains or will
contain any untrue statement of a material
fact or omits or will omit to state a
material fact necessary in order to prevent
all statements contained herein and therein
from being misleading. There is no fact
within the special knowledge of Lessee which
has not been disclosed herein or in writing
to Lessor that materially adversely affects,
or in the future, insofar as Lessee can
reasonably foresee based on the information
currently available to it after due inquiry,
may materially adversely affect the business,
properties, assets or condition, financial or
otherwise, of any member of the Leasing Group
or the Leased Property.
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10.1.26 NO MARGIN SECURITY. Lessee is
not engaged in the business of extending
credit for the purpose of purchasing or
carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the
proceeds of the Meditrust Investment will be
used to purchase or carry any margin security
or to extend credit to others for the purpose
of purchasing or carrying any margin security
or in any other manner which would involve a
violation of any of the regulations of the
Board of Governors of the Federal Reserve
System. Lessee is not an "investment company"
within the meaning of the Investment Company
Act of 1940, as amended.
10.1.27 NO DEFAULT. No event or state of
facts which constitutes, or which, with
notice or lapse of time, or both, could
constitute, a Lease Default has occurred and
is continuing.
10.1.28 PRINCIPAL PLACE OF BUSINESS. The
principal place of business and chief
executive office of Lessee is located at 3131
Elliott Avenue, Suite 500, Seattle,
Washington 98121-2162 (the "Principal Place
of Business").
10.1.29 LABOR MATTERS. There are no
proceedings now pending, nor, to the best of
Lessee's knowledge, threatened with respect
to the operation of the Facility before the
National Labor Relations Board, State
Commission on Human Rights and Opportunities,
State Department of Labor, U.S. Department of
Labor or any other Governmental Authority
having jurisdiction of employee rights with
respect to hiring, tenure and conditions of
employment, and no member of the Leasing
Group has experienced any material
controversy with any Facility administrator
or other employee of similar stature or with
any labor organization which has, or is
likely, to have a materially adverse effect
upon the financial condition and/or
operations of the Facility.
10.1.30 INTELLECTUAL PROPERTY. Lessee is
duly licensed or authorized to use all (if
any) copyrights, rights of reproduction,
trademarks, trade-names, trademark
applications, service marks, patent
applications, patents and patent license
rights, (all whether registered or
unregistered, U.S. or foreign), inventions,
franchises, discoveries, ideas, research,
engineering, methods, practices, processes,
systems, formula, designs, drawings,
products, projects, improvements,
developments, know-how and trade secrets
which are used in or necessary for the
development and/or operation of the Facility
in accordance with its Primary Intended Use,
without conflict with or infringement of any,
and subject to no restriction, lien,
encumbrance, right, title or interest in
others.
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10.1.31 MANAGEMENT AGREEMENTS. There is
no Management Agreement in force and effect
as of the date hereof.
10.2 CONTINUING EFFECT OF REPRESENTATIONS AND
WARRANTIES. All representations and warranties
contained in this Lease and the other Lease
Documents shall constitute continuing
representations and warranties which shall remain
true, correct and complete throughout the Term.
Notwithstanding the provisions of the foregoing
sentence but without derogation from any other
terms and provisions of this Lease, including,
without limitation, those terms and provisions
containing covenants to be performed or conditions
to be satisfied on the part of Lessee the
representations and warranties contained in
Sections 10.1.6, 10.1. 8, 10.1. 10, 10. 1.14,
10.1.15, 10.1.17(b), 10.1.17(c), 10.1.17(i),
10.1.18, 10.1.19, 10.1.20, 10.1.21, 10.1.22,
10.1.27, 10.1.29, in the second sentence of
Section 10.1.12, in the second and third sentences
of Section 10.1.13 and in the second sentence of
Section 10.1.25 shall not constitute continuing
representations and warranties throughout the Term
provided, however, that nothing contained in the
first sentence of Section 10.1.25 shall be
construed as imposing any obligation on Lessee to
update after the Commencement Date the information
furnished to Lessor prior to the execution and
delivery of this Lease but without derogation of
any other obligation Lessee has under this Lease
to provide information to Lessor.
ARTICLE 11
FINANCIAL AND OTHER COVENANTS
11.1 STATUS CERTIFICATES. At any time, and
from time to time, upon request from the other,
Lessee and Lessor shall furnish to the other,
within ten (10) Business Days' after receipt of
such request, an Officer's Certificate certifying
that this Lease is unmodified and in full force
and effect (or that this Lease is in full force
and effect as modified and setting forth the
modifications) and the dates to which the Rent has
been paid. Any Officer's Certificate furnished
pursuant to this Section at the request of Lessor
shall be addressed to any prospective purchaser or
mortgagee of the Leased Property as Lessor may
request and may be relied upon by Lessor and any
such prospective purchaser or mortgagee of the
Leased Property.
11.2 FINANCIAL STATEMENTS; REPORTS; NOTICE
AND INFORMATION.
11.2.1 OBLIGATION TO FURNISH. Lessee
will furnish and shall cause to be furnished
to Lessor the following statements,
information and other materials:
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(a) ANNUAL STATEMENTS. Within
ninety (90) days after the end of each of
their respective fiscal years, (i) a copy
of the Consolidated Financials for each
of (x) Lessee, (y) the Guarantor and (z)
any Sublessee which is an Affiliate of
Lessee for the preceding fiscal year,
certified and, in the case of Guarantor,
audited by, and with the unqualified
opinion of, independent certified public
accountants acceptable to Lessor and
certified as true and correct by Lessee,
the Guarantor or the applicable
Sublessee, as the case may be (and,
without limiting anything else contained
herein, the Consolidated Financials for
Lessee and for each such Sublessee shall
include a detailed balance sheet for
Leased Property as of the last day of
such fiscal year and a statement of
earnings from the Leased Property for
such fiscal year showing, among other
things, all rents and other income
therefrom and all expenses paid or
incurred in connection with the operation
of the Leased Property); (ii) separate
statements, certified as true and correct
by Lessee, the Guarantor, any Manager
which is an Affiliate of Lessee and each
such Sublessee which is an Affiliate of
Lessee, stating whether, to the best of
the signer's knowledge and belief after
making due inquiry, Lessee, the
Guarantor, such Manager or any such
Sublessee, as the case may be, is in
default in the performance or observance
of any of the items of this Lease or any
of the other Lease Documents and, if so,
specifying all such defaults, the nature
thereof and the steps being taken to
immediately remedy the same; (iii) a copy
of all letters from the independent
certified accountants engaged to perform
the annual audits referred to above,
directed to the management of the
Guarantor regarding the existence of any
reportable conditions or material
weaknesses; (iv) a statement .certified
as true and correct by Lessee setting
forth all Subleases as of the last day of
such fiscal year, the respective areas
demised thereunder, the names of the
Sublessees thereunder, the respective
expiration dates of the Subleases, the
respective rentals provided for therein,
and such other information pertaining to
the Subleases as may be reasonably
requested by Lessor; and (v) evidence
satisfactory to Lessor that Lessee has
fulfilled its obligation to make the
Annual Facility Upgrade Expenditure.
(b) MONTHLY STATEMENTS OF LESSEE.
Within thirty (30) days after the end of
each calendar month during the pendency
of this Lease, (i) a statement certified
as true and correct by Lessee setting
forth the Gross Revenues of the Leased
Property for the immediately preceding
month, (ii) an unaudited, detailed month
and year to date income and expense
statement for the Leased
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Property which shall include a
comparison to corresponding budget
figures, occupancy statistics (including
the actual number of residents, the
number of units available and total
resident days for such month) and
resident mix breakdowns (for each
resident day during such month
classifying residents by the type of
care required and source of payment) and
(iii) an express written calculation
showing the compliance or non-
compliance, as the case may be, with the
specific financial covenants set forth
in Section 11.3 for the applicable
period, including, with respect to the
calculation of Lessee's Debt Coverage
Ratio, a schedule substantially in the
form attached hereto as EXHIBIT D.
(c) QUARTERLY STATEMENTS. Within
thirty (30) days after the end of each
respective fiscal quarter, unaudited
Consolidated Financials for each of (i)
Lessee and (ii) each Sublessee which is
an Affiliate of Lessee certified as true
and correct by Lessee or such applicable
Sublessee, as the case may be and within
thirty (30) days after each calendar
quarter, Lessee shall also provide
Lessor with a calculation of the
Additional Rent payable for such
quarter.
(d) QUARTERLY STATEMENTS OF THE
GUARANTOR. Within forty-five (45) days
after the end of each fiscal quarter,
unaudited Consolidated Financials for
the Guarantor certified as true and
correct by the Guarantor.
(e) PERMITS AND CONTRACTS. Within
ten (10) days after the issuance or the
execution thereof, as the case may be,
true and complete copies of (i) all
Permits which constitute operating
licenses for the Facility issued by any
Governmental Authority having
jurisdiction over assisted living
matters and (ii) Contracts (involving
payments in the aggregate in excess of $
100,000 per annum), including, without
limitation, all Provider Agreements.
(f) CONTRACT NOTICES. Promptly but
in no event more than ten (10) days
after the receipt thereof, true and
complete copies of any notices,
consents, terminations or statements of
any kind or nature relating to any of
the Contracts (involving payments in the
aggregate in excess of ONE HUNDRED
THOUSAND DOLLARS ($100,000) per annum)
other than those issued in the ordinary
course of business.
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(g) PERMIT OR CONTRACT DEFAULT.
Promptly but in no event more than ten
(10) days after the receipt thereof,
true and complete copies of all surveys,
follow-up surveys, licensing surveys,
complaint surveys, examinations,
compliance certificates, inspection
reports, statements (other than those
statements that are issued in the
ordinary course of business), if any,
terminations and notices of any kind
(other than those notices that are
furnished in the ordinary course of
business) issued or provided to Lessee,
the Manager or any Sublessee by any
Governmental Authority, Accreditation
Body or any Third Party Payor,
including, without limitation, any
notices pertaining to any delinquency
in, or proposed revision of, Lessee's,
the Manager's or any Sublessee's
obligations under the terms and
conditions of any Permits or Contracts
now or hereafter issued by or entered
into with any Governmental Authority,
Accreditation Body or Third Party Payor
and the response(s) thereto made by or
on behalf of Lessee, the Manager or any
Sublessee.
(h) OFFICIAL REPORTS. Upon
completion or filing thereof, complete
copies of all applications (other than
those that are furnished in the ordinary
course of business), notices (other than
those that are furnished in the ordinary
course of business), statements, annual
reports, cost reports and other reports
or filings of any kind (other than those
that are furnished in the ordinary
course of business) provided by Lessee,
the Manager or any Sublessee to any
Governmental Authority, Accreditation
Body or any Third Party Payor with
respect to the Leased Property.
(i) OTHER INFORMATION. With
reasonable promptness, such other
information as Lessor may from time to
time reasonably request respecting (i)
the financial condition and affairs of
each member of the Leasing Group and the
Leased Property and (ii) the licensing
and operation of the Leased Property;
including, without limitation; financial
statements, certificates and consents
from accountants and all other financial
and licensing/operational information as
may be required or requested by any
Governmental Authority.
(j) DEFAULT CONDITIONS. As soon as
possible, and in any event within five
(5) days after the occurrence of any
Lease Default, or any event or
circumstance which, with the giving of
notice or the passage of time, or both,
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would constitute a Lease Default, a
written statement of Lessee setting
forth the details of such Lease Default,
event or circumstance and the action
which Lessee proposes to take with
respect thereto.
(k) OFFICIAL ACTIONS. Promptly but
in no event more than ten (10) days
after the commencement thereof, notice
of all actions, suits and proceedings
before any Governmental Authority or
Accreditation Body which could have a
material adverse effect on any member of
the Leasing Group or the Leased
Property.
(l) AUDIT REPORTS. Promptly but in
no event more than ten (10) days after
receipt, a copy of all audits or reports
submitted to Lessee by any independent
public accountant in connection with any
annual, special or interim audits of the
books of Lessee and, if requested by
Lessor, any letter of comments directed
by such accountant to the management of
Lessee.
(m) ADVERSE DEVELOPMENTS. Promptly
but in no event more than ten (10) days
after Lessee acquires knowledge thereof,
written notice of..
(i) the potential termination of
any Permit or Provider Agreement
necessary for the operation of the
Leased Property;
(ii) any loss, damage or
destruction to or of the Leased Property
in excess of TWENTY-FIVE THOUSAND
DOLLARS ($25,000) (regardless of whether
the same is covered by insurance);
(iii) any material controversy
involving Lessee or any Sublessee which
is an Affiliate of Lessee and (x)
Facility administrator or Facility
employee of similar stature or (y) any
labor organization or (z) the Manager or
any employee of the Manager which has,
or is reasonably likely to have, a
materially adverse effect on the
financial condition and/or operations of
the Facility;
(iv) any controversy that calls
into question the eligibility of the
Facility for the participation in any
Medicaid, Medicare or other Third Party
Payor Program in which the Facility is
participating;
(v) any refusal of reimbursement
by any Third Party Payor which,
singularly or together with all other
such refusals by any Third Party Payors,
could reasonably
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be expected to have a material adverse
effect on the financial condition of
Lessee or any Sublessee which is an
Affiliate of Lessee; and
(vi) any fact within the special
knowledge of any member of the Leasing
Group, or any other development in the
business or affairs of any member of the
Leasing Group, which could reasonably be
expected to be materially adverse to the
business, properties, assets or
condition, financial or otherwise, of
any member of the Leasing Group or the
Leased Property.
(n) RESPONSES TO INSPECTION REPORTS.
Within thirty (30) days after receipt of an
inspection report relating to the Leased
Property from Lessor, a written response
describing in detail prepared plans to
address concerns raised by the inspection
report.
(o) PUBLIC INFORMATION. Upon the
completion or filing, mailing or other
delivery thereof, complete copies of all
financial statements, reports, notices and
proxy statements, if any, sent by any member
of the Leasing Group (which is a publicly
held corporation) to its shareholders and of
all reports, if any, fled by any member of
the Leasing Group (which is a publicly held
corporation) with any securities exchange or
with the Securities Exchange Commission.
(p) ANNUAL BUDGETS. Prior to the end of
each Fiscal Year, Lessee, any Sublessee which
is an Affiliate of Lessee and/or any Manager
which is an Affiliate of Lessee shall submit
to Lessor a preliminary annual financial
budget for the Facility for the next Fiscal
Year, a preliminary capital expenditures
budget for the Facility for the next Fiscal
Year and a report detailing the capital
expenditures made in the then current Fiscal
Year and on or before the end of the first
month of each Fiscal Year, Lessee, any such
Sublessee and/or any such Manager shall
submit to Lessor revised finalized versions
of such budgets and report.
(q) WORKING CAPITAL LOAN. Promptly after
receipt thereof, copies of any notices with
respect to default from a lender of a Working
Capital Loan.
11.2.2 RESPONSIBLE OFFICER. Any
certificate, instrument, notice, or other
document to be provided to Lessor hereunder
by any member of the Leasing Group shall be
signed by an executive officer of such member
(in the event that any of the foregoing is
not an individual), having a position of Vice
President or higher and with respect to
financial matters, any such certificate,
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instrument, notice or other document shall be
signed by the chief financial officer of such
member.
11.2.3 NO MATERIAL OMISSION. No
certificate, instrument, notice or other
document, including without limitation, any
financial statements furnished or to be
furnished to Lessor pursuant to the terms
hereof or of any of the other Lease Documents
shall contain any untrue statement of a
material fact or shall omit to state any
material fact necessary in order to prevent
all statements contained therein from being
misleading.
11.2.4 CONFIDENTIALITY. Lessor shall
afford any information received pursuant to
the provisions of the Lease Documents the
same degree of confidentiality that Lessor
affords similar information proprietary to
Lessor; provided, however, that Lessor shall
have the unconditional right to (a) disclose
any such information as Lessor deems
necessary or appropriate in connection with
any sale, transfer, conveyance, participation
or assignment of the Leased Property or any
of the Lease Documents or any interest
therein and (b) use such information in any
litigation or arbitration proceeding between
Lessor and any member of the Leasing Group.
Without limiting the foregoing, Lessor may
also utilize any information furnished to it
hereunder as and to the extent (i) counsel to
Lessor determines that such utilization is
necessary pursuant to 15 U.S.C. 77a-77aa or
15 U.S.C. 78a-78jj and the rules and
regulations promulgated thereunder, (ii)
Lessor is required or requested by any
Governmental Authority to disclose any such
information and/or (iii) Lessor is requested
to disclose any such information by any of
the Meditrust Entities' lenders or potential
lenders. Lessor shall not be liable in any
way for any subsequent disclosure of such
information by any Person to which Lessor has
provided such information in accordance with
the terms hereof. Nevertheless, in connection
with any such disclosure, Lessor shall inform
the recipient of any such information of the
confidential nature thereof. Lessor shall
observe any prohibitions or limitations on
the disclosure of any such information under
applicable confidentiality law or
regulations, to the extent that the same are
applicable to such information.
11.3 FINANCIAL COVENANTS. Lessee covenants
and agrees that, throughout the Term and as long
as Lessee is in possession of the Leased Property:
11.3.1 DEBT COVERAGE RATIO OF LESSEE.
From and after the second anniversary of the
date hereof until the fourth anniversary
thereof, the Facility and all other Group
Four Acquisition Facilities shall maintain
for each Fiscal Quarter an
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aggregate Debt Coverage Ratio equal to or
greater than 1.1 to 1 and from and after the
fourth anniversary thereof and for the
remainder of the Term, the Facility and all
other Group Four Acquisition Facilities shall
maintain for each Fiscal Quarter an aggregate
Debt Coverage Ratio equal to or greater than
1.2 to 1.
11.3.2 Intentionally Deleted.
11.3.3 Intentionally Deleted.
11.3.4 Intentionally Deleted.
11.3.5 CURRENT RATIO - GUARANTOR. From
and after December 31,1999 and for the
remainder of the Term, the Guarantor shall
maintain a ratio of Consolidated Current
Assets to Consolidated Current Liabilities
equal to or greater than 1 to 1 as of the end
of each fiscal year.
11.3.6 Intentionally Deleted.
11.3.7 NET WORTH - GUARANTOR. The
Guarantor shall maintain, at all times, a Net
Worth of not less than FORTY MILLION DOLLARS
($40,000,000).
11.3.8 NO INDEBTEDNESS. Neither Lessee
nor the General Partner, on behalf of Lessee,
shall create, incur, assume or suffer to
exist any liability for borrowed money except
(i) Indebtedness to Lessor under the Lease
Documents and, (ii) Impositions allowed
pursuant to the provisions of the Lease,
(iii) unsecured normal trade debt . incurred
upon customary terms in the ordinary course
of business, (iv) Indebtedness created in
connection with any financing of any Capital
Addition, provided, that each such financing
has been approved by Lessor in accordance
with the terms of Article 9 hereof, (v)
Indebtedness to any Affiliate, provided, i t,
such Indebtedness is fully subordinated to
this Lease pursuant to the Affiliated Party
Subordination Agreement, (vi) other
Indebtedness of Lessee in the aggregate
amount not to exceed TWO HUNDRED THOUSAND
DOLLARS ($200,000) incurred, for the
exclusive use of the Leased Property, on
account of purchase money indebtedness or
finance lease arrangements, each of which
shall not exceed the fair market value of the
assets or property acquired or leased and
shall not extend to any assets or property
other than those purchased or leased and
purchase money security interests in
equipment and equipment leases which comply
with the provisions of Section 6.1.2 and
(vii) Indebtedness specifically permitted by
the Meditrust/Emeritus Transaction Documents.
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11.3.9 NO GUARANTIES. Neither Lessee nor
the General Partner, on behalf of Lessee,
shall assume, guarantee, endorse,
contingently agree to purchase or otherwise
become directly or contingently liable
(including, without limitation, liable by way
of agreement, contingent or otherwise, to
purchase, to provide funds for payment, to
supply funds to or otherwise to invest in any
debtor or otherwise to assure any creditor
against loss) in connection with any
Indebtedness of any other Person, except by
the endorsement of negotiable instruments for
deposit or collection or similar transactions
in the ordinary course of business and except
for a guaranty of the Indebtedness of the
Guarantor in connection with a Working
Capital Loan which expressly limits recourse
under such guaranty to the Receivables.
11.4 AFFIRMATIVE COVENANTS. Lessee covenants
and agrees that throughout the Term and any
periods thereafter that Lessee remains in
possession of the Leased Property:
11.4.1 MAINTENANCE OF EXISTENCE. If
Lessee is a corporation, trust or
partnership, during the entire time that this
Lease remains in full force and effect, each
of Lessee and the General Partner shall keep
in effect its existence and rights as a
corporation, trust or partnership under the
laws of the state of its incorporation or
formation and its right to own property and
transact business in the State.
11.4.2 MATERIALS. Except as provided in
Section 6.1.2, Lessee shall not suffer the
use in connection with any renovations or
other construction relating to the Leased
Property of any materials, fixtures or
equipment intended to become part of the
Leased Property which are purchased upon
lease or conditional bill of sale or to which
Lessee does not have absolute and
unencumbered title, and Lessee covenants to
cause to be paid punctually all sums becoming
due for labor, materials, fixtures or
equipment used or purchased in connection
with any such renovations or construction,
subject to Lessee's right to contest to the
extent provided for in Article 15.
11.4.3 COMPLIANCE WITH LEGAL
REQUIREMENTS AND APPLICABLE AGREEMENTS.
Lessee and the Leased Property and all uses
thereof shall comply with (i) all applicable
Legal Requirements (except to the extent
being duly contested in accordance with the
terms hereof, (ii) all Permits and Contracts,
(iii) all Insurance Requirements, (iv) the
Lease Documents, (v) the Permitted
Encumbrances and (vi) the Appurtenant
Agreement.
11.4.4 BOOKS AND RECORDS. Lessee shall
cause to be kept and maintained, and shall
permit Lessor and its
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representatives to inspect at all reasonable
times and upon reasonable notice, accurate
books of accounts in which complete entries
will be made in accordance with GAAP
reflecting all financial transactions of
Lessee (showing, without limitation, all
materials ordered and received and all
disbursements, accounts payable and accounts
receivable in connection with the operation
of the Leased Property).
11.4.5 PARTICIPATION IN THIRD PARTY
PAYOR PROGRAMS. If Lessee or a Sublessee
which is an Affiliate of Lessee elects to
participate in Third Party Payor Programs,
Lessee or such Sublessee shall remain
eligible to participate in such Third Party
Payor Programs in accordance with all
requirements thereof (including, without
limitation, all applicable Provider
Agreements), if and to the extent remaining
eligible shall be necessary for the prudent
operation of the Facility in the good faith
exercise of commercially reasonable business
judgment.
11.4.6 CONDUCT OF ITS BUSINESS. Lessee
will maintain, and cause any Sublessee and
any Manager to maintain, experienced and
competent professional management with
respect to its business and with respect to
the Leased Property. Lessee, any Sublessee
and any Manager shall conduct, in the
ordinary course, the operation of the
Facility, and Lessee and any Sublessee which
is an Affiliate of Lessee shall not enter
into any other business or venture during the
Term or such time as Lessee or any such
Sublessee is in possession of the Leased
Property other than activities in which
Lessee or such Sublessee are permitted to
engage by the provisions of the
Meditrust/Emeritus Transaction Documents.
11.4.7 ADDRESS. Lessee shall provide
Lessor thirty (30) days' prior written notice
of any change of its Principal Place of
Business from its current Principal Place of
Business. Lessee shall maintain the
Collateral, including without limitation, all
books and records relating to its business,
solely at its Principal Place of Business and
at the Leased Property. Lessee shall not (a)
remove the Collateral, including, without
limitation, any books or records relating to
Lessee's business from either the Leased
Property or Lessee's Principal Place of
Business or (b) relocate its Principal Place
of Business until after receipt of a
certificate from Lessor, signed by an officer
thereof, stating that, Lessor has, to its
satisfaction., obtained all documentation
that it deems necessary or desirable to
obtain, maintain, perfect and confirm the
first priority security interests granted in
the Lease Documents. .
11.4.8 SUBORDINATION OF AFFILIATE
TRANSACTIONS. Without limiting the provisions
of any other
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Section of this Lease or the Affiliated Party
Subordination Agreement, any payments to be
made by Lessee to (a) any member of the
Leasing Group (or any of its Affiliates) or
(b) any Affiliate of Lessee, in connection
with any transaction between Lessee and such
Person, including, without limitation, the
purchase, sale or exchange of any property,
the rendering of any service to or with any
such Person (including, without limitation,
all allocations of any so-called corporate or
central office costs, expenses and charges of
any kind or nature) or the making of any loan
or other extension of credit or the making of
any equity investment, shall be subordinate
to the complete payment and performance of
the Lease Obligations; provided, however,
that all such subordinated payments may be
paid at any time unless: (x) after giving
effect to such payment, Lessee shall be
unable to comply with any of its obligations
under any of the Lease Documents or (y) a
Lease Default has occurred and is continuing
and has not been expressly waived in writing
by Lessor or an event or state of facts
exists, which, with the giving of notice or
the passage of time, or both, would
constitute a Lease Default. .
11.4.9 INSPECTION. At reasonable times
and upon reasonable notice, Lessee shall
permit Lessor and its authorized
representatives (including, without
limitation, the Consultants) to inspect the
Leased Property as provided in Section 7.1
above, provided, however, that, in the event
results of any such testing or inspection
reflect the same satisfactory results as the
results of a similar testing or inspection
initiated by Lessor within the prior twelve
(12) months period, the costs and expense of
such testing or inspection shall be the
responsibility of Lessor.
11.4.10 ANNUAL FACILITY UPGRADE
EXPENDITURE. Lessee shall spend an amount
equal to the Annual Facility Upgrade
Expenditure on Upgrade Renovations to the
Facility each Lease Year commencing with the
third Lease Year. Lessee will furnish and
shall cause to be furnished to Lessor
evidence satisfactory to Lessor that Lessee
has fulfilled its obligation to make the
Annual Facility Upgrade Expenditure within
ninety (90) days after the end of Lessee's
fiscal year.
11.5 ADDITIONAL NEGATIVE COVENANTS. Lessee
covenants and agrees that, throughout the Term and
such time as Lessee remains in possession of the
Leased Property:
11.5.1 RESTRICTIONS RELATING TO LESSEE.
Except as may otherwise be expressly provided
in Section 19.4 or in any of the other Lease
Documents, Lessee shall not, without the
prior written consent of Lessor, in each
instance, which consent may be withheld in
the sole and absolute discretion of Lessor:
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(a) convey, assign, hypothecate,
transfer, dispose of or encumber, or
permit the conveyance, assignment,
transfer, hypothecation, disposal or
encumbrance of all or any part of any
legal or beneficial interest in this
Lease, its other assets or the Leased
Property except as expressly permitted
by the terms of this Lease Agreement;
provided, however, that this restriction
shall not apply to (i) the Permitted
Encumbrances that may be created after
the date hereof pursuant to the Lease
Documents; (ii) Liens created in
accordance with Section 6.1.2 against
Tangible Personal Property securing
Indebtedness permitted under Section
11.3.8(v); (iii) the sale, conveyance,
assignment, hypothecation, lease or
other transfer of any material asset or
assets (whether now owned or hereafter
acquired), the fair market value of
which equals or is less than TWENTY-FIVE
THOUSAND DOLLARS ($25,000),
individually, or ONE HUNDRED THOUSAND
DOLLARS ($100,000) collectively; (iv)
without limitation as to amount, the
disposition in the ordinary course of
business of any obsolete, worn out or
defective fixtures, furnishings or
equipment used in the operation of the
Leased Property provided that the same
are replaced with fixtures, furnishings
or equipment of equal or greater utility
or value or Lessee provides Lessor with
an explanation (reasonably satisfactory
to Lessor) as to why such fixtures,
furnishings or equipment is no longer
required in connection with the
operation of the Leased Property; (v)
without limitation as to amount, any
sale of inventory by Lessee in the
ordinary course of business; and (vi)
subject to the terms of the Negative
Pledge Agreement and the Affiliated
Party Subordination Agreement,
distributions to the Partners of Lessee;
(b) permit the use of the Facility
for any purpose other than the Primary
Intended Use and the Other Permitted
Uses; or
(c) liquidate, dissolve or merge or
consolidate with, or permit the General
Partner to liquidate, dissolve or merge
or consolidate with any other .Person
except, subject to Lessor's prior
written consent, which consent shall not
be unreasonably withheld, a
Meditrust/Emeritus Transaction
Affiliate.
11.5.2 NO LIENS. Lessee will not
directly or indirectly create or allow to
remain and will promptly discharge at its
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expense any Lien, title retention agreement
or claim upon or against the Leased Property
(including Lessee's interest therein) or
Lessee's interest in this Lease or any of the
other Lease Documents, or in respect of the
Rent, excluding (a) this Lease and any
permitted Subleases, (b) the Permitted
Encumbrances, (c) Liens which are consented
to in writing by Lessor, (d) Liens for those
taxes of Lessor which Lessee is not required
to pay hereunder, (e) Liens of mechanics,
laborers, materialmen, suppliers or vendors
for sums either not yet due or being
contested in strict compliance with the terms
and conditions of Article 15, (f) any Liens
which are the responsibility of Lessor
pursuant to the provisions of Article 20, (g)
Liens for Impositions which are either not
yet due and payable or which are in the
process of being contested in strict
compliance with the terms and conditions of
Article 15 (h) the Liens incurred. pursuant
to the provisions of Section 6.1.2 and (i)
involuntary Liens caused by the actions or
omissions of Lessor.
11.5.3 LIMITS ON AFFILIATE TRANSACTION.
Neither Lessee nor the General Partner, on
behalf of Lessee, shall enter into any
transaction with any Affiliate, including,
without limitation, the purchase, sale or
exchange of any property, the rendering of
any service to or with any Affiliate and the
making of any loan or other extension of
credit, except in the ordinary course of, and
pursuant to the reasonable requirements of,
Lessee's business and upon fair and
reasonable terms no less favorable to the
Lessee than would be obtained in a comparable
arms'-length transaction with any Person that
is not an Affiliate.
11.5.4 NON-COMPETITION. Lessee
acknowledges that upon and after any
termination of this Lease, any competition by
any member of the Leasing Group with any
subsequent owner or subsequent lessee of the
Leased Property (the "Purchaser") would cause
irreparable harm to Lessor and any such
Purchaser. To induce Lessor to enter into
this Lease, Lessee agrees that, from and
after the date hereof and thereafter until
(a) in the case of the expiration of the
Initial Term or a termination of this Lease,
the fifth (5th) anniversary of the
termination hereof or of the expiration of
the Initial Term, as applicable, and (b) in
the case of an expiration of any of the
Extended Terms, the second (2nd) anniversary
of the expiration of the applicable Extended
Term, no member of the Leasing Group nor any
Person holding or controlling, directly or
indirectly, any interest in any member of the
Leasing Group (collectively, the "Limited
Parties") shall be involved in any capacity
in or lend any of their names to or engage in
any capacity in any assisted living facility,
center, unit or program (or in any Person
engaged in any such activity or any
related activity competitive therewith) other
than (a) those set forth
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on Schedule 11.5.4 annexed hereto, (b) those
activities in which a Meditrust/Emeritus
Transaction Affiliate is permitted to engage
by the provisions of the Meditrust/Emeritus
Transaction Documents which relate to any
such facility, center, unit or program and
(c) the acquisition of an ownership interest
in any such facility, center, unit or program
which is part of a single transaction in
which an ownership interest in at least four
(4) other facilities, centers, units or
programs (provided, however, that if such
acquisition occurs within the last twelve
month period of the Initial Term or any of
the Extended Terms, Lessee shall have the
benefit of this clause (c) only if at the
time such acquisition occurs Lessee has
already (x) exercised in that twelve month
period its right under Section 1.3 hereof to
extend the Term for another Extended Term or
(y) given a Purchase Option Notice and has
waived any right to rescind the same based
upon the determination of the Fair Market
Value of the Leased Property), whether such
competitive activity shall be as an officer,
director, owner, employee, agent, advisor,
independent contractor, developer, lender,
sponsor, venture capitalist, administrator,
manager, investor, partner, joint venturer,
consultant or other participant in any
capacity whatsoever with respect to an
assisted living facility, center, unit or
program located within a five (5) mile radius
of the Leased Property.
Lessee hereby acknowledges and agrees
that none of the time span, scope or area
covered by the foregoing restrictive
covenants is or are unreasonable and that it
is the specific intent of Lessee that each
and all of the restrictive covenants set
forth hereinabove shall be valid and
enforceable as specifically set forth herein.
Lessee further agrees that these restrictions
are special, unique, extraordinary and
reasonably necessary for the protection of
Lessor and any Purchaser and that the
violation of any such covenant by any of the
Limited Parties would cause irreparable
damage to Lessor and any Purchaser for which
a legal remedy alone would not be sufficient
to fully protect such parties.
Therefore, in addition to and without
limiting any other remedies available at law
or hereunder, in the event that any of the
Limited Parties breaches any of the
restrictive covenants hereunder or shall
threaten breach of any of such covenants,
then Lessor and any Purchaser shall be
entitled to obtain equitable remedies,
including specific performance and injunctive
relief, to prevent or otherwise restrain a
breach of this Section 11.5.4 (without the
necessity of posting a bond) and to recover
any and all costs and expenses (including,
without limitation, reasonable attorneys'
fees and expenses and court costs) incurred
in enforcing the provisions of this Section
11.5.4. The existence of any claim or cause
of action of any of the Limited Parties or
any member of the Leasing Group against
Lessor or any Purchaser, whether predicated
on this
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Lease or otherwise, shall not constitute a
defense to the enforcement by Lessor or any
Purchaser of the foregoing restrictive
covenants and the Limited Parties shall not
defend on the basis that there is an adequate
remedy at law.
Without limiting any other provision of
this Lease, the parties hereto acknowledge
that the foregoing restrictive covenants are
severable and separate. If at any time any of
the foregoing restrictive covenants shall be
deemed invalid or unenforceable by a court
having jurisdiction over this Lease, by
reason of being vague or unreasonable as to
duration, or geographic scope or scope of
activities restricted, or for any other
reason, such covenants shall be considered
divisible as to such portion and such
covenants shall be immediately amended and
reformed to include only such covenants as
are deemed reasonable and enforceable by the
court having jurisdiction over this Lease to
the full duration, geographic scope and scope
of restrictive activities deemed reasonable
and thus enforceable by said court; and the
parties agree that such covenants as so
amended and reformed, shall be valid and
binding as through the invalid or
unenforceable portion has not been included
therein.
The provisions of this Section 11.5.4
shall survive the termination of the Lease
and any satisfaction of the Lease Obligations
in connection therewith or subsequent
thereto. The parties hereto acknowledge and
agree that any Purchaser may enforce the
provisions of this Section 11.5.4 as a third
party beneficiary.
11.5.5 Intentionally deleted.
11.5.6 Intentionally deleted.
11.5.7 Intentionally deleted.
11.5.8 ERISA. Lessee shall not establish
or permit either the General Partner, on
behalf of Lessee, or any Sublessee to
establish any new pension or defined benefit
plan or modify any such existing plan for
employees subject to ERISA, which plan
provides any benefits based on past service
without the advance consent of Lessor (which
consent shall not be unreasonably withheld)
to the amount of the aggregate past service
liability thereby created.
11.5.9 FORGIVENESS OF INDEBTEDNESS.
Lessee will not waive, or permit either the
General Partner, on behalf of Lessee, or any
Sublessee or Manager which is an Affiliate to
waive, any debt or claim, except in the
ordinary course of its business.
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11.5.10 VALUE OF ASSETS. Except as
disclosed in the financial statements
provided to Lessor as of the date hereof,
Lessee will not write up (by creating an
appraisal surplus or otherwise) the value of
any assets of Lessee above their cost to
Lessee, less the depreciation regularly
allowable thereon.
11.5.11 CHANGES IN FISCAL YEAR AND
ACCOUNTING PROCEDURES. Upon notice to Lessor,
Lessee may (a) change its fiscal year or
capital structure or (b) change, alter, amend
or in any manner modify in accordance with
GAAP any of its current accounting procedures
related to the method of revenue recognition,
billing procedures or determinations of
doubtful accounts or bad debt expenses or
permit any of its Subsidiaries to so change
its fiscal year, provided that, in the event
of such change, modification or alteration,
Lessee and Lessor shall make such adjustments
to the calculation of Additional Rent and the
financial covenants contained herein as
Lessor shall reasonably require to make the
same consistent in result with the
calculation thereof immediately prior to such
change, modification or alteration.
ARTICLE 12
INSURANCE AND INDEMNITY
12.1 GENERAL INSURANCE REQUIREMENTS. During
the Term of this Lease and thereafter until Lessee
surrenders the Leased Property in the manner
required by this Lease, Lessee shall at its sole
cost and expense keep the Leased Property, the
Tangible Personal Property located thereon and the
business operations conducted on the Leased
Property insured as set forth below.
12.1.1 TYPES AND AMOUNTS OF INSURANCE.
Lessee's insurance shall include the
following:
(a) property loss and physical
damage insurance on an all-risk basis
(with only such exceptions as Lessor may
in its reasonable discretion approve)
covering the Leased Property (exclusive
of Land) for its full replacement cost,
which cost shall be reset once a year at
Lessor's option, with an agreed-amount
endorsement and a deductible not in
excess of TWENTY FIVE THOUSAND DOLLARS
($25,000). Such insurance shall include,
without limitation, the following
coverages: (i) increased cost of
construction, (ii) cost of demolition,
(iii) the value of the undamaged portion
of the Facility and (iv) contingent
liability from the operation of building
laws, less exclusions provided in the
normal "All Risk" insurance policy.
During any period of construction, such
insurance shall be on a builder's-risk,
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completed value, non-reporting form
(including all risk and extended
coverage, collapse, cost of demolition,
increased cost of construction and value
of undamaged portion of the improvements
protection) with permission to occupy;
(b) flood insurance (if the Leased
Property or any portion thereof is
situated in an area which is considered
a flood risk area by the U.S. Department
of Housing and Urban Development or any
future Governmental authority charged
with such flood risk analysis in the
future) in limits reasonably acceptable
to Lessor and subject to the
availability of such flood insurance;
(c) boiler and machinery insurance
(including related electrical apparatus
and components) under a standard
comprehensive form, providing coverage
against loss or damage caused by
explosion of steam boilers, pressure
vessels or similar vessels, now or
hereafter installed on the Leased
Property, in limits acceptable to
Lessor;
(d) earthquake insurance (if
reasonably deemed necessary by Lessor)
in limits and with deductibles
acceptable to Lessor;
(e) environmental impairment
liability insurance (if available on
commercially reasonable terms and deemed
reasonably necessary by Lessor) in
limits and with deductibles acceptable
to Lessor;
(f) business interruption insurance
in an amount equal to the annual Base
Rent due hereunder plus the aggregate
sum of the Impositions relating to the
Leased Property due and payable during
one year;
(g) comprehensive general public
liability insurance including coverages
commonly found in the Broad Form
Commercial Liability Endorsements with
amounts not less than FIVE MILLION
DOLLARS ($5,000,000) per occurrence with
respect to bodily injury and death and
THREE MILLION DOLLARS ($3,000,000) for
property damage and with all limits
based solely upon occurrences at the
Leased Property without any other
impairment;
(h) professional liability
insurance in an amount not less than TEN
MILLION DOLLARS ($10,000,000) for each
medical incident;
(i) physical damage insurance on an
all-risk basis
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(with only such exceptions as Lessor in
its reasonable discretion shall approve)
covering the Tangible Personal Property
for the full replacement cost thereof
and with a deductible not in excess of
one percent ( I%) of the full
replacement cost thereof;
(j) "Workers' Compensation and
Employers' Liability Insurance providing
protection against all claims arising
out of injuries to all employees of
Lessee or of any Sublessee (employed on
the Leased Property or any portion
thereof in amounts equal for Workers'
Compensation, to the statutory benefits
payable to employees in the State and
for Employers' Liability, to limits of
not less than ONE HUNDRED THOUSAND
DOLLARS ($100,000) for injury by
accident, ONE HUNDRED THOUSAND DOLLARS
($100,000) per employee for disease and
FIVE HUNDRED THOUSAND DOLLARS ($500,000)
disease policy limit;
(k) subsidence insurance (if deemed
necessary by Lessor) in limits
acceptable to Lessor; and
(1) such other insurance as Lessor
from time to time may reasonably require
and also, as may from time to time be
required by applicable Legal
Requirements and/or by any Fee
Mortgagee.
12.1.2 INSURANCE COMPANY REQUIREMENTS.
All such insurance required by this Lease or
the other Lease Documents shall be issued and
underwritten by insurance companies licensed
to do insurance business by, and in good
standing under the laws of, the State and
which companies have and maintain a rating of
A:X or better by A.M. Best Co.
12.1.3 POLICY REQUIREMENTS. Every
policy of insurance from time to time
required under this Lease or any of the other
Lease Documents (other than worker's
compensation) shall name Lessor as owner,
loss payee, secured party (to the extent
applicable) and additional named insured as
its interests may appear. If an insurance
policy covers properties other than the
Leased Property, then Lessor shall be so
named with respect only to the Leased
Property. Each such policy, where applicable
or appropriate, shall :
(a) include an agreed amount
endorsement and loss payee, additional
named insured and secured party
endorsements, in forms acceptable to
Lessor in its reasonable discretion;
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(b) include mortgagee, secured
party, loss payable and additional named
insured endorsements reasonably
acceptable to each Fee Mortgagee;
(c) provide that the coverages may
not be cancelled or materially modified
except upon thirty (30) days' prior
written notice to Lessor and any Fee
Mortgagee;
(d) be payable to Lessor and any
Fee Mortgagee notwithstanding any
defense or claim that the insurer may
have to the payment of the same against
any other Person holding any other
interest in the Leased Property;
(e) be endorsed with standard
noncontributory clauses in favor of and
in form reasonably acceptable to Lessor
and any Fee Mortgagee;
(f) expressly waive any right of
subrogation on the part of the insurer
against Lessor, any Fee Mortgagee or the
Leasing Group; and
(g) otherwise be in such forms as
shall be reasonably acceptable to
Lessor.
12.1.4 NOTICES; CERTIFICATES AND
POLICIES. Lessee shall promptly provide to
Lessor copies of any and all notices
(including notice of non-renewal), claims and
demands which Lessee receives from insurers
of the Leased Property. At least ten ( 10)
days prior to the expiration of any insurance
policy required hereunder, Lessee shall
deliver to Lessor certificates and evidence
of insurance relating to all renewals and
replacements thereof, together with evidence,
satisfactory to Lessor, of payment of the
premiums thereon. Lessee shall deliver to
Lessor original counterparts or copies
certified by the insurance company to be true
and complete copies, of all insurance
policies - required hereunder not later than
ten (10) days after receipt thereof by
Lessee. Lessee shall use its best efforts to
obtain such counterparts or copies within
ninety (90) days after the effective date of
each such policy.
12.1.5 LESSOR'S RIGHT TO PLACE
INSURANCE. If Lessee shall fail to obtain any
insurance policy required hereunder by
Lessor, or shall fail to deliver the
certificate and evidence of insurance
relating to any such policy to Lessor, or if
any insurance policy required hereunder (or
any part thereof) shall expire or be
cancelled or become void or voidable by
reason of any breach of any condition
thereof, or if Lessor reasonably determines
that such insurance coverage is
unsatisfactory by reason of the failure or
impairment of the capital of any insurance
company which wrote
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any such policy, upon demand by Lessor,
Lessee shall promptly but in any event in not
more than ten (10) days thereafter obtain new
or additional insurance coverage on the
Leased Property, or for those risks required
to be insured by the provisions hereof,
satisfactory to Lessor, and, in the event
Lessee fails to perform its obligations under
this Section and at its option, Lessor may
obtain such insurance and pay the premium or
premiums therefor; in which event, any amount
so paid or advanced by Lessor and all costs
and expenses incurred in connection therewith
(including, without limitation, reasonable
attorneys' fees and expenses and court
costs), shall be a demand obligation of
Lessee to Lessor, payable as an Additional
Charge.
12.1.6 PAYMENT OF PROCEEDS. All
insurance policies required hereunder (except
for general public liability, professional
liability and workers' compensation and
employers liability insurance) shall provide
that in the event of loss, injury or damage,
subject to the rights of any Fee Mortgagee,
all proceeds shall be paid to Lessor alone
(rather than jointly to Lessee and Lessor).
Lessor is hereby authorized to adjust and
compromise any such loss with the consent of
Lessee or, following any Lease Default,
whether or not cured, without the consent of
Lessee, and to collect and receive such
proceeds in the name of Lessor and Lessee,
and Lessee appoints Lessor (or any agent
designated by Lessor) as Lessee's attorney-in-
fact with full power of substitution, to
endorse Lessee's name upon any check in
payment thereof. Subject to the provisions of
Article 13, such insurance proceeds shall be
applied first toward reimbursement of all
costs and expenses reasonably incurred by
Lessor in collecting said insurance proceeds,
then toward payment of the Lease Obligations
or any portion thereof, which have not been
paid when due and payable or within any
applicable cure period, in such order as
Lessor determines, and then in whole or in
part toward restoration, repair or
reconstruction of the Leased Property for
which such insurance proceeds shall have been
paid.
12.1.7 IRREVOCABLE POWER OF ATTORNEY.
The power of attorney conferred on Lessor
pursuant to the provisions of Section 12.1,
being coupled with an interest, shall be
irrevocable for as long as this Lease is in
effect or any Lease Obligations are
outstanding, shall not be affected by any
disability or incapacity which Lessee may
suffer and shall survive the same. Such power
of attorney, is provided solely to protect
the interests of Lessor and shall not impose
any duty on Lessor to exercise any such
power, and neither Lessor nor such attorney-
in-fact shall be liable for any act,
omission, error in judgment or mistake of
law, except as the same may result from its
gross negligence or wilfulmisconduct.
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12.1.8 BLANKET POLICIES.
Notwithstanding anything to the contrary
contained herein, Lessee's obligations to
carry the insurance provided for herein may
be brought within the coverage of a so-called
blanket policy or policies of insurance
carried and maintained by Lessee and its
Affiliates; provided, however, that the
coverage afforded to Lessor shall not be
reduced or diminished or otherwise be
different from that which would exist under a
separate policy meeting all other
requirements of this Lease by reason of the
use of such blanket policy of insurance, and
provided, further that the requirements of
Section 12.1 are otherwise satisfied.
12.1.9 NO SEPARATE INSURANCE.
Lessee shall not, on Lessee's own initiative
or pursuant to the request or requirement of
any other Person, take out separate insurance
concurrent in form or contributing in the
event of loss with the insurance required
hereunder to be furnished by Lessee, or
increase the amounts of any then existing
insurance by securing an additional policy or
additional policies, unless (a) all parties
having an insurable interest in the subject
matter of the insurance, including Lessor,
are included therein as additional insureds
and (b) losses are payable under said
insurance in the same manner as losses are
required to be payable under this Lease.
Lessee shall immediately notify Lessor of the
taking out of any such separate insurance or
of the increasing of any of the amounts of
the then existing insurance by securing an
additional insurance policy or policies.
12.1.10 ASSIGNMENT OF UNEARNED
PREMIUMS. Lessee hereby assigns to Lessor all
rights of Lessee in and to any unearned
premiums on any insurance policy required
hereunder to be furnished by Lessee which may
become payable or are refundable after the
occurrence of an Event of Default hereunder,
which premium, upon receipt thereof, Lessor
shall at Lessor's option apply toward the
Lease Obligations or hold as security
therefor. In the event that this Lease is
terminated for any reason (other than the
purchase of the Leased Property by Lessee),
the insurance policies required to be
maintained hereunder, including all right,
title and interest of Lessee thereunder,
shall become the absolute property of Lessor
subject to any limitation on assignment
provided for therein.
12.2 INDEMNITY.
12.2.1 INDEMNIFICATION. Except with
respect to the gross negligence or wilful
misconduct of Lessor or any of the other
Indemnified Parties, as to which no indemnity
is provided, Lessee hereby agrees to defend
with counsel reasonably acceptable to
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Lessor, against all claims and causes of
action and to indemnify and hold harmless
Lessor and each of the other Indemnified
Parties from and against all damages, losses,
liabilities, obligations, penalties, costs
and expenses (including, without limitation,
reasonable attorneys' fees, court costs and
other expenses of litigation) suffered by, or
claimed or asserted against, Lessor or any of
the other Indemnified Parties, directly or
indirectly, by any Person other than a member
of the Leasing Group who prevails in such
claim or action based on, arising out of or
resulting from (a) the use and occupancy of
the Leased Property or any business conducted
therein, (b) any act, fault, omission to act
or misconduct by (i) any member of the
Leasing Group, (ii) any Affiliate of Lessee
or (iii) any employee, agent, licensee,
business invitee, guest, customer, contractor
or sublessee of any of the foregoing parties,
relating to, directly or indirectly, the
Leased Property, (c) any accident, injury or
damage whatsoever caused to any Person,
including, without limitation, any claim of
malpractice, or to the property of any Person
in or about the Leased Property or outside of
the Leased Property where such accident,
injury or damage results or is claimed to
have resulted from any act, fault, omission
to act or misconduct by any member of the
Leasing Group or any Affiliate of Lessee or
any employee, agent, licensee, contractor or
sublessee of any of the foregoing parties,
(d) any Lease Default, (e) any claim brought
or threatened against Lessor by any member of
the Leasing Group or by any other Person on
account of (i) Lessor's relationship with any
member of the Leasing Group pertaining in any
way to the Leased Property and/or the
transaction evidenced by the Lease Documents
and/or (ii) Lessor's negotiation of, entering
into and/or performing any of its obligations
and/or exercising any of its right and
remedies under any of the Lease Documents,
(f) any attempt by any member of the Leasing
Group or any Affiliate of Lessee to transfer
or relocate any of the Permits to any
location other than the Leased Property
and/or (g) the enforcement of this indemnity.
Any amounts which become payable by Lessee
under this Section I2.2.1 shall be a demand
obligation of Lessee to Lessor, payable as an
Additional Charge. The indemnity provided for
in this Section 12.2.I shall survive any
termination of this Lease.
12.2.2 INDEMNIFIED PARTIES. As used in
this Lease the term "Indemnified Parties"
shall mean the Meditrust Entities, any Fee
Mortgagee and their respective successors,
assigns, employees, servants, agents,
attorneys, officers, directors, shareholders,
partners and owners.
12.2.3 LIMITATION ON LESSOR LIABILITY.
Neither Lessor nor any Affiliate of Lessor
shall be liable to any member of the Leasing
Group or any Affiliate of any member of the
Leasing
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Group, or to any other Person whatsoever for
any damage, injury, loss, compensation, or
claim (including, but not limited to, any
claim for the interruption of or loss to any
business conducted on the Leased Property)
based on, arising out of or resulting from
any cause whatsoever, including, but not
limited to, the following: (a) repairs to the
Leased Property, (b) interruption in use of
the Leased Property; (c) any accident or
damage resulting from the use or operation of
the Leased Property or any, business
conducted thereon; (d) the termination of
this Lease by reason of Casualty or
Condemnation, (e) any fire, theft or other
casualty or crime, (f) the actions, omissions
or misconduct of any other Person, (g) damage
to any property, or (h) any damage from the
flow or leaking of water, rain or snow. All
Tangible Personal Property and the personal
property of any other Person on the Leased
Property shall be at the sole risk of Lessee
and Lessor shall not in any manner be held
responsible therefor (except in the event of
loss caused by the gross negligence or
willful misconduct of Lessor).
Notwithstanding the foregoing, Lessor shall
not be released from liability for any
injury, loss, damage or liability suffered by
Lessee to the extent caused directly by the
gross negligence or willful misconduct of
Lessor, its servants, employees or agents
acting within the scope of their authority on
or about the Leased Property or in regards to
the Lease; provided, however, that in no
event shall Lessor, its servants, employees
or agents have any liability based on any
loss for any indirect or consequential
damages. or
12.2.4 RISK OF LOSS. During the Term of
this Lease, the risk of loss or of decrease
in the enjoyment and beneficial use of the
Leased Property in consequence of any damage
or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise,
or in consequence of foreclosures, levies or
executions of Liens (other than those created
by Lessor in accordance with the provisions
of Article 20) is assumed by Lessee and, in
the absence of the gross negligence or
willful misconduct as set forth in Section
122.3, Lessor shall in no event be answerable
or accountable therefor (except for the
obligation to account for insurance proceeds
and Awards to the extent provided for in
Articles 13 and 14) nor shall any of the
events mentioned in this Section entitle
Lessee to any abatement of Rent (except for
an abatement, if any, as specifically
provided for in Section 3.7).
ARTICLE 13
FIRE AND CASUALTY
13.1 RESTORATION FOLLOWING FIRE OR OTHER
CASUALTY.
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13.1.1 FOLLOWING FIRE OR CASUALTY. In
the event of any damage or destruction to the
Leased Property by reason of fire or other
hazard or casualty (a "Casualty"), Lessee
shall give immediate written notice thereof
to Lessor and, subject to the terms of this
Article I 3 and any applicable Legal
Requirements, Lessee shall proceed with
reasonable diligence, in full compliance with
all applicable Legal Requirements, to perform
such repairs, replacement and reconstruction
work (referred to herein as the "Work") to
restore the Leased Property to the condition
it was in immediately prior to such damage or
destruction and to a condition adequate to
operate the Facility for the Primary Intended
Use and, if applicable, the Other Permitted
Uses and in compliance with applicable Legal
Requirements. All Work shall be performed and
completed in accordance with all applicable
Legal Requirements and the other requirements
of this Lease within one hundred and twenty
(120) days following the occurrence of the
damage or destruction plus a reasonable time
to compensate for Unavoidable Delays
(including for the purposes of this Section,
delays in obtaining Permits and in adjusting
insurance losses), but in no event beyond two-
hundred and seventy (270) days following the
occurrence of the Casualty.
13.1.2 PROCEDURES. In the event that any
Casualty results in non-structural damage to
the Leased Property in excess of FIFTY
THOUSAND DOLLARS ($50,000) or in any
structural damage to the Leased Property,
regardless of the extent of such structural
damage, prior to commencing the Work, Lessee
shall comply with the following requirements:
(a) Lessee shall furnish to Lessor
complete plans and specifications for
the Work (collectively and as the same
may be modified and amended from time to
time pursuant to the terms hereof, the
"Plans and Specifications"), for
Lessor's approval, in each instance,
which approval shall not -be
unreasonably withheld. The Plans and
Specifications shall bear the signed
approval thereof by an architect,
licensed to do business in the State,
reasonably satisfactory to Lessor (in
the event Lessor reasonably determines
that the Work is of a nature for which
the involvement of an architect is
appropriate) and shall be accompanied by
a written estimate from the architect,
bearing the architect's seal, of the
entire cost of completing the Work, and
to the extent feasible, the Plans and
Specifications shall provide for Work of
such nature, quality and extent, that,
upon the completion thereof, the Leased
Property shall be at least equal in
value and general utility to its value
and general utility prior to the
Casualty and shall be adequate to
operate the Leased Property for the
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Primary Intended Use and, if applicable,
the Other Permitted Uses;
(b) Lessee shall furnish to Lessor
certified or photostatic copies of all
Permits and Contracts required by all
applicable Legal Requirements in
connection with the commencement and
conduct of the Work to the extent the
same can be secured in the ordinary
course prior to the commencement of
construction;
(c) Lessee shall furnish to Lessor
a cash deposit or a payment and
performance bond sufficient to pay for
completion of and payment for the Work
in an amount not less than the
architect's estimate of the entire cost
of completing the Work, less the amount
of property insurance proceeds (net of
costs and expenses incurred by Lessor in
collecting the same), if any, then held
by Lessor and which Lessor shall be
required to apply toward restoration of
the Leased Property as provided in
Section 13.2;
(d) Lessee shall furnish to Lessor
such insurance with respect to the Work
(in addition to the insurance required
under Section 12.1 hereof) in such
amounts and in such forms as is
reasonably required by Lessee; and
(e) Lessee shall not commence any
of the Work until Lessee shall have
complied with the requirements set forth
in clauses (a) through (d) immediately
above, as applicable, and, thereafter,
Lessee shall perform the Work
diligently, in a good and workmanlike
fashion and in good faith in accordance
with (i) the Plans and Specifications
referred to in clause (a) immediately
above, (ii) the Permits and Contracts
referred to in clause (b) immediately
above and (iii) all applicable Legal
Requirements and other requirements of
this Lease; provided, however, that in
the event of a bona fide emergency
during which Lessee is unable to contact
the appropriate representatives of
Lessor, Lessee may commence such Work as
may be necessary in order to address
such emergency without Lessor's prior
approval, as long as Lessee immediately
thereafter advises Lessor of such
emergency and the nature and scope of
the Work performed and obtains Lessor's
approval of the remaining Work to be
completed.
13.1.3 DISBURSEMENT OF INSURANCE
PROCEEDS. If, .as provided in Section 13.2,
Lessor is required to apply any property
insurance proceeds toward repair or
restoration of the
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Leased Property, then as long as the Work is
being diligently performed by Lessee in
accordance with the terms and conditions of
this Lease, Lessor shall disburse such
insurance proceeds from time to time during
the course of the Work in accordance with and
subject to satisfaction of the following
provisions and conditions. Lessor shall not
be required to make disbursements more often
than at thirty (30) day intervals. Lessee
shall submit a written request for each
disbursement at least ten (10) Business Days
in advance and shall comply with the
following requirements in connection with
each disbursement:
(a) Prior to the commencement of
any Work, Lessee shall have received
Lessor's written approval of the Plans
and Specifications (which approval shall
not be unreasonably withheld) and the
Work shall be supervised by an
experienced construction manager with
the consultation of an architect or
engineer qualified and licensed to do
business in the State (in the event
Lessor reasonably determines that the
Work is of a nature for which the
involvement of such architect or
engineer is appropriate). Lessee shall
not make any changes in, and shall not
permit any changes in, the quality of
the materials to be used in the Work,
the Plans and Specifications or the
Work, whether by change order or
otherwise, without the prior written
consent of Lessor, in each instance
(which consent may be withheld in
Lessor's sole and absolute discretion);
provided, however, that such consent
shall not be required for any individual
change which has been approved by the
architect, which does not materially
affect the structure or exterior of the
Facility, and the cost of which does not
exceed TEN THOUSAND DOLLARS ($10,000) or
which changes, in the aggregate, doers
not exceed ONE HUNDRED THOUSAND DOLLARS
($100,000) in cost. Notwithstanding the
foregoing, prior to making any change in
Plans and Specifications, copies of all
change orders shall be submitted by
Lessee to Lessor and Lessee shall also
deliver to Lessor evidence satisfactory
to Lessor, in its reasonable discretion,
that all necessary Permits and/or
Contracts required by any Governmental
Authority in connection therewith have
been obtained or entered into, as the
case may be.
(b) Each request for payment shall
be accompanied by (x) a certificate of
the architect or engineer, bearing the
architect's or engineer's seal, and (y)
a certificate of the general contractor,
qualified and licensed to do business in
the State, that is performing the Work
(collectively, the
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"Work Certificates"), each dated not
more than ten ( 10) days prior to the
application for withdrawal of funds, and
each stating:
(i) that all of the Work
performed as of the date of the
certificates has been completed in
compliance with the approved Plans
and Specifications, applicable
Contracts and all applicable Legal
Requirements;
(ii) that the sum then
requested to be withdrawn has been
paid by Lessee or is justly due to
contractors, subcontractors,
materialmen, engineers, architects
or other Persons, whose names and
addresses shall be stated therein,
who have rendered or furnished
certain services or materials for
the Work, and the certificate shall
also include a brief description of
such services and materials and the
. principal subdivisions or
categories thereof and the
respective amounts so paid or due
to each of said Persons in respect
thereof and stating the progress of
the Work up to the date of said
certificate;
(iii) that the sum then
requested to be withdrawn, plus all
sums previously withdrawn, does not
exceed the cost of the Work insofar
as actually accomplished up to the
date of such certificate;
(iv) that the remainder of the
funds held by Lessor will be
sufficient to pay for the full
completion of the Work in
accordance with the Plans and
Specifications;
(v) that no part of the cost
of the services and materials
described in the applicable Work
Certificate has been or is being
made the basis of the withdrawal of
any funds in any previous or then
pending application; and
(vi) that, except for the
amounts, if any, specified in the
applicable Work Certificate to be
due for services and materials,
there is no outstanding
indebtedness known, after due
inquiry, which is then due and
payable for work, labor, services
or materials in connection with the
Work which, if unpaid, might become
the basis of a vendor's,
mechanic's, laborer's or
materialman's
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statutory or other similar Lien
upon the Leased Property.
(c) Lessee shall deliver to Lessor
satisfactory evidence that the Leased
Property and all materials and all
property described in the Work
Certificates are free and clear of
Liens, except (i) Liens, if any,
securing indebtedness due to Persons
(whose names and addresses and the
several amounts due them shall be stated
therein) specified in an applicable Work
Certificate, which Liens shall be
discharged upon disbursement of the
funds then being requested or duly
contested in accordance with the terms
of this Lease Agreement, (ii) any Fee
Mortgage and (iii) the Permitted
Encumbrances. Lessor shall accept as
satisfactory evidence of the foregoing
lien waivers in customary form from the
general contractor and all
subcontractors performing the Work,
together with an endorsement of its
title insurance policy (relating to the
Leased Property) in form acceptable to
Lessor, dated as of the date of the
making of the then current disbursement,
confirming the foregoing.
(d) If the Work involves alteration
or restoration of the exterior of any
Leased Improvement that changes the
footprint of any Leased Improvement,
Lessee shall deliver to Lessor, upon the
request of Lessor, an "as-built" survey
of the Leased Property dated as of a
date within ten ( 10) days prior to the
making of the first and final advances
(or revised to a date within ten (10)
days prior to each such advance) showing
no encroachments other than such
encroachments, if any, .by the Leased
Improvements upon or over the Permitted
Encumbrances as are in existence as of
the date hereof.
(e) Lessee shall deliver to Lessor
(i) an opinion of counsel (satisfactory
to Lessor both as to counsel and as to
the form of opinion) prior to the first
advance opining that all necessary
Permits for the repair, replacement
and/or restoration of the Leased
Property which can be obtained in the
ordinary course as of said date have
been obtained and that the Leased
Property, if repaired, replaced or
rebuilt in accordance, in all material
respects, with the approved Plans and
Specifications and such Permits, shall
comply with all applicable Legal
requirements subject to such limitations
as may be imposed on such opinion under
local law and (ii) if applicable, an
architect's certificate (satisfactory to
Lessor both as to the architect and as
to the form of the certificate) prior to
the final advance, certifying
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that the Leased Property was repaired,
replaced or rebuilt in accordance, in
all material respects, with the approved
Plans and Specifications and complies
with all applicable Legal Requirements,
including, without limitation, all
Permits referenced in the foregoing
clause (i).
(f) There shall be no Lease Default
or any state of facts or circumstance
existing which, with the giving of
notice and/or the passage of time, would
constitute any Lease Default.
Lessor, at its option, may waive any of
the foregoing requirements in whole or in
part in any instance. Upon compliance by
Lessee with the foregoing requirements
(except for such requirements, if any, as
Lessor may have expressly elected to waive),
and to the extent of (x) the insurance
proceeds, if any, which Lessor may be
required to apply to restoration of the
Leased Property pursuant to the provisions of
this Lease and (y) all other cash deposits
made by Lessee, Lessor shall make available
for payment to the Persons named in the Work
Certificate the respective amounts stated in
said certificate(s) to be due, subject to a
retention of ten percent ( 10%) as to all
hard costs of the Work (the "Retainage"). It
is understood that the Retainage is intended
to provide a contingency fund to assure
Lessor that the Work shall be fully completed
in accordance with the Plans and
Specifications and the requirements of
Lessor. Upon the full and final completion of
all of the Work in accordance with the
provisions hereof, the Retainage shall be
made available for payment to those Persons
entitled thereto.
Upon completion of the Work, and as a
condition precedent to making any further
advance, in addition to the requirements set
forth above, Lessee shall promptly deliver to
Lessor:
(i) if applicable, written
certificates of the architect or
engineer, bearing the architect's
or engineer's seal, and the general
contractor, certifying that the
Work has been fully completed in a
good and workmanlike manner in
material compliance with the Plans
and Specifications and all
applicable Legal Requirements;
(ii) an endorsement of its
title insurance policy (relating to
the Leased Property) in form
reasonably acceptable to Lessor
insuring the Leased Property
against all mechanic's and
materialman's
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liens accompanied by the final lien
waivers from the general contractor
and all subcontractors;
(iii) a certificate by
Lessee in form and substance
reasonably satisfactory to .
Lessor, listing all costs and
expenses in connection with the
completion of the Work and the
amount paid by Lessee with respect
to the Work; and
(iv) a temporary certificate
of occupancy (if obtainable) and
all other applicable Permits and
Contracts issued by or entered into
with any Governmental Authority
with respect to the Primary
Intended Use not already delivered
to Lessor and, to the extent
applicable, the Other Permitted
Uses and by the appropriate Board
of Fire Underwriters or other
similar bodies acting in and for
the locality in which the Leased
Property is situated with respect
to the Facility; provided, that
within thirty (30) days after
completion of the Work, Lessee
shall obtain and deliver to Lessor
a permanent certificate of
occupancy for the Leased Property,
subject to seasonal delays.
Upon completion of the Work and delivery
of the documents required pursuant to the
provisions of this Section 13.1, Lessor shall
pay the Retainage to Lessee or to those
Persons entitled thereto and if there shall
be insurance proceeds or cash deposits, other
than the Retainage, held by Lessor in excess
of the amounts disbursed pursuant to the
foregoing provisions, then provided that no
Lease Default has occurred and is continuing,
nor any state of facts or circumstances
which, with the giving of notice and/or the
passage of time would constitute a Lease
Default, Lessor shall pay over such proceeds
or cash
deposits to Lessee.
No inspections or any approvals of the
Work during or after construction shall
constitute a warranty or representation by
Lessor, or any of its agents or Consultants,
as to the technical sufficiency, adequacy or
safety of any structure or any of its
component parts, including, without
limitation, any fixtures, equipment or
furnishings, or as to the subsoil conditions
or any other physical condition or feature
pertaining to the Leased Property. All acts,
including any failure to act, relating to
Lessor are performed solely for the benefit
of Lessor to assure the payment and
performance of the Lease Obligations and are
not for the benefit of Lessee or the benefit
of any other Person.
13.2 DISPOSITION OF INSURANCE PROCEEDS.
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13.2.1 PROCEEDS TO BE RELEASED TO PAY
FOR WORK. In the event of any Casualty,
except as provided for in Section 13.2.2,
Lessor shall release proceeds of property
insurance held by it to pay for the Work in
accordance with the provisions and procedures
set forth in this Article 13, only if:
(a) all of the terms, conditions
and provisions of Sections 13.1 and
13.2.1 are satisfied;
(b) Lessee demonstrates to Lessor's
satisfaction that Lessee has the .
financial ability to satisfy the Lease
Obligations during such repair or
restoration; and
(c) no Sublease material to the
operation of the Facility immediately
prior to such damage or taking shall
have been cancelled or terminated, nor
contain any still exercisable right to
cancel or terminate, due to such
Casualty if and to the extent that the
income from such Sublease is necessary
in order to avoid the violation of any
of the financial covenants set forth in
this Lease or otherwise to avoid the
creation of an Event of Default.
If a Fee Mortgagee prevents Lessor from releasing
proceeds of property insurance notwithstanding the
satisfaction of the foregoing requirements, Lessee
shall have no obligation to restore the Casualty
to which such proceeds pertain.
13.2.2 PROCEEDS NOT TO BE RELEASED. If,
as the result of any Casualty, the Leased
Property is damaged to the extent it is
rendered Unsuitable For Its Primary Intended
Use and if either: (a) Lessee, after exercise
of diligent efforts, cannot within a
reasonable time (not in excess of ninety (90)
days) obtain all necessary Permits in order
to be able to perform all required Work and
to again operate the Facility for its
Primary.. Intended Use and, if applicable,
the Other Permitted Uses within two hundred
and seventy (270) days from the occurrence of
the damage or destruction in substantially
the manner as immediately prior to such
damage or destruction or (b) such Casualty
occurs during the last twenty-four (24)
months of the Term and would reasonably
require more than nine (9) months to obtain
all Permits and complete the Work, then
Lessee may either (i) acquire the Leased
Property from Lessor for a purchase price
equal to the greater of (x) the Meditrust
Investment or (y) the Fair Market Value of
the Leased Property minus the Fair Market
Added Value, with the Fair Market Value and
the Fair Market Added Value to be determined
as of the day immediately prior to such
Casualty and prior to any other Casualty
which has not been fully repaired, restored
or replaced, in which event, Lessee shall be
entitled upon payment of
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the full purchase price to receive all
property insurance proceeds (less any costs
and expenses incurred by Lessor in collecting
the same), or (ii) terminate this Lease, in
which event (subject to the provisions of the
last sentence of this Section 13.2.2) Lessor
shall be entitled to receive and retain the
insurance proceeds; provided, however, that
Lessee shall only have such right of
termination effective upon payment to Lessor
of all Rent and other sums due under this
Lease and the other Lease Documents through
the date of termination plus an amount, which
when added to the sum of (1) the Fair Market
Value of the Leased Property as affected by
all unrepaired or unrestored damage due to
any Casualty (and giving due regard for
delays, costs and expenses incident to
completing all repair or restoration required
to fully repair or restore the same) plus (2)
the amount of insurance proceeds actually
received by Lessor (net of costs and expenses
incurred by Lessor in collecting the same)
equals (3) the greater of the Meditrust
Investment or the Fair Market Value of the
Leased Property minus the Fair Market. Added
Value, with the Fair Market Value and the
Fair Market Added Value to be. determined as
of the day immediately prior to such Casualty
and prior to any other Casualty which has not
been fully repaired. Any acquisition of the
Leased Property pursuant to the terms of this
Section 13.2.2 shall be consummated in
accordance with the provisions of Article 18,
mutatis, mutandis. If such termination
becomes effective, Lessor shall assign to
Lessee any outstanding insurance claims and,
at Lessee's expense, shall cooperate in
Lessee's efforts to secure the same. In the
event this Lease is terminated pursuant to
the provisions of this Section 13.2.2 and the
insurance proceeds received by Lessor in
connection therewith (net of costs and
expenses incurred in obtaining such proceeds)
exceeds one hundred fifteen percent ( 115%)
of the Fair Market Value of the Leased
Premises at the time of such termination,
Lessor shall pay to Lessee fifty percent
(50%) of the amount of such excess.
13.2.3 SPECIAL RIGHT TO REBUILD.
Anything contained in Section 13.22(A) (a)
above notwithstanding, if following any
Casualty, Lessee will be unable, as a result
of any applicable Legal Requirements, to
rebuild and operate the Facility for the
Primary Intended Use and, if applicable, the
Other Permitted Uses, but will be able to
rebuild and operate an assisted living
facility (the "New Use Facility") providing
substantially similar services as the
Facility immediately prior to such Casualty
and having units equal in number to at least
seventy-five per cent (75%) of the number of
units included in the Primary Intended Use
(the "New Primary Intended Use"), as in
effect immediately prior to any such
Casualty, then, Lessee may rebuild the New
Use Facility in accordance with the terms and
provisions of Article 13, so long as (a)
Lessee is otherwise able to comply with, and
does
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comply with, all of the terms and conditions
of Article 13 and (b) the projections for the
New Use Facility, as reasonably approved by
Lessor, indicate that Lessee shall be able to
maintain for the New Use Facility, for each
Fiscal Quarter of the Term, including all
Extended Terms, commencing with the first
Fiscal Quarter following the first
anniversary of the earlier of the issuance of
a temporary certificate of occupancy therefor
or the completion of the Work, a Debt
Coverage Ratio equal to or greater than 1.1
to 1 (the "Minimum Coverage Ratio"). In such
case, for purposes of compliance with the
terms and conditions of this Article 13 by
Lessee and for the balance of the Term
following such Casualty, the Primary Intended
Use shall be deemed to be the New Primary
Intended Use and the Facility shall be deemed
to be the New Use Facility. Lessee shall
deliver to Lessor the projections referred to
in clause (b)(i) above, together with
calculations, based thereon, showing the
Minimum Coverage Ratio, prior to the
commencement of any Work.
13.3 TANGIBLE PERSONAL PROPERTY. All
insurance proceeds payable by reason of any loss
of or damage to any of the Tangible Personal
Property shall be paid to Lessor as secured party,
subject to the rights of the holders of any
Permitted Prior Security Interests, and,
thereafter, provided that no Lease Default, nor
any fact or circumstance which with the giving of
notice and/or the passage of time could constitute
a Lease Default, has occurred and is continuing,
Lessor Shall pay such insurance proceeds to Lessee
to reimburse Lessee for the cost of repairing or
replacing the damaged Tangible Personal Property,
subject to the terms and . conditions set forth in
the other provisions of this Article 13, mutatis
mutandis.
13.4 RESTORATION OF CERTAIN IMPROVEMENTS AND
THE TANGIBLE PERSONAL PROPERTY. If Lessee is
required or elects to restore the Facility, Lessee
shall either (a) restore (i) all alterations and
improvements to the Leased Property made by Lessee
and (ii) the Tangible Personal Property or (b)
replace such alterations and improvements and the
Tangible Personal Property with improvements or
items of the same or better quality and utility in
the operation of the Leased Property provided,
however, that Lessee shall be obligated to so
restore or replace the Tangible Personal Property
only to the extent desirable for the prudent
operation of the Facility in the good faith
exercise of commercially reasonable business
judgment.
13.5 NO ABATEMENT OF RENT. In no event shall
any Rent abate as a result of any Casualty except
as expressly provided in Section 3.7.
13.6 TERMINATION OF CERTAIN RIGHTS. Any
termination of this Lease pursuant to this Article
13 shall cause any right of Lessee to
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extend the Term of this Lease granted to Lessee
herein and any right of Lessee to purchase the
Leased Property contained in this Lease to be
terminated and to be without further force or
effect.
13.7 WAIVER. Lessee hereby waives any
statutory rights of termination which may arise by
reason of any damage or destruction to the Leased
Property due to any Casualty which Lessee is
obligated to restore or may restore under any of
the provisions of this Lease.
13.8 APPLICATION OF RENT LOSS AND/OR BUSINESS
INTERRUPTION Insurance. Lessor shall direct all
proceeds of rent loss and/or business interruption
insurance (collectively, "Rent Insurance
Proceeds") to be paid to Lessee, provided no fact
or circumstance exists which constitutes, or with
notice, or passage of time, or both, would
constitute, a Lease Default pertaining to Facility
or the Leased Property. If a Lease Default or such
fact or circumstance exists, Lessor may rescind
such direction and apply all such insurance
proceeds towards the Lease Obligations pertaining
to the Facility or the Leased Property or hold
such proceeds as security therefor.
13.9 OBLIGATION TO ACCOUNT. Upon Lessee's
written request, which may not be made not more
than once in any three (3) month period, Lessor
shall provide Lessee with a written accounting of
the application of all insurance proceeds received
by Lessor.
ARTICLE 14
CONDEMNATION
14.1 PARTIES' RIGHTS AND OBLIGATIONS. If
during the Term there is any Taking of all or any
part of the Leased Property or any interest in
this Lease, the rights and obligations of the
parties shall be determined by this Article 14.
14.2 TOTAL TAKING. If there is a permanent
Taking of all or substantially all of the Leased
Property, this Lease shall terminate on the Date
of Taking. In the event this Lease is terminated
pursuant to the provisions of this Section 14.2
and the Award received by Lessor in connection
therewith (net of costs and expenses incurred in
obtaining such Award) exceeds one hundred fifteen
percent (11 S%) of the Fair Market Value of the
Leased Premises at the time of such termination,
Lessor shall pay to Lessee fifty percent (50%) of
the amount of such excess.
14.3 PARTIAL OR TEMPORARY TAKING. If there is
a Permanent Taking of a portion of the Leased
Property, or if there is a temporary Taking of all
or a portion of the Leased Property, this Lease
shall remain in effect so long as the Leased
Property is not thereby rendered permanently
Unsuitable For Its Primary Intended Use or
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temporarily Unsuitable For Its Primary Intended
Use for a period not likely to, or which does not,
exceed two-hundred and seventy (270) days. If,
however, the Leased Property is thereby so
rendered permanently or temporarily Unsuitable For
Its Primary Intended Use: (a) if only rendered
temporarily Unsuitable For Its Primary Intended
Use, Lessee shall have the right to restore the
Leased Property, at its own expense (subject to
the right under certain circumstances as provided
for in Section 14.5 to receive the net proceeds of
an Award for reimbursement), to the extent
possible, to substantially the same condition as
existed immediately before the partial or
temporary Taking or (b) Lessee shall have the
right to acquire the Leased Property from Lessor
(i) upon payment of all Rent due through the date
that the purchase price is paid, for a purchase
price equal to the greater of (x) the Meditrust
Investment or (y) the Fair Market Value of the
Leased Property minus the Fair Market Added Value,
with the Fair Market Value of the Leased Property
and the Fair Market Added Value to be determined
as of the day immediately prior to such partial or
temporary Taking and (ii) in accordance with the
terms and conditions set forth in Article 18; in
which event, this Lease shall terminate upon
payment of such purchase price and the
consummation of such acquisition. Notwithstanding
the foregoing, Lessor may overrule Lessee's
election under clause (a) or (b) and instead
either (1) terminate this Lease (with no
obligation on the part of Lessee to acquire the
Leased Property as a result thereof as of the date
when Lessee is required to surrender possession of
the portion of the Leased Property so taken if (X)
such portion comprises more than thirty percent
(30%) of the Leased Property or of the residential
building(s) located thereon or (if possession
thereof is to be surrendered within two years of
the expiration of the Term or (2) compel Lessee to
keep the Lease in full force and effect and to
restore the Leased Property as provided in clause
(a) above, but only if the Leased Property may be
operated for at least eighty percent (80%) of the
licensed unit capacity of the Facility in effect
prior to the Taking. Lessee shall exercise its
election under this Section 14.3 by giving Lessor
notice thereof ("Lessee's Election Notice") within
sixty (6o) days after Lessee receives notice of
the Taking. .Lessor shall exercise its option to
overrule . Lessee's election under this Section
14.3 by giving Lessee notice of Lessor's exercise
of its rights under Section 14.3 within thirty
(30) days after Lessor receives Lessee's Election
Notice. If, as the result of any such partial or
temporary Taking, this Lease is not terminated as
provided above, Lessee shall be entitled to an
abatement of Rent, but only to the extent, if any,
provided for in Section 3.7, effective as of the
date upon which the Leased Property is rendered
Unsuitable For Its Primary Intended Use.
14.4 RESTORATION. If there is a partial or
temporary Taking of the Leased Property and this
Lease remains in full force and effect pursuant to
Section 14.3, Lessee shall accomplish all
necessary restoration and Lessor shall release the
net proceeds of-such Award to reimburse Lessee for
the actual reasonable costs and expenses thereof,
subject to all of the conditions and provisions
set forth in Article 13 as though the
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Taking was a Casualty and the Award was insurance
proceeds. If the cost of the restoration exceeds
the amount of the Award (net of costs and expenses
incurred in obtaining the Award), Lessee shall be
obligated to contribute any excess amount needed
to restore the Facility or pay for such costs and
expenses. To the extent that the cost of
restoration is less than the amount of the Award
(net of cost and expenses incurred in obtaining
the Award), the remainder of the Award shall be
retained by Lessor and Rent shall be abated as set
forth in Section 3.7.
14.5 AWARD DISTRIBUTION. In the event Lessee
completes the purchase of the Leased Property, as
described in Section 14.3, the entire Award shall,
upon payment of the purchase price and all Rent
and other sums due under this Lease and the other
Lease Documents, belong to Lessee and Lessor
agrees to assign to Lessee all of Lessor's rights
thereto or, to the extent Lessor has received
payment of the Award, the amount of such payment
shall be credited against the purchase price. In
any other event, the entire Award (except for such
portion thereof which the Condemner designates as
allocable to Lessee's loss of business or Tangible
Personal Property) shall belong to and be paid to
Lessor.
14.6 CONTROL OF PROCEEDINGS. Subject to the
rights of any Fee Mortgagee, unless and until
Lessee completes the purchase of the Leased
Property as provided in Section 14.3, all
proceedings involving any Taking and the
prosecution of claims arising out of any Taking
against the Condemnor shall be conducted,
prosecuted and settled by Lessor; provided,
however, that Lessor shall keep Lessee apprised of
the progress of all such proceedings and shall
solicit Lessee's advice with respect thereto and
shall give due consideration to any such advice.
In addition, Lessee shall reimburse Lessor (as an
Additional Charge) for all costs and expenses,
including reasonable attorneys' fees, appraisal
fees, fees of expert witnesses and costs of
litigation or dispute resolution, in relation to
any Taking, whether or not this Lease is
terminated; provided, however, if this Lease is
terminated as a result of a Taking, Lessee's
obligation to so reimburse Lessor shall be
diminished by the amount of the Award, if any,
received by Lessor which is in excess of the
Meditrust Investment.
ARTICLE 15
PERMITTED CONTESTS
15.1 LESSEE'S RIGHT TO CONTEST. To the extent
of the express references made to this Article 15
in other Sections of this Lease, Lessee, any
Sublessee or any Manager on their own or on
Lessor's behalf (or in Lessor's name), but at
their sole cost and expense, may contest, by
appropriate legal proceedings conducted in good
faith and with due diligence (until the resolution
thereof, the amount, validity or application, in
whole or in part, of any Imposition, Legal
Requirement, the decision of any Governmental
Authority related to the operation of the Leased
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Property for its Primary Intended Use and/or, if
applicable, any of the Other Permitted Uses or any
Lien or claim relating to the Leased Property not
otherwise permitted by this Agreement; provided,
that (a) prior written notice of such contest is
given to Lessor, (b) in the case of an unpaid
Imposition, Lien or claim, the commencement and
continuation of such proceedings shall suspend the
collection thereof from Lessor and/or compliance
by any applicable member of the Leasing Group with
the contested Legal Requirement or other matter
may be legally delayed pending the prosecution of
any such proceeding without the occurrence or
creation of any Lien, charge or liability of any
kind against the Leased Property, (c) neither the
Leased Property nor any rent therefrom would be in
any immediate danger of being sold, forfeited,
attached or lost as a result of such proceeding,
(d) in the case of a Legal Requirement, neither
Lessor nor any.. member of the Leasing Group would
be in any immediate danger of civil or criminal
liability for failure to comply therewith pending
the outcome of such proceedings, (e) in the event
that any such contest shall involve a sum of money
or potential loss in excess of TWENTY FIVE
THOUSAND DOLLARS ($25,000), Lessee shall deliver
to Lessor an Officer's Certificate and opinion of
counsel, if Lessor deems the delivery of an
opinion to be appropriate, certifying or opining,
as the case may be, as to the validity of the
statements set forth to the effect set forth in
clauses (b), (c) and (d), to the extent
applicable, (f) Lessee shall give such cash
security as may be demanded in good faith by
Lessor to insure ultimate payment of any fine,
penalty, interest or cost and to prevent any sale
or forfeiture of the affected portion of the
Leased Property by reason of such non-payment or
non-compliance, (g) if such contest is finally
resolved against Lessor or any member of the
Leasing Group, Lessee shall promptly pay, as
Additional Charges due hereunder, the amount
required to be paid, together with all interest
and penalties accrued thereon and/or comply (and
cause any Sublessee and any Manager to comply)
with the applicable Legal Requirement, and (h) no
state of facts or circumstance exists which
constitutes, or with the passage of time and/or
the giving of notice, could constitute a Lease
Default; provided, however, but without limiting
any other right Lessee may have under the Lease
Documents to contest the payment of Rent, the
provisions of this Article 15 shall not be
construed to permit Lessee to contest the payment
of Rent or any other sums payable by Lessee to
Lessor under any of the Lease Documents. If such
contest is finally resolved in favor of Lessee,
Lessee shall be entitled to any refund resulting
therefrom.
15.2 LESSOR'S COOPERATION. Lessor, at
Lessee's sole cost and expense, shall execute and
deliver to Lessee such authorizations and other
documents as may reasonably be required in any
such contest, so long as the same does not expose
Lessor to any civil or criminal liability, - and,
if reasonably requested by Lessee or if Lessor so
desires, Lessor shall join as a party therein.
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15.3 LESSEE'S INDEMNITY. Lessee, as more
particularly provided for in Section 12.2, shall
indemnify, defend (with counsel acceptable to
Lessor) and save Lessor harmless against any
liability, cost or expense of any kind, including,
without limitation, attorneys' fees and expenses
that may be imposed upon Lessor in connection with
any such contest and any loss resulting therefrom
and in the enforcement of this indemnification.
ARTICLE 16
DEFAULT
16.1 EVENTS OF DEFAULT. Each of the following
shall constitute an "Event of Default" hereunder
and shall entitle Lessor to exercise its remedies
hereunder and under any of the other Lease
Documents:
(a) any failure of Lessee to pay any
amount due hereunder or under any of the
other Lease Documents within ten (10) days
following the date when such payment was due;
(b) any failure in the observance or
performance of any other covenant, term,
condition or warranty provided in this Lease
or any of the other Lease Documents, other
than the payment of any monetary obligation
and other than as specified in subsections
(c) through (v) below (a "Failure to
Perform"), continuing for thirty (30) days
after the giving of notice by Lessor to
Lessee specifying the nature of the Failure
to Perform; except as to matters not
susceptible to cure within thirty (30) days,
provided that with respect to such matters,
(i) Lessee commences the cure thereof within
thirty (30) days after the giving of such
notice by Lessor to Lessee, (ii) Lessee
continuously prosecutes such cure to
completion, (iii) such cure is completed
within one hundred twenty (120) days after
the giving of such notice by Lessor to Lessee
and (iv) such Failure to Perform does not
impair the value of, or Lessor's rights with
respect to, the Leased Property or otherwise
impair the Collateral or Lessor's security
interest therein;
(c) the occurrence of any default or
breach of condition continuing beyond the
expiration of the applicable notice and grace
periods, if any, under any of the other Lease
Documents, including, without limitation, the
Agreement Regarding Related Transactions;
(d) if any representation, warranty or
statement contained herein or in any of the
other Lease Documents proves to be untrue in
any material respect as of the date when made
or at
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any time during the Term if such
representation or warranty is a continuing
representation or warranty pursuant to
Section 10.2;
(e) if any member of the Leasing Group
shall (i) voluntarily be adjudicated a
bankrupt or insolvent, (ii) seek or consent
to the appointment of a receiver or trustee
for itself or for the Leased Property, (iii)
file a petition seeking relief under the
bankruptcy or other similar laws of the
United States, any state or any jurisdiction,
(iv) make a general assignment for the
benefit of creditors, (v) make or offer a
composition of its debts with its creditors
or (vi) be unable to pay its debts as such
debts mature;
(f) if any court shall enter an
order, judgment or decree appointing, without
the consent of any member of the Leasing
Group, a receiver or trustee for such member
or for any of its property and such order,
judgment or decree shall remain in force,
undischarged or unstayed; ninety (90) days
after it is entered;
(g) if a petition is filed against any
member of the Leasing Group which seeks
relief under the bankruptcy or other similar
laws of the United States, any state or any
other jurisdiction, and such petition is not
dismissed within ninety (90) days after it is
filed;
(h) in the event that:
i. all or any portion of the
interest of any partner, shareholder,
member in any member of the Leasing
Group (other than Guarantor) shall be,
on any one or more occasions, directly
or indirectly, sold, assigned,
hypothecated or otherwise transferred
(whether by operation of law or
otherwise), if such member of the
Leasing Group shall be a partnership,
joint venture, syndicate or other group,
without the prior written consent of
Lessor, in each instance, which consent
may be withheld by Lessor in its
reasonable discretion with respect to a
sale, assignment, hypothecation or other
transfer to a Meditrust/Emeritus
Transaction Affiliate and in all other
cases, in its sole and absolute
discretion;
ii. the shares of the issued and
outstanding capital stock of any member
of the Leasing Group (other than
Guarantor) shall be, on any one or more
occasions, directly or indirectly, sold,
assigned, hypothecated or otherwise
transferred (whether by operation of law
or otherwise), if such member of the
Leasing Group shall be a corporation,
without the prior written consent of
Lessor, in each instance, which consent
may be withheld by Lessor in
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its reasonable discretion with respect
to a sale, assignment, hypothecation or
other transfer to a Meditrust/Emeritus
Transaction Affiliate and in all other
cases, in its sole and absolute
discretion; or
iii. all or any portion of the
beneficial interest in any member of the
. Leasing Group (other than Guarantor)
shall be, directly or indirectly, sold
or otherwise transferred (whether by
operation of law or otherwise), if such
member of the Leasing Group shall be a
trust, without the prior written consent
of Lessor, in each instance, which
consent may be withheld by Lessor in its
reasonable discretion with respect to a
sale, assignment, hypothecation or other
transfer to a Meditrust/Emeritus
Transaction Affiliate and in all other
cases, in its sole and absolute
discretion;
Notwithstanding the foregoing, no consent of
Lessor to a pledge by Lessee of its stock to the
lender of a Working Capital Loan satisfying the
requirements of Section 6.1.3 shall be required (a
"Working Capital Stock Pledge").
(i) the death, incapacity, liquidation,
dissolution or termination of existence of
any member of the Leasing Group or the merger
or consolidation of any member of the Leasing
Group with any other Person except as
expressly permitted by the terms of this
Lease Agreement;
(j) except as provided in Section 19. I
hereof, if, without the prior written consent
of Lessor, in each instance, which consent
may be withheld by Lessor in its sole and
absolute discretion, Lessee's interest, or
any interest of a Sublessee which is an
Affiliate of Lessee, in the Leased Property
shall be, directly or indirectly, mortgaged,
encumbered (by any voluntary or involuntary
Lien other than the Permitted Encumbrances),
subleased, sold, assigned, hypothecated or
otherwise transferred (whether by operation
of law or otherwise);
(k) the occurrence of a default or
breach of condition continuing beyond the
expiration of the applicable notice and grace
periods, if any, in connection with the
payment or performance of any other material
obligation of Lessee or any Sublessee which
is an Affiliate of Lessee, if the applicable
creditor or obligee elects to declare the
obligations of Lessee or the applicable
Sublessee under the applicable agreement due
and payable or to exercise any other right or
remedy available to such creditor or obligee,
or, whether or not such creditor or obligee
has so elected or exercised, such creditor's
or obligee's rights and remedies, if
exercised, may
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involve or result in the taking of possession
of, or the creation of a Lien on, the Leased
Property; provided, however, that in any
event, the election by the applicable
creditor or obligee to declare the
obligations of Lessee under the applicable
agreement due and payable or to exercise any
other right or remedy available to such
creditor or obligee shall be an Event of
Default hereunder only if such obligations,
individually or in the aggregate, are in
excess of TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000);
(l) the occurrence of a Related Party
Default;
(m) the occurrence of any default or
breach of condition which is not cured within
any applicable cure period under a Working
Capital Loan secured by a Working Capital
Stock Pledge (or any documents executed in
connection therewith) or the exercise of any
ownership rights by the lender of a Working
Capital Loan secured by a Working Capital
Stock Pledge;
(n) except as a result of Casualty or a
partial or complete Condemnation (including a
temporary taking), if Lessee or any Sublessee
ceases operation of the Facility for a period
in excess of thirty (30) days (a "Failure to
Operate");
(o) if one or more judgments against
Lessee or any Sublessee which is an Affiliate
of Lessee or attachments against Lessee's
interest or any such Sublessee's interest in
the Leased Property, which in the aggregate
exceed TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000) or which may materially and
adversely interfere .with the operation of
the Facility, remain unpaid; unstayed on
appeal, undischarged, : unbonded or
undismissed for a period of thirty (30) days;
(p) if any malpractice award or
judgment exceeding any applicable
professional liability insurance coverage by
more than FIVE HUNDRED THOUSAND DOLLARS
($500,000) shall be rendered against any
member of the Leasing Group and either (i)
enforcement proceedings shall have been
commenced by any creditor upon such award or
judgment or (ii) such award or judgment shall
continue unsatisfied and in effect for a
period of ten (10) consecutive days without
an insurance company satisfactory to Lessor
(in its sole and absolute discretion) having
agreed to fund such award or judgment in a
manner satisfactory to Lessor (in its sole
and absolute discretion) and in either case
such award or judgment shall, in the
reasonable opinion of Lessor, have a material
adverse affect on the ability of Lessee or
any Sublessee to operate the Facility;
(q) if any Provider Agreement material
to the operation or financial condition of
the Leased Property shall be terminated
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prior to the expiration of the term thereof
or, without the prior written consent of
Lessor, in each instance, which consent may
be withheld in Lessor's reasonable
discretion, shall not be renewed or extended
upon the expiration of the stated term
thereof;
(r) if, after Lessee or any Sublessee
has obtained approval for Medicare and/or
Medicaid funding, a final unappealable
determination is made by the applicable
Governmental Authority that Lessee or any
Sublessee shall have failed to comply with
applicable Medicare and/or Medicaid
regulations in the operation of the Facility,
as a result of which failure Lessee or such
Sublessee is declared ineligible to continue
its participation in the Medicare and/or
Medicaid programs and such determination
could reasonably be expected to have a
material adverse effect on the operation or
financial condition of the Leased Property;
(s) if any member of the Leasing Group
receives notice of a final unappealable
determination by applicable Governmental
Authorities of the revocation of any Permit
required for the lawful construction or
operation of the Facility in accordance with
the Primary Intended Use and, if applicable,
the Other Permitted Uses or the loss of any
Permit under any other circumstances under
which any member of the Leasing Group is
required to permanently cease the
construction or operation of the Facility in
accordance with the Primary Intended Use and
the Other Permitted Uses; and
(t) any failure to maintain the
insurance required pursuant to Section 13 of
this Lease in force and effect at all times
until the Lease Obligations are fully paid
and performed;
(u) the appointment of a temporary
manager (or operator) for the Leased Property
by any Governmental Authority;
(v) the entry of an order by a court
with jurisdiction over the Leased Property to
close the Facility, to transfer one or more
residents the Facility as a result of an
allegation of abuse or neglect or to take any
action to eliminate an emergency situation
then existing at the Facility, if such order
has not been stayed pending appeal within ten
(10) following such entry; or
(w) the occurrence of any default or
breach of condition continuing for more than
thirty (30) days under any credit agreement,
loan agreement or other agreement
establishing a major line of credit
(including, without limitation, a major line
of credit or a Working Capital Loan which is
not secured by a Working Capital Stock
Pledge)(or any documents executed in
connection with such lines of credit) on
behalf of Guarantor without regard to
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whether the applicable creditor has elected
to declare the indebtedness due and payable
under such line of credit or to exercise any
other right or remedy available to it or the
occurrence of any such default or breach of
condition if the applicable creditor has
elected to declare the indebtedness due and
payable under such line of credit or to
exercise any other right or remedy available
to it. For the purpose of this provision, a
major line of credit shall mean and include
any line of credit established in an amount
equal to or greater than ONE MILLION DOLLARS
($1,000,000) with respect to a line of credit
for which Guarantor is an obligor, endorser,
surety or guarantor.
16.2 REMEDIES.
(a) If any Lease Default shall have
occurred, Lessor may at its option terminate
this Lease by giving Lessee not less than ten
(10) days' notice of such termination, or
exercise any one or more of its rights and
remedies under this Lease or any of the other
Lease Documents, or as available at law or in
equity and upon the expiration of the time
fixed in such notice, the Term shall
terminate (but only if Lessor shall have
specifically elected by a written notice to
so terminate the Lease) and all rights of
Lessee under this Lease shall cease.
Notwithstanding the foregoing, in the event
of Lessee's failure to pay Rent, if such Rent
remains unpaid beyond ten (10) days from the
due date thereof, Lessor shall not be
obligated to give ten (10) days notice of
such termination or exercise of any of its
other rights and remedies under this Lease,
or the other Lease Documents, or otherwise
available at law or in equity, and Lessor
shall be at liberty to pursue any one or more
of such rights or remedies without further
notice. No taking of possession of the Leased
Property by or on behalf of Lessor, and no
other act done by or on behalf of Lessor,
shall constitute an acceptance of surrender
of the Leased Property by Lessee or reduce
Lessee's obligations under this Lease or the
other Lease Documents, unless otherwise
expressly agreed to in a written document
signed by an authorized officer or agent of
Lessor.
(b) To the extent permitted under
applicable law, Lessee shall pay as
Additional Charges all costs and expenses
(including, without limitation, attorneys'
fee and expenses) reasonably incurred by or
on behalf of Lessor as a result of any Lease
Default.
(c) If any Lease Default shall have
occurred, whether or not this Lease has been
terminated pursuant to Paragraph (a) of this
Section, Lessee shall, to the extent
permitted under applicable law, if required
by Lessor so to do, upon not less than ten
(10) days' prior notice from Lessor,
immediately surrender to Lessor the Leased
Property pursuant to the provisions of
Paragraph (a) of this
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Section and quit the same, and Lessor may
enter upon and repossess the Leased Property
by reasonable force, summary proceedings,
ejectment or otherwise, and may remove Lessee
and all other Persons and any and all of the
Tangible Personal Property from the Leased
Property, subject to the rights of any
residents of the Facility and any Sublessees
who are not Affiliates of any member of the
Leasing Group and to any requirements of
applicable law, or Lessor may claim ownership
of the Tangible Personal Property as set
forth in Section 5.2.3 hereof or Lessor may
exercise its rights as secured party under
the Security Agreement. Lessor shall use
reasonable, good faith efforts to relet the
Leased Property or otherwise mitigate damages
suffered by Lessor as a result of Lessee's
breach of this Lease.
(d) In addition to all of the rights and
remedies of Lessor set forth in this Lease
and the other Lease Documents, if Lessee
shall fail to pay any rental or other charge
due hereunder (whether denominated as Base
Rent, Additional Rent, Additional Charges or
otherwise) within ten (10) days after same
shall have become due and payable, then and
in such event Lessee shall also pay to Lessor
(i) a late payment service charge (in order
to partially defray Lessor's administrative
and other overhead expenses) equal to TWO
HUNDRED FIFTY DOLLARS ($250) and (ii) to the
extent permitted by applicable law, interest
on such unpaid sum at the Overdue Rate; it
being understood, however, that nothing
herein shall be deemed to extend the . due
date for payment of any sums required to be
paid by Lessee hereunder or to relieve Lessee
of its obligation to pay such sums at the
time or times required by this Lease.
16.3 DAMAGES. None of(a) the termination of
this Lease pursuant to Section 16.2, (b) the
eviction of Lessee or the repossession of the
Leased Property, (c) the inability after
reasonable diligence of Lessor, notwithstanding
reasonable good faith efforts, to relet the Leased
Property, (d) the reletting of the Leased Property
or (e) the failure of Lessor to collect or receive
any rentals due upon any such reletting, shall
relieve Lessee of its liability and obligations
hereunder, all of which shall survive any such
termination, repossession or reletting. In any
such event, Lessee shall forthwith pay to Lessor
all Rent due and payable with respect to the
Leased Property to and including the date of such
termination, repossession or eviction. Thereafter,
Lessee shall forthwith pay to Lessor, at Lessor's
option, either:
(i) the sum of: (x) all Rent that is
due and unpaid at later to occur of
termination, repossession or eviction,
together with interest thereon at the
Overdue Rate to the date of payment,
plus (y) the worth (calculated in the
manner stated below) of the amount by
which the unpaid Rent for
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the balance of the Term after the
later to occur of the termination,
repossession or eviction exceeds the
fair market rental value of the Leased
Property for the balance of the Term,
plus (z) any other amount necessary to
compensate Lessor for all damage
proximately caused by Lessee's failure
to perform the Lease Obligations or
which in the ordinary course would be
likely to result therefrom and less the
amount of rent that has actually been
received by Lessor following the
termination of this Lease from a Person
other than an Affiliate of Lessor (which
for purposes hereof shall include the
net income received by Lessor or an
Affiliate of Lessor from its own
operation of the Leased Property in the
event it elects to resume operation
thereof in lieu of hiring a third party
manager or re-letting the Leased
Property); or
(ii) each payment of Rent as the same
would have become due and payable if
Lessee's right of possession or other
rights under this Lease had not been
terminated, or if Lessee had not been
evicted, or if the Leased Property had
not been repossessed which Rent, to the
extent permitted by law, shall bear
interest at the Overdue Rate from the
date when due until the date paid, and
Lessor may enforce, by action or
otherwise, any other term or covenant of
this Lease. There shall be credited
against Lessee's obligation under this
Clause (ii) amounts actually collected
by Lessor from another tenant to whom
the Leased Property may have actually
been leased or, if Lessor is operating
the Leased Property for its own account,
the actual Cash Flow of the Leased
Property.
In making the determinations described in
subparagraph (i) above, the "worth" of unpaid Rent
shall be determined by a court having jurisdiction
thereof using the lowest rate of capitalization
(highest present worth) reasonably applicable at
the time of such determination and allowed by
applicable law and the Additional Rent shall be
deemed to be the same as the average Additional
Rent of the preceding five (5) full calendar
years, or if shorter, the average Additional Rent
for the calendar years or portions thereof since
the date that Additional Rent commenced to accrue
or such other amount as either party shall prove
reasonably could have been earned during the
remainder of the Term or any portion thereof.
16.4 LESSEE WAIVERS. If this Lease is
terminated pursuant to Section 16.2, Lessee
waives, to the extent not prohibited by applicable
law, (a) any right of redemption, re-entry or
repossession, (b) any right to a trial by jury in
the event of summary proceedings to enforce the
remedies set forth in this Article 16, and (c) the
benefit of any laws now or hereafter in force
exempting property from liability for rent or for
debt.
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16.5 APPLICATION OF FUNDS. Any payments
otherwise payable to Lessee which are received by
Lessor under any of the provisions of this Lease
during the existence or continuance of any Lease
Default shall be applied to the Lease Obligations
in the order which Lessor may reasonably determine
or as may be required by the laws of the State.
16.6 FAILURE TO CONDUCT BUSINESS. For the
purpose of determining rental loss damages or
Additional Rent, in the event Lessee fails to
conduct business upon the Leased Property, exact
damages or the amount of Additional Rent being
unascertainable, it shall be. deemed that the
Additional Rent for such period would be equal to
the average annual Additional Rent during the five
(5) preceding calendar years or such shorter
period of time as may have existed between the
date Additional Rent commenced to accrue and the
date of computation.
16.7 LESSOR'S RIGHT TO CURE. If Lessee shall
fail to make any payment, or to perform any act
required to be made or performed under this Lease
and to cure the same within the relevant time
periods provided in Section 16.1, Lessor, after
five (5) Business Days' prior notice to Lessee
(except in an emergency when such shorter notice
shall be given as is reasonable under the
circumstances), and without waiving or releasing
any obligation or Event of Default, may (but shall
be under no obligation to) at any time thereafter
make such payment or perform such act for the
account and at the expense of Lessee, and may, to
the extent permitted by law, enter upon the Leased
Property for such purpose and take all such action
thereon as, in Lessor's opinion, may be necessary
or appropriate therefor. No such entry shall be
deemed an eviction of Lessee. All sums so paid by
Lessor and all costs and expenses (including,
without limitation, reasonable attorneys' fees and
expenses, in each case, to the extent permitted by
law) so incurred shall be paid by Lessee to Lessor
on demand as an Additional Charge. The obligations
of Lessee and rights of Lessor contained in this
Article shall survive the expiration or earlier
termination of this Lease.
16.8 NO WAIVER BY LESSOR. Lessor shall not
by any act, delay, omission or otherwise
(including, without limitation, the exercise of
any right or remedy hereunder) be deemed to have
waived any of its rights or remedies hereunder or
under any of the other Lease Documents unless such
waiver is in writing and signed by Lessor, and
then, only to the extent specifically set forth
therein: No waiver at any time of any of the
terms, conditions, covenants, representations or
warranties set forth in any of the Lease Documents
(including, without limitation, any of the time
periods set forth therein for the performance of
the Lease Obligations) shall be construed as a
waiver of any other term, condition, covenant,
representation or warranty of any of the Lease
Documents, nor shall such a waiver in any one
instance or circumstances be construed as a waiver
of the same term, condition, covenant,
representation or warranty in any subsequent
instance or circumstance. No such failure, delay
or waiver
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shall be construed as creating a requirement that
Lessor must thereafter, as a result of such
failure, delay or waiver, give notice to Lessee or
any Guarantor, or any other Person that Lessor
does not intend to, or may not, give a further
waiver or to refrain from insisting upon the
strict performance of the terms, conditions,
covenants, representations and warranties set
forth in the Lease Documents before Lessor can
exercise any of its rights or remedies under any
of the Lease Documents or before any Lease Default
can occur, or as establishing a course of dealing
for interpreting the conduct of and agreements
between Lessor and Lessee; the Guarantor or any
other Person.
The acceptance by Lessor of any payment that
is less than payment in full of all amounts then
due under any of the Lease Documents at the time
of the making of such payment shall not: (a)
constitute a waiver of the right to exercise any
of Lessor's remedies at that time or at any
subsequent time, (b) constitute an accord and
satisfaction or (c) nullify any prior exercise of
any remedy, without the express written consent of
Lessor. Any failure by Lessor to take any action
under this Lease or any of the other Lease
Documents by reason of a default hereunder or
thereunder, acceptance of a past due installment,
or indulgences granted from time to time shall not
be construed as a novation of this Lease or any of
the other Lease Documents or as a waiver of such
right or of the right of Lessor thereafter to
insist upon strict compliance with the terms of
this Lease or any of the other Lease Documents, or
(d) prevent the exercise of such right of
acceleration or any other right granted hereunder
or under applicable law for purposes of obtaining
the damages set forth in Section 16.3, specific
performance or equitable remedies; and to the
maximum extent not prohibited by applicable law,
Lessee hereby expressly waives the benefit of any
statute or rule of law or equity now provided, or
which may hereafter be provided, which would
produce a result contrary to or in conflict with
the foregoing.
16.9 RIGHT OF FORBEARANCE. Whether or not
for consideration paid or payable to Lessor and,
except as may be otherwise specifically agreed to
by Lessor in writing, no forbearance on the part
of Lessor, no extension of the time for the
payment of the whole or any part of the
Obligations, and no other indulgence given by
Lessor to Lessee or any other Person, shall
operate to release or in any manner affect the
original liability of Lessee or such other
Persons, or to limit, prejudice or impair any
right of Lessor, including, without limitation,
the right to realize upon any collateral, or any
part thereof, for any of the Obligations evidenced
or secured by the Lease Documents; notice of any
such extension, forbearance or indulgence being
hereby waived by Lessee and all those claiming by,
through or under Lessee.
16.10 CUMULATIVE REMEDIES. The rights and
remedies set forth under this Lease are in
addition to all other rights and remedies afforded
to Lessor under any of the other Lease Documents
or at law or in
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equity, all of which are hereby reserved by
Lessor, and this Lease is . made and accepted
without prejudice to any such rights and remedies.
All of the rights and remedies of Lessor under
each of the Lease Documents shall be separate and
cumulative and may be exercised concurrently or
successively in Lessor's sole and absolute
discretion.
ARTICLE I 7
SURRENDER OF LEASED PROPERTY OR LEASE; HOLDING
OVER
17.1 SURRENDER. Lessee shall, upon the
expiration or prior termination of the Term
(unless occasioned by Lessee's purchase of the
Leased Property pursuant to the terms of this
Lease Agreement), vacate and surrender the Leased
Property to Lessor in good repair and condition,
in compliance with all applicable Legal
Requirements, all Insurance Requirements, and in
compliance with the provisions of Article 8,
except for: (a) ordinary wear and tear (subject to
the obligation of Lessee to maintain the Leased
Property in good order and repair during the
entire Term of the Lease), (b) damage caused by
the gross negligence or willful acts of Lessor,
and (c) any damage or destruction resulting from a
Casualty or Taking that Lessee is not required by
the terms of this Lease to repair or restore.
17.2 TRANSFER OF CONTRACTS AND PERMITS. In
connection with the expiration or any earlier
termination of this Lease (unless occasioned by
Lessee's purchase of the Leased Property pursuant
to the terms of this Lease Agreement), upon any
request made from time to time by Lessor, Lessee
shall (a) promptly and diligently use its best
efforts to (i) transfer and assign all Permits and
Contracts necessary or desirable for the operation
of the Leased Property in accordance with its
Primary Intended Use to Lessor or its designee to
the extent the same are assignable under
applicable Legal Requirements and/or (ii) arrange
for the transfer or assignment of such Permits and
Contracts to Lessor or its designee and (b)
cooperate in every respect (and to the fullest
extent possible) and assist Lessor or its designee
in obtaining such Permits and Contracts (whether
by transfer, assignment or otherwise) provided,
however, that unless a termination is the result
of a Lease Default, Casualty or Condemnation,
Lessee's efforts and cooperation shall not require
Lessee to pay the costs and expenses incurred by
Lessor or Lessor's designated transferee of the
Contracts and Permits. Such efforts and
cooperation on the part of Lessee shall. include,
without limitation, the execution, delivery and
filing with appropriate Governmental Authorities
and Third Party Payors of any applications,
petitions, statements, notices, requests,
assignments and other documents or instruments
requested by Lessor. Furthermore, Lessee shall not
take any action or refrain from taking any action
which would defer, delay or jeopardize the process
of Lessor or its designee obtaining said Permits
and Contracts (whether by
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transfer, assignment or otherwise). Without
limiting the foregoing, Lessee shall not seek to
transfer or relocate any of said Permits or
Contracts to any location other than the Leased
Property. The provisions of this Section 17.2
shall survive the expiration or earlier
termination of this Lease. Lessee hereby appoints
Lessor as its attorney-in-fact, with full power of
substitution to take such actions, in the event
that Lessee fails to comply with any request made
by Lessor hereunder, as Lessor (in its sole
absolute discretion) may deem necessary or
desirable to effectuate the intent of this Section
17.2. The power of attorney conferred on Lessor by
the provisions of this Section 17.2, being coupled
with an interest, shall be irrevocable until the
Obligations are fully paid and performed and shall
not be affected by any disability or incapacity
which Lessee may suffer and shall survive the
same. Such power of attorney is provided solely to
protect the interests of Lessor and shall not
impose any duty on the Lender to exercise any such
power and neither Lessor nor such attorney-in-fact
shall be liable for any act, omission, error in
judgment or mistake of law, except as the same may
result from its gross negligence or willful
misconduct.
17.3 NO ACCEPTANCE OF SURRENDER. Except at
the expiration of the Term in the ordinary course,
no surrender to Lessor of this Lease or of the
Leased Property or any interest therein shall be
valid or effective unless agreed to and accepted
in writing by Lessor and no act by Lessor or any
representative or agent of Lessor, other than such
a written acceptance by Lessor, shall constitute
an acceptance of any such surrender.
17.4 HOLDING OVER. If, for any reason, Lessee
shall remain in possession of the Leased Property
after the expiration or any earlier termination of
the Term, such possession shall be as a tenant at
sufferance during which time Lessee shall pay as
rental each month, one and one-half times the
aggregate of (i) one-twelfth of the aggregate Base
Rent, and Additional Rent payable at the time of
such expiration or earlier termination of the
Term; (ii) all Additional Charges accruing during
the month and (iii) all other sums, if any,
payable by Lessee pursuant to the provisions of
this Lease with respect to the Leased Property.
During such period of tenancy, Lessee shall be
obligated to perform and observe all of the terms,
covenants and conditions of this Lease, but shall
have no rights hereunder other than the right, to
the extent given by law to tenants at sufferance,
to continue its occupancy and use of the Leased
Property. Nothing contained herein shall
constitute the consent, express or implied, of
Lessor to the holding over of Lessee after the
expiration or earlier termination of this Lease.
ARTICLE 18
PURCHASE OF THE LEASED PROPERTY/RIGHT OF FIRST
REFUSAL
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18.1 PURCHASE OF THE LEASED PROPERTY. In the
event Lessee purchases the Leased Property from
Lessor pursuant to any of the terms of this Lease,
Lessor shall, upon receipt from Lessee of the
applicable purchase price, together with full
payment of any unpaid Rent due and payable with
respect to any period ending on or before the date
of the purchase, deliver to Lessee a deed with
covenants only against acts of Lessor conveying
the entire interest of Lessor in and to the Leased
Property to Lessee subject to all applicable Legal
Requirements, all of the matters described in
clauses (a), (b), (e) and (g) of Section 11.5.2,
Impositions, any Liens created by Lessee, any
Liens created in accordance with the terms of this
Lease (except to the extent specifically excluded
by the terms hereof or consented to by Lessee, the
claims of all Persons claiming by, through or
under Lessee, any other matters assented to by
Lessee and all matters for which Lessee has
responsibility under any of the Lease Documents,
but otherwise not subject to any other Lien
created by Lessor from and after the Commencement
Date (other than an Encumbrance permitted under
Article 20 which Lessee elects to assume). The
applicable purchase price shall be paid in cash to
Lessor, or as Lessor may direct, in federal or
other immediately available funds except as
otherwise mutually agreed by Lessor and Lessee.
All expenses of such conveyance, including,
without limitation, the cost of title examination
or standard or extended coverage title insurance,
attorneys' fees incurred by Lessor in connection
with such conveyance, recording and transfer taxes
and recording fees and similar charges and
specifically excluding any prepayment penalties,
if any, due Lessor's mortgagee, shall be paid by
Lessee.
18.2 APPRAISAL.
18.2.1 DESIGNATION OF APPRAISERS. In the
event that it becomes necessary to determine
the Fair Market Value of the Leased Property
for any purpose of this Lease, the party
required or permitted to give notice of such
required determination shall include in the
notice the name of a Person selected to act
as appraiser on its behalf. Within ten ( 10)
days after receipt of any such notice, Lessor
(or Lessee, as the case may be) shall by
notice to Lessee (or Lessor, as the case may
be) either accept such Person to be the sole
appraiser to determine the Fair Market Value
of the Leased Property or appoint a second
Person as appraiser on its behalf.
18.2.2 APPRAISAL PROCESS. The appraisers
thus appointed, each of whom must be a member
of the American Institute of Real Estate
Appraisers (or any successor organization
thereto), shall, within forty-five (45) days
after the date of the notice appointing the
first appraiser, proceed to appraise the
Leased Property to determine the Fair Market
Value of the Leased
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Property as of the relevant date (giving
effect to the impact, if any, of inflation
from the date of their decision to the
relevant date); provided, however, that if
only one appraiser shall have been so
appointed, or if two appraisers shall have
been so appointed but only one such appraiser
shall have made such determination within
fifty (50) days after the making of Lessee's
or Lessor's request, then the determination
of such appraiser shall be final and binding
upon the parties. If two appraisers shall
have been appointed and shall have made their
determinations within the respective
requisite periods set forth above and if the
difference between the amounts so determined
shall not exceed ten per cent (10%) of the
lesser of such amounts, then the Fair Market
Value of the Leased Property shall be an
amount equal to fifty percent (50%) of the
sum of the amounts so determined. If the
difference between the amounts so determined
shall exceed ten percent (10%) of the lesser
of such amounts, then such two appraisers
shall have twenty (20) days to appoint a
third appraiser, but if such appraisers fail
to do so, then either party may request the
American Arbitration Association or any
successor organization thereto to appoint an
appraiser within twenty (20) days of such
request, and both parties shall be bound by
any appointment so made within such twenty
(20) day period. If no such appraiser shall
have been appointed within such twenty (20)
days or within ninety (90) days of the
original request for a determination of Fair
Market Value of the Leased Property,
whichever is earlier, either Lessor or Lessee
may apply to any court having jurisdiction to
have such appointment made by such court. Any
appraiser appointed by the original
appraisers, by the American Arbitration
Association or by such court shall be
instructed to determine the Fair Market Value
of the Leased Property within thirty (30)
days after appointment of such Appraiser. The
determination of the appraiser which differs
most in terms of dollar amount from the
determinations of the other two appraisers
shall be excluded, and fifty percent (50%) of
the sum of the remaining two determinations
shall be final and binding upon Lessor and
Lessee as the Fair Market Value of the Leased
Property.
18.2.3 SPECIFIC ENFORCEMENT AND COSTS. This
provision for determination by appraisal shall be
specifically enforceable to the extent such remedy
is available under applicable law, and any
determination hereunder shall be final and binding
upon the parties except as otherwise provided by
applicable law. Lessor and Lessee shall each pay
the fees arid expenses of the appraiser appointed
by it and each shall pay one-half of the fees and
expenses of the third appraiser and one-half of
all other cost and expenses incurred in connection
with each appraisal.
18.3 LESSEE'S RIGHT OF FIRST REFUSAL.
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18.3.1 RIGHT OF FIRST REFUSAL. At any
time during the Term, as long as there exists
no Lease Default at the time of exercise and
on the Closing Date and this Lease is then in
full force and effect and there exists no
event or state of facts which constitutes, or
with the passage of time and/or the giving of
notice would constitute, a Lease Default, the
Lessee shall have a "Right of First Refusal"
subject to the following terms and condition:
(a) if the Lessor receives a bona fide
written offer to purchase the Leased Property
from a Person which is not a member of the
Leasing Group or an Affiliate of any member
of the Leasing Group (the "Offer"),
acceptable to Lessor in the Lessor's sole and
absolute discretion, and the Lessor elects,
in the Lessor's sole and absolute discretion,
to sell the Leased Property in accordance
with the Offer, the Lessee shall have thirty
(30) days following the delivery of the
notice of the Offer to Lessee to elect to
purchase the Leased Property on the same
terms and conditions as specified in the
Offer; (b) unless the Lessor receives notice
from Lessee within such thirty (30) day
period setting forth the Lessee's election
("Election Notice") to so purchase the Leased
Property and unless thereafter the Lessee
completes the acquisition of the Leased
Property exactly as provided for, and by the
date specified in the Offer (the "Closing
Date"), the Lessor shall be at liberty, and
shall have the absolute and unconditional
right to sell the Leased Property to any
person within the next twelve (12) months
substantially on the terms and conditions set
forth in the Offer or on any other terms and
conditions more favorable to the Lessor; and
(c) any such sale consummated in accordance
with the provisions of the foregoing clause
(b) shall extinguish all rights granted to
the Lessee under this Section 18.3. The
Lessee's Right of First Refusal shall not
apply to and shall survive: (a) any sale or
transfer of the Leased Property to any
Affiliate of the Lessor or of Meditrust; (b)
any sale or transfer of the Leased Property
occasioned by the exercise of any rights or.
remedies of any Fee Mortgagee; or (c) a deed
or transfer in lieu of foreclosure to any Fee
Mortgagee or any Affiliate thereof. The
Lessee's Right of First Refusal shall in all
events terminate upon the expiration or any
earlier termination of this Lease. The
acceptance of the deed to the Leased Property
by Lessee or any grantee designated by
Lessee, as the case may be, shall be deemed
to be a full performance and discharge of
every agreement and obligation to be
performed by Lessor contained or expressed in
this Lease.
18.3.2 CONDITION OF LEASED PROPERTY. The
Leased Property is to be purchased "AS IS"
and "WHERE IS" as of the Closing Date.
18.3.3 QUALITY OF TITLE. If Lessor shall
be unable to give title or to make
conveyance, as stipulated in this Section
18.3,
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then, at Lessor's option, Lessor shall use
reasonable efforts to remove all defects in
title and the applicable Closing Date shall
be extended for period of thirty (30) days
other than with respect to any Encumbrances
which Lessor has caused to exist. Lessor
shall not be required to expend more than :
FIFTY THOUSAND DOLLARS ($50,000) (inclusive
of attorney's fees) in order to have used
"reasonable efforts."
18.3.4 LESSOR'S INABILITY TO PERFORM. If
at the expiration of the extended time Lessor
shall have failed so to remove any such
defects in title, then all other obligations
of all parties hereto under Section 18.3
shall cease and Section I 8.3 shall be void
and without recourse to the parties hereto.
Notwithstanding the foregoing, Lessee shall
have the election, at either the original or
extended Closing Date, to accept such title
as Lessor can deliver to the Leased Property
in its then condition and to pay therefor the
Purchase Price without reduction, in which
case Lessor shall convey such title;
provided, that, in the event of such
conveyance, if any portion of the Leased
Property shall have been taken by
Condemnation prior to the applicable Closing
Date, Lessor shall pay over or assign to
Lessee at the Closing Date, all Awards
recovered on account of such Taking, less any
amounts reasonably expended by Lessor in
obtaining such Award and less any amounts
expended for restoration pursuant to the
provisions of Article 14 hereof, or, to the
extent such Awards have not been recovered as
of the applicable Closing Date, Lessor shall
assign to Lessee all its rights with respect
to any claim therefor and further provided,
hat, in the event of such conveyance, if any
portion of the Leased Property shall have
suffered a Casualty prior to the applicable
Closing Date, Lessor shall pay over or assign
to Lessee at the Closing Date, all insurance
proceeds recovered on account of such
Casualty, less any amounts reasonably
expended by Lessor in obtaining such proceeds
and less any amounts expended for restoration
pursuant to the provisions of Article 13
hereof, or, to the extent such proceeds have
not been recovered as of the applicable
Closing Date, Lessor shall assign to Lessee
all its rights with respect to any claim
therefor.
18.3.5 USE OF PURCHASE PRICE TO CLEAR
TITLE. To enable Lessor to make conveyance as
provided in this Section, Lessor may, at the
Closing Date, use the Purchase Price or any
portion thereof to clear the title of any
Lien, provided that all instruments so
procured are recorded contemporaneously on
the Closing Date or reasonable arrangements
are made for a recording subsequent to the
Closing Date in accordance with customary
conveyancing practices.
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18.3.6 LESSEE'S DEFAULT. If Lessee
delivers Lessee's Election Notice and fails
to consummate the purchase of the Leased
Property in accordance with the terms hereof
for any reason other than Lessor's willful
and unexcused refusal to deliver the Deed,
(a) Lessee shall thereafter have no further
right to purchase the Leased Property
pursuant to this Section, although this Lease
shall otherwise continue in full force and
effect and (b) Lessor shall have the right to
sue for specific performance of Lessee's
obligations to purchase the Leased Property
provided such suit for specific performance
is commenced within one ( 1 ) year after the
applicable Closing Date on which such sale
was supposed to occur.
ARTICLE 19
SUBLETTING AND ASSIGNMENT
19.1 SUBLETTING AND ASSIGNMENT. Lessee may
not, without the prior written consent of Lessor,
which consent may be withheld in Lessor's sole and
absolute discretion, assign or pledge all or any
portion of its interest in this Lease or any of
the other Lease Documents (whether by operation of
law or otherwise) or sublet all or any part of the
Leased Property. For purposes of this Section
19.1, the term "assign" shall be deemed to
include, but not be limited to, any one or more
sales, pledges, hypothecations or other transfers
(including, without limitation, any transfer by
operation of law) of any of the capital stock of
or partnership interest in Lessee or sales,
pledges, hypothecations or other transfers
(including, without limitation, any transfer by
operation of law) of the capital or the assets of
Lessee. Any such assignment, pledge, sale,
hypothecation or other transfer made without
Lessor's consent shall be void and of no force and
effect. Notwithstanding the foregoing, Lessor's
consent shall not be unreasonably withheld with
respect to an assignment or pledge of an interest
of Lessee in this Lease or a sublet of all or a
part of the Leased Property to a
Meditrust/Emeritus Transaction Affiliate.
19.2 ATTORNMENT. Lessee shall insert in each
Sublease approved by Lessor, provisions to the
effect that (a) such Sublease is subject and
subordinate to all of the terms and provisions of
this Lease and to the rights of Lessor hereunder,
(b) in the event this Lease shall terminate before
the expiration of such Sublease, the Sublessee
thereunder will, at Lessor's option, attorn to
Lessor and waive any right the Sublessee may have
to terminate the Sublease or to surrender
possession thereunder, as a result of the
termination of this Lease and (c) in the event the
Sublessee receives a written notice from Lessor
stating that Lessee is in default under this
Lease, the Sublessee shall thereafter be obligated
to pay all rentals accruing under said Sublease
directly to Lessor or as Lessor
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may direct. All rentals received from the
Sublessee by Lessor shall be credited against the
amounts owing by Lessee under this Lease.
ARTICLE 20
TITLE TRANSFER, AND LIENS GRANTED BY LESSOR
20.1 NO MERGER OF TITLE. Except as otherwise
provided in Section 18.3.10, there shall be no
merger of this Lease or of the leasehold estate
created hereby with the fee estate in the Leased
Property by reason of the fact that the same
Person may acquire, own or hold, directly or
indirectly (a) this Lease or the leasehold estate
created hereby or any interest in this Lease or
such leasehold estate and (b) the fee estate in
the Leased Property.
20.2 TRANSFERS BY LESSOR. If the original
Lessor named herein or any successor in interest
shall convey the Leased Property in accordance-
with the terms hereof, other than as : security
for a debt, and the grantee or transferee of the
Leased Property shall expressly assume all
obligations of Lessor hereunder arising or
accruing from and. after the date of such
conveyance or transfer, the original Lessor named
herein or the applicable successor in interest so
conveying the Leased Property shall thereupon be
released from all future liabilities and
obligations of Lessor under this Lease arising or
accruing from and after the date of such
conveyance or other transfer as to the Leased
Property and all such future liabilities and
obligations shall thereupon be binding upon the
new owner.
20.3 LESSOR MAY GRANT LIENS. Without the
consent of Lessee, but subject to the terms and
conditions set forth below in this Section 20.3,
Lessor may, from time to time, directly or
indirectly, create or otherwise cause to exist any
lien, encumbrance or title retention agreement
upon the Leased Property or any interest therein
("Encumbrance"), whether to secure any borrowing
or other means of financing or refinancing,
provided that Lessee shall have no obligation to
make payments under such Encumbrances. Lessee
shall subordinate this Lease to the lien of any
such Encumbrance, on the condition that the
beneficiary or holder of such Encumbrance executes
a non-disturbance agreement in conformity with the
provisions of Section 20.4. To the extent that any
such Encumbrance consists of a mortgage or deed of
trust on Lessor's interest in the Leased Property
the same shall be referred to herein as a "Fee
Mortgage" and the holder thereof shall be referred
to herein as a "Fee Mortgagee".
20.4 SUBORDINATION AND NON-DISTURBANCE.
Concurrently with the execution and delivery of
any Fee Mortgage entered into after the date
hereof, provided that the Lessee executes and
delivers an agreement of the type described in the
following paragraph, Lessor shall obtain and
deliver to Lessee an agreement by the holder of
such Fee
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Mortgage, pursuant to which, (a) the applicable
Fee Mortgagee consents to this Lease and (b)
agrees that, notwithstanding the terms of the
applicable Fee Mortgage held by such Fee
Mortgagee, or any default, expiration,
termination, foreclosure, sale, entry or other act
or omission under or pursuant to such Fee Mortgage
or a transfer in lieu of foreclosure, (i) Lessee
shall not be disturbed in peaceful enjoyment of
the Leased Property nor shall this Lease be
terminated or cancelled at any time, except in the
event that Lessor shall have the right to
terminate this Lease under the terms and
provisions expressly set forth herein, (ii)
Lessee's option to purchase the Leased Property
shall remain in force and effect pursuant to the
terms hereof and (iii) in the event that Lessee
elects its option to purchase the Leased Property
and performs all of its obligations hereunder in
connection with any such election, the holder of
the Fee Mortgage shall release its Fee Mortgage
upon payment by Lessee of the purchase price
required hereunder, provided, hat (1) such
purchase price is paid to the holder of the Fee
Mortgage, in the event that the Indebtedness
secured by the applicable Fee Mortgage is equal to
or greater than the purchase price or (2) in the
event that the purchase price is greater than the
Indebtedness secured by the Fee Mortgage, a
portion of the purchase price equal to the
Indebtedness secured by the Fee Mortgage is paid
to the Fee Mortgagee and the remainder of the
purchase price is paid to Lessor. :
At the request from time to time by any Fee
Mortgagee, Lessee shall (a) subordinate this Lease
and all of Lessee's rights and estate hereunder to
the Fee Mortgage held by such Fee Mortgagee and
(b) agree that Lessee will attorn to and recognize
such Fee Mortgagee or the purchaser at any
foreclosure sale or any sale under a power of sale
contained in any such Fee Mortgage as Lessor under
this Lease for the balance of the Term then
remaining. To effect the intent and purpose of the
immediately preceding sentence, Lessee agrees to
execute and deliver such instruments in recordable
from as are reasonably requested by Lessor or the
applicable Fee Mortgagee; provided, however, that
such Fee Mortgagee simultaneously executes,
delivers and records a written agreement of the
type described in the preceding paragraph.
ARTICLE 21
LESSOR OBLIGATIONS
21.1 QUIET ENJOYMENT. As long as Lessee shall
pay all Rent and all other sums due under any of
the Lease Documents as the same become due and
shall fully comply with all of the terms of this
Lease and the other Lease Documents and fully
perform its obligations thereunder, Lessee shall
peaceably and quietly have, hold and enjoy the
Leased Property throughout the Term, free of any
claim or other action by Lessor or anyone claiming
by, through or under Lessor, but subject to all
the
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Permitted Encumbrances and such Liens as may
hereafter be consented to
by Lessee. No failure by Lessor to comply with the
foregoing covenant shall give Lessee any right to
cancel or terminate this Lease, or to fail to
perform any other sum payable under this Lease, or
to fail to perform any other obligation of Lessee
hereunder. Notwithstanding the foregoing, Lessee
shall have the right by separate and independent
action to pursue any claim it may have against
Lessor as a result of a breach by Lessor of the
covenant of quiet enjoyment contained in this
Article 21.
21.2 MEMORANDUM OF LEASE. Lessor and Lessee
shall, promptly upon the request of either, enter
into a short form memorandum of this Lease, in
form suitable for recording under the laws of the
State, in which reference to this Lease and all
options contained herein shall be made. Lessee
shall pay all recording costs and taxes associated
therewith.
21.3 DEFAULT BY LESSOR. Lessor shall be in
default of its obligations under this Lease only
if Lessor shall fail to observe or perform any
term, covenant or condition of this Lease on its
part to be performed and such failure shall
continue for a period of thirty (30) days after
notice thereof from Lessee (or such shorter time
as may be necessary in order to protect the health
or welfare of any residents of the Facility or to
ensure the continuing compliance of the Facility
with applicable Legal Requirements), unless such
failure cannot with due diligence be cured within
a period of thirty (30) days, in which case such
failure shall not be deemed to continue if Lessor,
within said thirty (30) day period, proceeds
promptly and with due diligence to cure the
failure and diligently completes the curing
thereof within one hundred twenty (120) days after
notice thereof.
ARTICLE 22
NOTICES
Any notice, request, demand, statement or
consent made hereunder or under any of the other
Lease Documents shall be in writing and shall be
deemed duly given if personally delivered, sent by
certified mail, return receipt requested, or sent
by a nationally recognized commercial overnight
delivery service with provision for a receipt,
postage or delivery charges prepaid, and shall be
deemed given when so personally delivered, three
(3) business days following the date postmarked or
the next business day when placed in the
possession of such mail delivery service and
addressed as follows:
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If to Lessee: c/o Emeritus
Corporation
3131 Elliott Avenue,
Suite 500 Seattle, WA
98121-2162
Attention: Raymond R.
Brandstrom, President
With a copy to:. The Nathanson
Group
1411 Fourth Avenue, Suite
905
Seattle, WA 98101
Attn: Randi S. Nathanson,
Esquire
If to the Guarantor: Emeritus
Corporation
3131 Elliott Avenue,
Suite 5 00 Seattle, WA
98121-2162
Attention: Raymond R.
Brandstrom, President
With a copy to: The Nathanson
Group
1411 Fourth Avenue, Suite
905 Seattle, WA 98101
Attn: Randi S. Nathanson,
Esquire
If to Lessor: Meditrust
Acquisition Corporation I
197 First Avenue
Needham Heights,
Massachusetts 02194 Attn:
President
With copies to: Meditrust
Acquisition Corporation I
197 First Avenue
Needham Heights,
Massachusetts 02194 Attn:
General Counsel
And Hutchins,
Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Attn: Jack H. Fainberg,
Esquire
or such other address as Lessor, Lessee or the
Guarantor shall hereinafter from time to time
designate by a written notice to the others given
in such manner. Any notice given to Lessee or the
Guarantor by Lessor at any time shall not imply
that such notice or any further or similar notice
was or is required.
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ARTICLE 23
LIMITATION OF MEDITRUST LIABILITY
The Declaration of Trust establishing the
sole shareholder of Lessor, Meditrust, a
Massachusetts business trust ("Meditrust"), dated
August 6,1985 (the "Declaration"), as amended, a
copy of which is duly filed in the office of the
Secretary of State of the Commonwealth of
Massachusetts, provides that the name "Meditrust"
refers to the trustees under the Declaration
collectively as trustees, but not individually or
personally; and that no trustee, officer,
shareholder, employee or agent of Meditrust or any
of its Subsidiaries shall be held to any personal
liability, jointly, or severally, for any
obligation of, or claim against Meditrust or any
of its Subsidiaries. All Persons dealing with
Meditrust or Lessor, in any way, shall look only
to the assets of Meditrust or Lessor, as
applicable, for the payment of any sum or the
performance of any obligation. Furthermore, in no
event shall Meditrust or Lessor ever be liable to
Lessee or any other Person for any indirect or
consequential damages incurred by Lessee or such
other Person resulting from any cause whatsoever.
Notwithstanding the foregoing, Lessee hereby
acknowledges and agrees that Meditrust is not a
party to this Lease and that Lessee shall look
only to the assets of Lessor for the payment of
any sum or performance of any obligation due by or
from Lessor pursuant to the terms and provisions
of the Lease Documents.
ARTICLE 24
MISCELLANEOUS PROVISIONS
24.1 BROKER'S FEE INDEMNIFICATION. Lessee and
Lessor each shall and hereby agrees to indemnify,
defend (with counsel acceptable to the other) and
hold the other harmless from and against any and
all claims for premiums or other charges, finder's
fees, taxes, brokerage fees or commissions and
other similar compensation due to a broker or
finder allegedly employed or retained by it in
connection with any of the transactions
contemplated by the Lease Documents.
Notwithstanding the foregoing, the indemnified
party shall have the option of conducting its own
defense against any such claims with counsel of
such party's choice, but at the expense of the
indemnifying party, as aforesaid. This
indemnification shall include all reasonable
attorneys' fees and expenses and court costs
reasonably incurred by the indemnified party in
connection with the defense against any such
claims and the enforcement of this indemnification
agreement and shall survive the termination of
this Lease.
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24.2 NO JOINT VENTURE OR PARTNERSHIP. Neither
anything contained in any of the Lease Documents,
nor the acts of the parties hereto, shall create,
or be construed to create, a partnership or joint
venture between Lessor and Lessee. Lessee is not
the agent or representative of Lessor and nothing
contained herein or in any of the other Lease
Documents shall make, or be construed to make,
Lessor liable to any Person for goods delivered to
Lessee, services performed with respect to the
Leased Property at the direction of Lessee or for
debts or claims accruing - against Lessee.
24.3 AMENDMENTS; WAIVERS AND MODIFICATIONS.
None of the terms, covenants, conditions,
warranties or representations contained in this
Lease or in any of the other Lease Documents may
be renewed, replaced, amended, modified, extended,
substituted, revised, waived, consolidated or
terminated except by an agreement in writing
signed by all parties to this Lease or the other
Lease Documents, as the case may be, in the case
of any renewal, replacement, amendment,
modification, extension, substitution, revisions,
consolidation or termination and by the Person
against whom enforcement is sought in the case of
a waiver or except as otherwise expressly provided
for herein or in any other Lease Document. The
provisions of this Lease and the other Lease
Documents shall extend and be applicable to all
renewals, replacements, amendments, extensions,
substitutions, revisions, consolidations and
modifications of any of the Lease Documents, the
Management Agreements, the Related Party
Agreements, the Permits and/or the Contracts.
References herein and in the other Lease Documents
to any of the Lease Documents, the Management
Agreements, the Related Party Agreements, the
Permits and/or the Contracts shall be deemed to
include any renewals, replacements, amendments,
extensions, substitutions, revisions,
consolidations or modifications thereof.
Notwithstanding the foregoing, any reference
contained in any of the Lease Documents, whether
express or implied, to any renewal, replacement,
amendment, extension, substitution, revisions,
consolidation or modification of any of the Lease
Documents or any Management Agreement, Related
Party Agreement, Permit and/or the Contract is not
intended to constitute an agreement or consent by
Lessor to any such renewal, replacement,
amendment, substitution, revision, consolidation
or modification; but, rather as a reference only
to those instances where Lessor may give, agree or
consent to any such renewal; replacement,
amendment, extension, substitution, revision,
consolidation or modification as the same may be
required pursuant to the terms, covenants and
conditions of any of the Lease Documents.
24.4 CAPTIONS AND HEADINGS. The captions and
headings set forth in this Lease and each of the
other Lease Documents are included for convenience
and reference only, and the words contained
therein shall in no way be held or deemed to
define, limit, describe, explain, modify,
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amplify or add to the interpretation, construction
or meaning of, or the scope or intent of, this
Lease, any of the other Lease Documents or any
parts hereof or thereof.
24.5 TIME IS OF THE ESSENCE. Time is of
essence of each and every term, condition,
covenant and warranty set forth herein and in the
other Lease Documents.
24.6 COUNTERPARTS. This Lease and the other
Lease Documents may be executed in one or more
counterparts, each of which taken together shall
constitute an original and all of which shall
constitute one in the same instrument.
24.7 ENTIRE AGREEMENT. THIS LEASE AND THE
OTHER LEASE DOCUMENTS SET FORTH THE ENTIRE
AGREEMENT OF THE PARTIES WITH RESPECT TO THE
SUBJECT MATTER AND SHALL SUPERSEDE IN ALL RESPECTS
THE LETTERS OF INTENT, DATED JANUARY 31,1996 AND
AUGUST 13,1996 (AND ALL PRIOR ITERATIONS THEREOF),
FROM MEDITRUST TO. LESSEE.
24.8 WAIVER OF JURY TRIAL. TO THE MAXIMUM
EXTENT PERMITTED BY APPLICABLE LAW, LESSOR AND
LESSEE HEREBY MUTUALLY, KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT WHICH ANY PARTY
HERETO MAY NOW OR HEREAFTER HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THE LEASE OR ANY OF
THE LEASE DOCUMENTS. Lessee hereby certifies that
neither Lessor nor any of Lessor's
representatives, agents or counsel has represented
expressly or otherwise that Lessor would not, in
the event of any such suit, action or proceeding
seek to enforce this waiver to the right of trial
by jury and acknowledges that Lessor has been
induced by this waiver (among other things) to
enter into the transactions evidenced by this
Lease and the other Lease Documents and further
acknowledges that Lessee (a) has read the
provisions of this Lease, and in particular, the
paragraph containing this waiver, (b) has
consulted legal counsel, (c) understands the
rights that it is granting in this Lease and the
rights that it waiving in this paragraph in
particular and (d) makes the waivers set forth
herein knowingly, voluntarily and intentionally.
24.9 SUCCESSORS AND ASSIGNS. This Lease and
the other Lease Documents shall be binding upon
and inure to the benefit of (a)
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Lessee and Lessee's legal representatives and
permitted successors and assigns and (b) Lessor
and any other Person who may now or hereafter hold
the interest of Lessor under this Lease and their
respective successors and assigns.
24.10 NO THIRD PARTY BENEFICIARIES. This
Lease and the other Lease Documents are solely for
the benefit of Lessor, its successors, assigns and
participants (if any), the Meditrust Entities,
Lessee, the Guarantor, the other members of the
Leasing Group and their respective permitted
successors and assigns, and, except as otherwise
expressly set forth in any of the Lease Documents,
nothing contained therein shall confer upon any
Person other than such parties any right to insist
upon or to enforce the performance or observance
of any of the obligations contained therein. All
conditions to the obligations of Lessor to advance
or make available proceeds of insurance or Awards,
or to release any deposits held for Impositions or
insurance premiums are imposed solely and
exclusively for the benefit of Lessor, its
successors and assigns. No other Person shall have
standing to require satisfaction of such
conditions in accordance with their terms, and no
other Person shall, under any circumstances, be a
beneficiary of such conditions, any or all of
which may be freely waived in whole or in part by
Lessor at any time, if, in Lessor's sole and
absolute discretion, Lessor deems it advisable or
desirable to do so.
24.11 GOVERNING LAW. THIS LEASE SHALL BE
CONSTRUED AND THE RIGHTS AND OBLIGATIONS OF LESSOR
AND LESSEE SHALL BE DETERMINED IN ACCORDANCE WITH
THE LAWS OF THE STATE.
LESSEE HEREBY CONSENTS TO PERSONAL
JURISDICTION IN THE. COURTS OF THE STATE AND THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT IN
WHICH THE LEASED PROPERTY IS SITUATED AS WELL AS
TO THE JURISDICTION OF ALL COURTS FROM WHICH AN
APPEAL MAY BE TAKEN FROM THE AFORESAID COURTS, FOR
THE PURPOSE OF ANY SUIT, ACTION OR OTHER
PROCEEDING ARISING OUT OF OR WITH RESPECT TO ANY
OF THE LEASE DOCUMENTS, THE NEGOTIATION AND/OR
CONSUMMATION OF THE TRANSACTIONS EVIDENCED BY THE
LEASE DOCUMENTS, THE LESSOR'S RELATIONSHIP OF ANY
MEMBER OF THE LEASING GROUP IN CONNECTION WITH THE
TRANSACTIONS EVIDENCED BY THE LEASE DOCUMENTS
AND/OR THE PERFORMANCE OF ANY OBLIGATION OR THE
EXERCISE OF ANY REMEDY UNDER ANY OF THE LEASE
DOCUMENTS AND EXPRESSLY WAIVES ANY AND ALL
OBJECTIONS LESSEE MAY HAVE AS TO VENUE IN ANY OF
SUCH COURTS.
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24.12 GENERAL. Anything contained in this
Lease to the contrary notwithstanding, all claims
against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this
Lease or any of the other Lease Documents shall
survive such termination.
If any provision of this Lease or any of the
other Lease Documents or any application thereof
shall be invalid or unenforceable, the remainder
of this Lease or the other applicable Lease
Document, as the case may be, and any other
application of such term or provision shall not be
affected thereby. Notwithstanding the foregoing,
it is the intention of the parties hereto that if
any provision of any of this Lease is capable of
two (2) constructions, one of which would render
the provision void and the other of which would
render the provision valid, then such provision
shall be construed in accordance with the
construction which renders such provision valid.
If any late charges provided for in any
provision of this Lease or any of the other Lease
Documents are based upon a rate in excess of the
maximum rate permitted by applicable law, the
parties agree that such charges shall be fixed at
the maximum permissible rate.
Lessee waives all presentments, demands for
performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and
notices of acceptance and waives all notices of
the existence, creation, or incurring of new or
additional obligations, except as to all of the
foregoing as expressly provided for herein.
24.13 NOTICE OF INDEMNIFICATION. THE PARTIES
TO THIS LEASE HEREBY ACKNOWLEDGE AND AGREE THAT
THIS LEASE CONTAINS INDEMNIFICATION OBLIGATIONS
PURSUANT TO SECTIONS 12.2, 15.3 AND 24.1 HEREOF.
[INTENTIONALLY LEFT BLANK]
120
<PAGE>
IN WITNESS WHEREOF, the parties have caused
this Lease to be executed and attested by their
respective officers thereunto duly authorized.
WITNESS: LESSEE: ESC I, L.P. a Washington
Limited partnership
/s/ Jennifer Valenta By: /s/ Kelly J. Price
- ----------------------------- - -----------------------
Name: Jennifer Valenta Name: Kelly J. Price
Title: Vice President of Finance
WITNESS: LESSOR: MEDITRUST ACQUISITION
CORPORATION I, a
Massachusetts corporation
/s/ Amelia C. Gentry By: /s/ Michael F. Bushee
- ----------------------------- ------------------------
Name: Amelia C. Gentry Name: Michael F. Bushee
Title: Chief Operating Officer
121
<PAGE>
LOAN AGREEMENT
BETWEEN
MEDITRUST MORTGAGE INVESTMENTS, INC.
AND
ESC I, L.P.
DATED September 30, 1997
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT is made as of September
30, 1997 by and between ESC I, L.P., a Washington
limited partnership (the "Borrower"), and
MEDITRUST MORTGAGE INVESTMENTS, INC. a Delaware
corporation (the "Lender").
1. BACKGROUND
1.1 THE BORROWER.
The Borrower is a limited partnership whose
sole general partner is ESC G.P. I, Inc., a
corporation which is a wholly-owned Subsidiary (as
hereinafter defined) of the Guarantor. The
Guarantor is a corporation.
1.2 THE FACILITY AND THE LAND.
The Borrower is the owner of a 72 unit, 81
bed assisted living facility commonly known as
"Meadowlands Terrace" (the "Facility") situated on
a certain parcel of land located in Waco, Texas
and more particularly described on EXHIBIT A (the
"Land").
1.3 USE OF LOAN PROCEEDS.
In order to refinance the Land and the
Facility, the Borrower has applied to the Lender
for a Four Million Two Hundred Eighty Eight
Thousand DOLLAR ($4,288,000) loan (the "Loan").
1.4 GUARANTIES AND INDEMNITIES.
As an inducement to the Lender to make the
Loan, the Guarantor agrees to furnish certain
guaranties as hereinafter described.
1.5 LOAN.
Subject to all of the terms, conditions and
provisions of this Agreement, and of the
agreements and instruments referred to herein, the
Lender agrees to make the Loan and the Borrower
agrees to accept and repay the Loan.
2. DEFINITIONS
In this Agreement, except as otherwise
expressly provided in the text of this Agreement
or unless the context otherwise requires, all
capitalized terms shall have the meaning ascribed
to them in EXHIBIT B.
3. LOAN PROVISIONS.
3.1 AMOUNT OF LOAN.
The Loan shall be in the amount of Four
Million Two Hundred Eighty Eight Thousand DOLLARS
($4,288,000) (the "Loan Amount") or such lesser
amount as may be advanced under the Note and this
Agreement.
3.2 PROMISSORY NOTE.
The Loan shall be evidenced by a promissory
note of the Borrower dated as of the Closing Date,
made by the Borrower to the order of the Lender,
in a principal amount
<PAGE>
equal to the Loan (the "Note"). Interest on so
much as is outstanding from time to time under the
Note shall accrue at the Interest Rate, except as
otherwise specifically provided herein or therein.
3.3 APPLICATION OF PAYMENTS.
All payments made pursuant to the Loan
Documents that are received by the Lender shall be
applied (a) prior to the occurrence of an Event of
Default, first, to the payment of all Additional
Interest, then, to all fees, costs and expenses
due under or in connection with the Loan Documents
then, to the payment of all accrued but unpaid
interest, and the balance, if any, to principal;
and (b) after the occurrence of an Event of
Default, in such order as the Lender may determine
in its sole discretion.
3.4 METHOD OF PAYMENTS.
Except as may otherwise be specifically set
forth herein or in any of the other Loan
Documents, all payments to be made to the Lender
hereunder or under any of the other Loan
Documents, including, without limitation, all
payments of principal, interest (including,
without limitation, Additional Interest),
Prepayment Fee, Late Payment Charges, all other
charges, costs, expenses and other amounts due
hereunder or under any of the other Loan
Documents, shall be made to the Lender at the
Lender's Address, in lawful money of the United
States of America, not later than 12:00 Noon
Eastern Standard Time on the date that such
payment is due. All payments received by the
Lender after such time shall be deemed to have
been received by the Lender, for the purposes of
computing interest and Late Payment Charges, as of
the next Business Day. If any payment to be made
to the Lender under any of the Loan Documents
falls due on a day which is not a Business Day,
the due date therefor shall be extended to the
next succeeding Business Day.
3.5 LOAN FEES.
The Borrower shall pay the Permanent Loan
Commitment Fee to the Lender simultaneously with
the execution of this Agreement; providing,
however, that, at the Lender's option, the
Permanent Loan Commitment Fee shall be held in an
escrow account established with a Person
designated by the Lender pursuant to an escrow
arrangement satisfactory to the Lender, with
interest thereon benefiting the Lender. If the
Lender exercises its option to require that the
Permanent Loan Commitment Fee be held in such an
escrow account (a) the Permanent Loan Commitment
Fee shall be disbursed from said escrow account
only upon the joint instructions of the Borrower
and the Lender (which instructions from the
Borrower shall be immediately given upon the
request of the Lender) and in no event shall the
Permanent Loan Commitment Fee be disbursed
therefrom, in whole or in part, unless and until
so requested by the Lender and (b) the Lender
shall bear the risk of loss of or misappropriation
of the Permanent Loan Commitment Fee by such
escrow agent.
3.6 PREPAYMENT.
Except as otherwise expressly provided herein
(including without limitation Section 3.9 and
Section 14.1 and in the Agreement Regarding
Related Transactions), a prepayment fee (referred
to herein as the "Prepayment Fee") shall be paid
to the Lender in the event that the Loan is
prepaid (or shall become due and payable) prior to
the Maturity Date, whether such prepayment is
voluntary or involuntary, including, without
limitation, any prepayment which results from any
default under any of the Loan
2
<PAGE>
Documents and an acceleration of the indebtedness
due thereunder. Notwithstanding the foregoing, the
Borrower shall have no right, at any time to
prepay all or any portion of the outstanding
principal balance of the Loan without the prior
written consent of the Lender, which consent may
be withheld in the Lender's sole and absolute
discretion except that Borrower shall have the
right to prepay the Loan, without Lender's consent
(i) upon Lease Conversion as provided in Section 3
9, (ii) upon exercise of the Substitution Rights
as provided in Section 14.1, and (iii) as provided
in Section 6 of the Second Amended and Restated
Agreement regarding Related Transactions. The
Borrower shall pay to the Lender, together with
the entire outstanding principal balance of the
Loan, all accrued and unpaid interest (including,
without limitation, Additional Interest) and any
other costs, charges and sums due under this
Agreement and all of the other Loan Documents, a
"Prepayment Fee" equal to (and defined herein as)
the greater of (a) the then present value
discounted at the Current Rate of the difference
between (i) the product of the Interest Rate then
in effect, multiplied by the then outstanding
principal balance of the Loan, multiplied by the
remaining number of years (or fraction thereof of
the Term and (ii) the product of the annual rate
of interest (as of the date of prepayment) of
actively traded marketable United States treasury
securities bearing a fixed rate of interest
adjusted for a constant maturity equal to the
remaining number of years (rounded to the nearest
whole year) of the Term (the "Current Rate"),
multiplied by the then-outstanding principal
balance of the Loan, multiplied by the remaining
number of years (or fraction thereof of the Term;
or (b) one percent (1%) of the then outstanding
principal balance of the Loan multiplied by the
remaining number of years (or fraction thereof of
the Term. The Prepayment Fee shall be paid without
prejudice to the rights of the Lender to collect
any amounts due to the Lender. The Borrower shall
not be entitled to make any partial prepayments of
principal at any time during the Term.
3.7 LATE CHARGES; INTEREST FOLLOWING CERTAIN
EVENTS.
In the event of any delinquency in the
payment of any installment of principal and
interest (including, without limitation,
Additional Interest) or in the payment of any
other monetary obligation under this Agreement or
any of the other Loan Documents continuing for ten
(10) days (hereinafter referred to as a "Late
Payment"), the Borrower shall pay the Lender a
late payment charge of TWO HUNDRED FIFTY DOLLARS
($250) (referred to herein as a "Late Payment
Charge") for the month during which such
delinquency occurs and for each month (or portion
of the month) thereafter that the Late Payment
remains unpaid, for the purpose of defraying the
expenses incurred by the Lender in handling and
processing such Late Payments. In addition to any
Late Payment Charges which may become due
hereunder, the Borrower shall pay interest on any
Late Payment, calculated at the Advances Rate,
from the date upon which the Late Payment was
originally due until the date that the Lender
actually receives such Late Payment. It is
understood that nothing contained in this Section
shall be deemed to relieve the Borrower of its
obligations to make any and all payments due and
payable to the Lender pursuant to the provisions
of this Agreement or any of the other Loan
Documents upon the dates set forth therein, it
being acknowledged that time is of the essence.
3.8 ADDITIONAL INTEREST.
3.8.01 AMOUNT OF ADDITIONAL INTEREST.
In addition to the monthly payments of
principal and interest set forth in the Note,
the Borrower shall also pay to Lender as
additional interest (the "Additional
Interest") an amount equal to five percent
(5%) of Excess Gross Revenues.
3
<PAGE>
3.8.02 COMMENCEMENT OF ADDITIONAL INTEREST.
Additional Interest shall commence to
accrue on October 1, 1999 and shall be
payable quarterly in arrears during the Term
with the first such quarterly payment to be
made on January 1, 2000.
3.8.03 BASE REVENUES/EXCESS GROSS REVENUES.
The term "Base Revenues" shall be
defined as the annualized Gross Revenues of
the Facility for the twelve month period
commencing October 1, 1998 and ending
September 30, 1999. The term "Excess Gross
Revenues" shall be defined as the Gross
Revenues less Base Revenues.
3.8.04 REVENUE OF AFFILIATES.
To the extent that the Borrower enters
into (or has entered into) a Lease with any
of its Affiliates, Gross Revenues calculated
for all purposes under this Agreement
(including, without limitation, the
determination of the Additional Interest
payable hereunder) shall-include the Gross
Revenues of such Affiliate with respect to
the property demised under such Lease (i.e.,
the Gross Revenues generated from the
operations conducted on the portion of the
Mortgaged Property demised under such Lease)
and the Rents received or receivable by the
Borrower pursuant to such Leases shall be
excluded from Gross Revenues for all such
purposes. As to any Lease of the Mortgaged
Property to a non-Affiliate of the Borrower
only the rental income actually received by
the Borrower from such non-Affiliate shall be
included in Gross Revenues.
3.8.05 ESTIMATES.
Commencing on January 1, 2000,
Additional Interest to be paid during each
calendar year during the Term shall be
estimated by the Borrower at the beginning of
each calendar year for which it is payable
(and in no event shall such estimate be less
than the Additional Interest payable for the
prior calendar year), and shall be paid
quarterly in arrears (in equal installments
on the first day of April, July, October and
January) based on such estimate, to be
adjusted at the end of each such year based
on the actual increase of Gross Revenues over
Base Revenues achieved by the Facility during
that calendar year. Additional Interest due
for any portion of any calendar year shall be
prorated accordingly. Notwithstanding the
foregoing, on a quarterly basis, with the
consent of the Lender, the Borrower may also
adjust the quarterly payments of Additional
Interest to be made hereunder based upon a
comparison of (a) the actual Gross Revenues
generated by the Facility during the
applicable quarter and (b) the original
estimate of Additional Interest for the
applicable calendar year prepared by the
Borrower and the amount of Additional
Interest already paid by the Borrower
pertaining to the applicable calendar year.
3.8.06 ANNUAL STATEMENT.
In addition, on or before the first day
of April of each year following any calendar
year for which Additional Interest is payable
hereunder, the Borrower shall deliver to the
Lender a statement certified as correct by
the Borrower setting forth the Gross Revenues
for the immediately preceding calendar year.
4
<PAGE>
3.8.07 ADJUSTMENT.
If the Additional Interest, as finally
determined for any calendar year (or portion
thereof, exceeds the sum of the quarterly
payments of Additional Interest previously
paid by the Borrower with respect to said
calendar year (or portion thereof, within
thirty (30) days after such determination is
required to be made hereunder, the Borrower
shall pay such deficit to the Lender and if
the deficit exceeds five percent (5%) of the
Additional Interest which was previously paid
to the Lender with respect to said calendar
year, then the Borrower shall also pay the
Lender interest, at the Advances Rate, on
such deficit from the applicable quarterly
date that such payment should have originally
been made by the- Borrower to the date that
the Lender receives such payment.
3.8.08 OVERPAYMENT.
If the Additional Interest, as finally
determined for any calendar year (or portion
thereof, is less than the amount previously
paid with respect thereto by the Borrower,
and if no Loan Default exists, the Borrower
shall notify the Lender to either.(a) pay to
the Borrower an amount equal to such
difference or (b) grant a credit to the
Borrower against the payment of Additional
Interest next coming due in the amount of
such difference.
3.8.09 Final Determination.
The obligation to pay Additional
Interest shall survive the expiration or
earlier termination of the Term (as to
Additional Interest payments that are due and
payable with respect to periods prior to the
expiration or earlier termination of the
Term), and a final reconciliation, taking
into account, among other relevant
adjustments, any contractual allowances which
related to Gross Revenues accrued prior to
the expiration or the termination of the Term
but which have been determined to be not
payable after such expiration or termination
date, and the Borrower's good faith best
estimate of the amount of any unresolved
contractual allowances shall be made not
later than two (2) years after said
expiration or termination date. Within sixty
(60) days after the expiration or earlier
termination of the Term, the Borrower shall
advise the Lender of the Borrower's best
estimate at that time of the approximate
amount of such adjustments, which estimate
shall not be binding on the Borrower or have
any legal effect whatsoever.
3.8.10 ACCOUNTING.
The Borrower shall utilize, or cause to
be utilized, an accounting system for the
Mortgaged Property in accordance with usual
and customary practices in the assisted
living industry and in accordance with GAAP
which will accurately record all Gross
Revenues. The Borrower shall retain, for at
least three (3) years after the expiration of
each calendar year for which Additional
Interest shall be payable hereunder (and in
any event until the final reconciliation
described above has been made), adequate
records conforming to such accounting system
showing all Gross Revenues for such calendar
year.
3.8.11 AUDIT.
5
<PAGE>
The Lender, at its own expense, except
as provided hereinbelow, shall have the right
from time to time to have its accountants or
representatives audit the information set
forth in any certificate required to be
provided by the Borrower to the Lender
pursuant to the provisions of Section 3.8,
and in connection with such audits, to
examine the Borrower's records with respect
thereto (including supporting data and sales
tax returns). If any such audit discloses a
deficiency in the reporting of Gross Revenues
and either the Borrower agrees with the
result of such audit or the matter is
compromised, the Borrower shall forthwith pay
to the Lender the amount of the deficiency in
Additional Interest which would have been
payable by it had such deficiency in
reporting Gross Revenues not occurred, as
finally agreed upon or determined, together
with interest on the Additional Interest
which should have been payable by it,
calculated at the Advances Rate, from the
date when said payment should have been made
by the Borrower to the actual date that the
Lender receives such payment. Notwithstanding
anything to the contrary contained herein,
with respect to any audit that is commenced
more than two (2) years after the date that
Gross Revenues for any calendar year are
reported by the Borrower to the Lender, the
deficiency, if any, with respect to
Additional Interest 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 the Borrower. If any audit conducted for
the Lender pursuant to the provisions of this
Section discloses that (a) the Gross Revenues
actually received by the Borrower for any
calendar year exceed those reported by the
Borrower to the Lender by more than five
percent (5%), the Borrower shall pay the
reasonable cost of such audit and examination
or (b) the Borrower has overpaid Additional
Interest, and if no Loan Default exists, the
Lender shall notify the Borrower and the
Borrower shall direct the Lender either to
(i) refund the overpayment to the Borrower or
(ii) grant a credit against Additional
Interest next coming due in the amount of
such difference.
3.8.12 SURVIVAL.
The obligations of the Borrower and the
Lender contained in this Section shall
survive the expiration or earlier termination
of the Term and any foreclosure of the
Mortgage.
3.8.12 BEST EFFORTS TO MAXIMIZE.
Borrower further covenants that the
operation of the Facility shall be conducted
in a manner consistent with the prevailing
standards and practices recognized in the
assisted living industry as those customarily
utilized by reputable business operations.
Subject to any applicable Legal Requirements,
the members of the Leasing Group shall use
their best efforts to maximize the Facility's
Gross Revenues.
3.9 SPECIAL RIGHTS TO CONVERT TO LEASE
3.9.1 LEASE CONVERSION RIGHT
As long as there exists no Loan Default
or event which, with the giving of notice or
passage of time, or both, would constitute a
Loan Default at the time of exercise and on
the date of the consummation of the Lease
Conversion, Borrower is hereby granted the
option, exercisable within one (1) year from
the
6
<PAGE>
Closing Date, to cause a Lease Conversion (as
defined in this Section 3.9). Such
opinion shall be exercised by Borrower by
giving written notice to Lender of its
intention-to exercise such option at least
ninety (90) days prior to the intended date
of the Lease Conversion. Borrower shall have
no right to rescind any such notice once
given. The Lease Conversion shall-take place
on the date to be specified by Borrower in
such notice or on such Business Day
thereafter (but not more than thirty (30)
days thereafter) as is convenient to Lender
and its Affiliates.
3.9.2 DEFINITION
As used herein, the term "Lease
Conversion" shall mean that all of the
following shall happen concurrently, pursuant
to documentation reasonably satisfactory to
an Affiliate of Lender but substantially
similar in form and substance to the Group
Four Acquisition Transaction Documents (as
that term is defined in the Agreement
Regarding Related Transactions): (a) Borrower
shall prepay the Loan Obligations in full,
including, without limitation, the Conversion
Closing Costs (as defined in Section 3.9.3.)
without the payment of the Prepayment Fee;
(b) Borrower shall convey the Mortgaged
Property and all tangible personal property
to an Affiliate of Lender in consideration of
the payment by Lender or its Affiliate to
Borrower of an amount equal to the Loan
Amount (and neither Lender nor its Affiliates
shall have any obligation to advance any
other or further amounts); and (c) Borrower
shall lease the Mortgaged Property and such
tangible personal property from Lender's
Affiliate on a triple-net basis and in its
"as is" condition at the time of such lease
for a term which is coterminous with the
Leases for the Group Four Acquisition
Facilities and at a base rent per annum to be
specified by Lender prior to the commencement
of the Lease Conversion, such Base Rent to be
calculated by Lender or its Affiliate based
on the term of such lease, the Loan Amount
and the Interest Rate, as adjusted pursuant
to the provisions of the Note and using the
same form of lease as the other leases for
the Group Four Acquisition Facilities.
3.9.3 EXPENSES.
Whether or not any proposed Lease
Conversion is consummated, the Borrower shall
pay all of the out-of-pocket expenses and
other costs incurred or expended by the
Lender in connection with any proposed Lease
Conversion (collectively referred to herein
as "Conversion Closing Costs"), including,
without limitation, reasonable attorneys'
fees and expenses, engineering costs,
consultants' fees, appraisal costs, audit and
tax review costs, out-of-pocket travel
expenses, inspection fees, title insurance
premiums and other title fees, survey
expenses, transfer, documentary stamp and
other taxes, search charges of any nature,
recording, registration and fling costs, and
any other costs expended or incurred by the
Lender in connection with the preparation for
and the documentation and/or the closing of
the proposed Lease Conversion. The Conversion
Closing Costs shall be a demand obligation of
the Borrower to the Lender and, if not paid
within ten (10) days after demand, shall
thereafter (to the extent permissible under
applicable law) bear interest at the Advances
Rate until the date of payment and, to the
maximum extent permitted by applicable law,
shall be added to the Loan Obligations and
secured by the liens of the Mortgage and the
other Loan Documents, as fully and
effectively and with the same priority as
every other obligation thereunder and
hereunder.
7
<PAGE>
4. LOAN DOCUMENTS; COLLATERAL SECURITY
4.1 Loan Documents.
The Loan shall be made, evidenced,
administered, secured and governed by all of the
terms, conditions and provisions of each of the
following:
A. this Loan Agreement;
B. the Note;
C. a Deed of Trust and Security Agreement
of even date granted by the Borrower to
the Lender (the "Mortgage") and related
UCC financing statements;
D. an Assignment of Leases and Rents of
even date granted by the Borrower to the
Lender (the "Assignment of Leases");
E. a Collateral Assignment of Permits,
Approvals, Licenses, and Contracts of
even date granted by the Borrower to the
Lender (the "Permits Assignment");
F. a Guaranty of even date executed
by the Guarantor for the benefit of the
Lender (the "Guaranty");
G. an Environmental Indemnity Agreement
of even date by and among the Borrower,
the Guarantor, and the Lender (the
"Environmental Indemnity Agreement");
H. a Deposit Pledge Agreement of even
date by and between the Borrower and the
Lender (the "Deposit Pledge Agreement");
I. a Negative Pledge Agreement of
even date by and among the General
Partner , Guarantor and the Lender with
respect to their general and limited
partnership interests in Borrower and
the issued and outstanding stock of the
General Partner; J. an Affiliated Party
Subordination Agreement of even date by
and among the
Borrower, the Guarantor,
various Affiliates of the Borrower and
the Lender (the "Affiliated Party
Subordination Agreement"); and
K all other documents, instruments, or
agreements now or hereafter evidencing
and/or securing the Loan.
Items (A) through (K) above, as the same from time
to time may be hereinafter amended, modified or
supplemented, are referred to herein as the "Loan
Documents".
4.2 . LOAN OBLIGATIONS.
The Borrower agrees to pay and perform (or
cause to be paid and performed)- all indebtedness,
covenants, liabilities, obligations, agreements
and undertakings (other than the Lender's
obligations) under the Note, this Agreement and
all of the other Loan Documents (collectively, the
"Loan Obligations").
8
<PAGE>
4.3 COLLATERAL SECURITY.
The Loan Obligations shall be secured by the
following:
A. a perfected first priority security interest
(subject only to the Permitted Encumbrances) in
the Mortgaged Property pursuant to the Mortgage
and the Financing Statements;
B. a perfected first priority security interest
in the Leases pursuant to the Assignment of
Leases;
C. a perfected first priority security interest
in all Permits and Contracts pursuant to the
Permits Assignment;
D. the Guaranty;
E. the Environmental Indemnity Agreement;
F. a perfected first priority interest in the
Cash Collateral pursuant to the Deposit Pledge
Agreement;
G. all other security interests in such other
collateral for which provision is made in the Loan
Documents or at law or in equity; and
H. certain other Related Party Agreements.
All of the property in which security interests
are granted (i) as described in items (A) through
(H) above and (ii) pursuant to any other Loan
Document is collectively referred to herein as the
"Collateral".
4.4 PERMITTED SECURITY INTERESTS.
Notwithstanding any other provisions hereof
regarding the creation of Liens, but subject to
the provisions of Section 6.1, the Borrower may
(a) grant priority purchase money security
interests in newly acquired items of tangible
personal property and (b) lease tangible personal
property from equipment lessors, as long as in
each instance:
(i) the aggregate value of such tangible
personal property shall not exceed TWO HITNDRED
THOUSAND DOLLARS ($200,000) or (ii) (A) the
secured party or equipment lessor enters into an
intercreditor agreement with, and satisfactory to,
Lender, pursuant to which, without limiting-the
foregoing, (1) Lender shall be afforded the option
of curing defaults and the option of succeeding to
the rights of Borrower and (2) Lender's security
interest in tangible personal property shall be
subordinated to the security interest granted to
such secured party, (B) all of the terms,
conditions and provisions of the financing,
security interest or lease are reasonably
acceptable to Lender, (C) Borrower provides a true
and complete copy, as executed, of each such
purchase money security agreement, financing
document and equipment lease and all amendments
thereto and (D) no such security interest,
financing agreement or lease is cross-defaulted or
cross-collateralized with any other obligation.
In addition, notwithstanding any other provision hereof regarding
the creation of Liens, Borrower shall also be permitted to grant a
prior security interest in Receivables (with the
Lender retaining a junior security interest
therein) to an institutional lender
9
<PAGE>
which is providing a working capital line of
credit (a "Working Capital Loan") for the
exclusive use of Guarantor, Borrower and
Affiliates of Borrower as long as such Lender
enters into an intercreditor agreement with, and
satisfactory to, Lender pursuant to which, without
limiting the foregoing, (1) Lender shall be
provided with notice with respect to defaults
under the Working Capital Loan simultaneously with
the delivery of such notice to Borrower and shall
be afforded the option of curing defaults
thereunder, (2) such lender's use of Instruments,
Documents, General Intangibles and Chattel Paper
shall be limited to a license only for the purpose
of collecting Receivables and (3) the
subordination of Lender's interest in the
Receivables shall be of no force and effect and
Lender's first priority security interest shall be
reinstated from and after the occurrence of an
Event of Default if, upon or following such Event
of Default, Lender either exercises any of its
remedies set forth in Section 11 or Lender
notifies in writing such lender of Lender's
intention to invoke its right to reinstate its
first priority security interest in the
Receivables.
5. REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATIONS AND WARRANTIES OF THE
BORROWER.
In order to induce the Lender to make the
Loan, the Borrower represents and warrants to the
Lender that:
5.1.01 FORMATION AND AUTHORITY OF THE
BORROWER.
A. The Borrower is a limited partnership
duly organized, validly existing and in
good standing under the laws of
Washington. The General Partner is a
corporation duly organized, validly
existing and in good standing under the
laws of Washington. The Borrower and the
General Partner each have all requisite
power to own and operate their respective
properties and to carry on their
respective businesses as presently
conducted and as proposed to be conducted
and each is duly qualified to transact
business and is in good
standing in each jurisdiction where
such qualification is necessary or
desirable in order to carry out its
business as presently conducted and as
proposed to be conducted. As of the date
of this Agreement, the Borrower does not
have any Subsidiaries and the Borrower is
not a member of any partnership or joint
venture and the General Partner is not a
member of any partnership or joint venture
other than as the sole general partner of
the Borrower. Attached hereto as EXHIBIT C
is a true and correct list of all of the
Persons owning any interest in the
Borrower and their respective ownership
interests in the Borrower and - all of the
Persons owning any interest in the General
Partner and their respective ownership
interest in the General Partner;
B. The Borrower is duly authorized to make
and enter into all of the Loan Documents
to which the Borrower is a party and to
carry out the transactions contemplated
therein. All of the Loan Documents to
which the Borrower is a party have been
duly executed and delivered by the
Borrower, and each is a legal, valid and
binding obligation of the Borrower,
enforceable in accordance with its terms;
C. The General Partner is duly authorized
to make and enter into all of the Loan
Documents on behalf of itself and on
behalf of the Borrower to which the
General Partner is a party (whether on its
behalf or on behalf of the
10
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Borrower) and to carry out the
transactions contemplated therein. All of
the Loan Documents to which the General
Partner is a party have been duly executed
and delivered by the General Partner and
each is a legal, valid and binding
obligation of the General Partner,
enforceable in accordance with its terms.
5.1.02 BUSINESS OF THE BORROWER AND THE
GENERAL PARTNER.
The Borrower is and, during the entire
time that this Agreement remains in force and
effect, shall be, engaged in no business,
trade or activity other than the operation of
the Facility for its Primary Intended Use and
the development, ownership and/or operation
of any health care facility owned or financed
by any Meditrust Entity. The fiscal year of
the Borrower is January 1st to December 31st.
The General Partner is, and during the entire
time that this Agreement remains in force and
effect shall be, engaged in no business,
trade or activity other than the operation of
the Mortgaged Property (for the Primary
Intended Use) and the development, ownership
and/or operation of any health care facility
owned or financed by any Meditrust Entity in
the General Partner's capacity as the general
partner of the Borrower;
5.1.03 NO VIOLATIONS.
The execution, delivery and performance
of the Loan Documents by the Borrowing Group
and the consummation of the transactions
thereby contemplated shall not result in any
breach of, or constitute a default under, or
result in the acceleration of, or constitute
an event which, with notice and/or passage of
time could reasonably be expected to result
in default or acceleration of, any obligation
of any member of the Borrowing Group under
any of the Permits or Contracts or any other
contract, mortgage, lien, lease, agreement,
instrument, franchise, arbitration award,
judgment, decree, bank loan or credit
agreement, trust indenture or other
instrument to which any member of the
Borrowing Group is a party or by which any
member of the Borrowing Group or the
Mortgaged Property may be bound or affected
and do not violate or contravene any Legal
Requirement;
5.1.04 NO CONSENT OR APPROVAL.
Except as already obtained or filed, as
the case may be, no consent or approval or
other authorization of, or exemption by, or
declaration or filing with, any Person and no
waiver of any right by any Person is required
to authorize or permit, or is otherwise
required as a condition of the execution and
delivery of any of the Loan Documents by any
member of the Borrowing Group and the
performance of such member's obligations
thereunder or as a condition to the validity
(assuming the due authorization, execution
and delivery by the Lender of the Loan
Documents to which it is a party) and/or the
enforceability of any of the Loan Documents
and/or the first priority of any Liens
granted to the Lender under the Loan
Documents except the recording of the
Mortgage and the Assignment of Leases and the
filing of the Financing Statements;
5.1.05 FINANCIAL CONDITION.
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A. Each member of the Borrowing Group is
financially solvent and there are no
actions, suits, investigations or
proceedings including, without
limitation, outstanding federal or state
tax liens, garnishments or insolvency
and bankruptcy proceedings, pending or,
to the best of the Borrower's knowledge
and belief, threatened:
i. against or affecting any member of
the Borrowing Group, which, if
adversely resolved to such member
of the Borrowing Group, would
materially adversely affect the
ability of any of the foregoing to
perform any of their respective
obligations under the Loan
Documents;
ii. against or affecting the Mortgaged
Property or the ownership,
construction, development,
maintenance, management, repair,
use, occupancy, possession or
operation thereof; or
iii. which may involve or affect the
validity, priority or
enforceability of.. any of the
Loan Documents, at law or in
equity, or before or by any
arbitrator or Governmental
Authority;
B. Intentionally deleted;
C. After giving effect to the consummation
of the Loan, each member of the
Borrowing Group:
i. will be able to pay its debts
as they become due;
ii. will have sufficient funds and
capital to carry on its business as
now conducted or as contemplated to
be conducted (in accordance with
the terms of the Loan Documents);
and
iii. will not be rendered
insolvent as determined by
applicable law;
D. No member of the Borrowing Group is
delinquent or claimed to be delinquent
under any obligation for the payment of
borrowed money;
5.1.06 NO MONEY BORROWED FROM THE GUARANTOR
OR AFFILIATES.
The Borrower has not created, incurred,
guaranteed, endorsed, assumed or suffered to exist
any liability (whether direct or contingent) for
borrowed money from the Guarantor (or any of its
Affiliates) or any Affiliate of the Borrower that
is not fully subordinated to the Loan Obligations
pursuant to the Affiliated Party Subordination
Agreement; 5.1.07 Commercial Acts and Purposes.
The Borrower's performance of, and compliance
with, the obligations and conditions set forth
herein and in the other Loan Documents to which it
is a party will constitute commercial acts done
and performed for commercial purposes;
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<PAGE>
5.1.08 FILING OF TAX RETURNS.
Each member of the Borrowing Group has filed
all federal, state and local tax returns which are
required to be filed as to which extensions are
not currently in effect and has paid all taxes,
assessments, impositions, fees and other
governmental charges (including interest and
penalties) which have become due pursuant to such
returns or pursuant to any assessment or notice of
tax claim or deficiency received by each such
member of the Borrowing Group. No tax liability
has been asserted against any member of the
Borrowing Group by the Internal Revenue Service or
any other federal, state or local taxing authority
for taxes, assessments, impositions, fees -or
other governmental charges (including interest or
penalties thereon) in excess of those already
paid;
5.1.09 ACCURACY OF FINANCIAL STATEMENTS AND
OTHER INFORMATION.
A. The financial statements of each member
of the Borrowing Group and the Facility
given to the Lender in connection with
the execution and delivery of the Loan
Documents were true, complete and
accurate, in all material respects, and
fairly presented the financial condition
of such member of the Borrowing Group as
of the date thereof and for the periods
covered thereby, having been prepared in
accordance with GAAP and such financial
statements disclosed all liabilities
(including, without limitation,
contingent liabilities) of each such
member of the Borrowing Group as of the
date thereof. There has been no material
adverse change since such date with
respect to the Net Worth or liquidity of
any such member of the Borrowing Group
or with respect to any other matters
referred to or contained therein and no
additional material liabilities
(including, without limitation,
contingent liabilities) of any member of
the Borrowing Group have arisen or been
incurred since such date except as
otherwise disclosed to Lender. The most
recent projections heretofore delivered
to the Lender continue to be reasonable.
(with respect to the material
assumptions upon which such projections
are based) and the Borrower reasonably
anticipates based on information
currently available to it after due
inquiry that the results projected
therein will be achieved, there having
been (i) no material adverse change in
the business, assets or condition,
financial or otherwise of any member of
the Borrowing Group or the Mortgaged
Property and (ii) no material depletion
of their cash or decrease in the working
capital of the Borrowing Group;
B. Neither this Agreement, nor any of the
other Loan Documents nor any
certificate, agreement, statement or
other document, including, without
limitation, any financial statements
concerning the financial condition of
any member of the Borrowing Group,
furnished to or to be furnished to the
Lender or its attorneys in connection
with the Loan, contains or will contain
any untrue statement of a material fact
or omits or will omit to state a
material fact necessary in order to
prevent all statements contained herein
and therein from being misleading in any
material respect. There is no fact
within the special knowledge of the
Borrower which has not been disclosed
herein or in writing to the Lender that
materially adversely affects, or in the
future, insofar as the Borrower can
reasonably foresee, based upon the
information currently
13
<PAGE>
available to it after due
inquiry, may materially adversely affect
the business, properties, assets or
condition, financial or otherwise, of
any
member of the Borrowing Group or the
Mortgaged Property ;
5.1.1.0 PENDING ACTIONS, NOTICES AND
REPORTS.
A. There is no action or investigation
pending or, to the best knowledge-and
belief of the Borrower, threatened,
anticipated or contemplated (nor, to the
knowledge of the Borrower, is there any
reasonable basis therefor) against or
affecting the Mortgaged Property or any
member of the Borrowing Group (or any
Affiliate thereof before any
Governmental Authority, which could
prevent or hinder the consummation of
the transactions contemplated hereby or
call into question the validity of any
of the Loan Documents or any action
taken or to be taken in connection with
the transactions contemplated thereunder
or which in any single case or in the
aggregate might result in any material
adverse change in the business,
prospects, condition, affairs or
operations of any member of the
Borrowing Group or the Mortgaged
Property (including, without limitation,
any action to revoke, withdraw or
suspend any Permit necessary or
desirable for the operation of the
Mortgaged Property in accordance with
its Primary Intended Use and any action
to transfer or relocate any such Permit
to a location other than the Mortgaged
Property) or any material impairment of
the right or ability of any member of
the Borrowing Group to carry on its
operations as presently conducted or
proposed to be conducted with respect to
the Mortgaged Property or with respect
to its obligations under the Loan
Documents;
B. Neither the Facility nor any member of
the Borrowing Group has received any
notice of any claim, requirement or
demand of any Governmental Authority, or
any insurance body having or claiming
any licensing, certifying, supervising,
evaluating or accrediting authority over
the Mortgaged Property to rework or
redesign the Mortgaged Property, its
professional staff or its professional
services, procedures or practices in any
material respect or to provide
additional furniture, fixtures,
equipment or inventory or to otherwise
take any action so as to make the
Mortgaged Property conform to or comply
with any Legal Requirement;
C. The most recent utilization reviews
relating to the Mortgaged Property by
all applicable Governmental Authorities
and reviews or scrutiny by any managed
care or utilization review companies
have not had a material adverse impact
on the utilization of beds, units or
programs at the Mortgaged Property. No
claims or assertions have been made in
any utilization review that any of the
practices or procedures used at the
Mortgaged Property are improper or
inappropriate other than such claims or
assertions which singly and in the
aggregate will not have a material
adverse impact on the Mortgaged
Property; and
D. The Borrower has delivered or caused to
be delivered to the Lender true and.
correct copies of all licenses,
inspection surveys and accreditation
reviews relating to the Mortgaged
Property, issued by any Governmental
Authority during the most recent
licensing period, together with all
plans of correction relating thereto.
14
<PAGE>
5.1.11 COMPLIANCE WITH LEGAL AND OTHER
REQUIREMENTS.
A. The Borrower and the Mortgaged Property
and the ownership, construction,
development, maintenance, management,
repair, use, occupancy, possession and
operation thereof comply with all Legal
Requirements and there is no claim of
any violation thereof known to the
Borrower. Without limiting the
foregoing, the Borrower is the licensed
operator of the Facility, the Borrower
has obtained all Permits that are
necessary or desirable to operate the
Mortgaged Property in accordance with
its Primary Intended Use and all such
Permits are in full force and effect;
B. Except as previously disclosed to the
Lender in materials delivered to the
Lender pursuant to Section 5.1.10D,
there are no outstanding notices of
deficiencies or work orders relating to
the Mortgaged Property issued by any
Governmental Authority, requiring
conformity to any of the Legal
Requirements;
C. The Borrower has no actual knowledge of
any Legal Requirements which have been
enacted, promulgated or issued within
the eighteen (18) months preceding the
date of this Agreement or any proposed
Legal Requirements currently pending in
the state where the Facility is located,
which may materially adversely affect
rates at the Facility (or any program
operated in conjunction with the
Facility) or may result in the
likelihood of increased competition at
the Facility or the imposition of
Medicaid, Medicare, charity, free care,
welfare or other discounted or
government assisted residents at the
Facility or require that the Borrower or
the Facility obtain a certificate of
need, Section 1122 approval or the
equivalent, which the Borrower or the
Facility does not currently possess;
5.1.12 Properly Matters.
A. The Mortgaged Property is free and clear
of all Liens and Leases, except (i)
those Liens to which the Mortgage and
the other Loan Documents are expressly
subject, whether presently existing, as
are listed on EXHIBIT D, or which may
hereafter be created in accordance with
the terms hereof and (ii) the Liens that
were listed on the UCC lien search
results delivered to the Lender at or
prior to the execution and delivery of
this Loan Agreement (and that were not
required to be terminated as a condition
of the execution and delivery of this
Loan Agreement) and (iii) all Leases
which have been expressly subordinated
to the Lien of the Mortgage and all
Resident Agreements (the matters
described in the foregoing clauses (i) -
(iii) are collectively referred to
herein as the "Permitted Encumbrances");
and the Borrower shall warrant and
defend title to the Mortgaged Property
against any and all claims and demands
of every kind and nature whatsoever.
B. There is no Condemnation or similar
proceeding pending with respect to or
affecting the Mortgaged Property and the
Borrower is not aware, to the best of
the Borrower's knowledge and belief,
that any such proceeding is
contemplated;
15
<PAGE>
C. No part of the Collateral has been
damaged by fire or other casualty. The
Facility is in good operating condition
and repair, ordinary wear and tear
excepted, free from known defects in
construction or design;
D. None of the Permitted Encumbrances
has or is likely to have a material
adverse impact upon, nor interfere with
or impede, in any material respect, the
operation of the Mortgaged Property in
accordance with its Primary Intended
Use;
E. All buildings and other
improvements necessary, both legally and
practically, for the proper and
efficient operation of the Facility are
located upon the Mortgaged Property and
all real property and personal property
currently utilized by the Borrower in
connection with the ownership and
operation of the Facility is included
within the definition of the Mortgaged
Property and is subject to the Liens
created by the Mortgage;
F. The Borrower has good, marketable
and indefeasible title to the entire
Real Property in fee simple, has
absolute unencumbered title to the
Personal Property, and has good right
and full power to assign, grant,
bargain, sell, mortgage, transfer and
convey the Mortgaged Property;
G. The Mortgaged Property abuts on and
has direct vehicular access to a public
road or has access to a public road via
permanent, irrevocable, appurtenant
easements;
H. The Mortgaged Property constitutes
a separate parcel(s) for real estate tax
purposes and no portion of any real
property that does not constitute a
portion of the Mortgaged Property is
part of the same tax parcel as any part
of the Mortgaged Property;
I. All utilities necessary for the use and
operation of the Facility-are available
to the lot lines of the Mortgaged
Property:
(i) in sufficient supply and capacity;
(ii) through validly created and
existing easements of record
appurtenant to or encumbering the
Mortgaged Property (which
easements shall not impede or
restrict the operation of the
Facility); and
(iii) without need for any Permits
and Contracts required to be
issued by or entered into with any
Governmental Authority, except as
already obtained or executed, as
the case may be, or as otherwise
shown, to the satisfaction of the
Lender, to be readily obtainable;
J. Except for the construction of the
Facility on the Mortgaged Property, the
Borrower has made no structural
alterations or renovations to the
Facility that altered the foot-print of
any Improvement, added an additional
story to any Improvement,
16
<PAGE>
decreased the amount of
parking available on the Mortgaged
Property or otherwise involved any
alteration that would be regulated by
applicable zoning or other land use
requirements during the immediately
preceding ten years (10) years and has
no knowledge of any such structural
alteration or renovation made to the
Facility or decrease in parking during
such period;
5.1.13 THIRD PARTY PAYOR AGREEMENTS.
A. Neither the Borrower nor the Facility is
qualified as a provider of services
under or participates in any Third Party
Payor Programs and neither Borrower nor
the Facility is accredited by any
Accreditation Body;
B. No provision of this Loan Agreement
shall be deemed to require the Borrower
to commence participation in any Third
Party Payor Program or any Managed Care
Plan; .
5.1.14 RATE RESTRICTIONS AND LIMITATIONS.
The state where the Facility is located
currently imposes no restrictions or limitations
on rates which may be charged to private pay
residents receiving services at the Facility,
except as set forth on EXHIBIT F;
5.1.15 FREE OR SUBSIDIZED PATIENT CARE.
There are no Contracts, Permits or Legal
Requirements which require that a percentage of
beds or slots in any program at the Facility be
reserved for Medicaid or Medicare eligible
patients or that the Facility provide a certain
amount of welfare free or charity care or
discounted or government assisted patient resident
care;
5.1.16 ERISA.
No employee pension benefit plan maintained
by any member of the Borrowing Group has any
accumulated funding deficiency within the meaning
of the ERISA, nor does any member of the Borrowing
Group have any material liability to the PBGC
established under ERISA (or any successor thereto)
in connection with any employee pension benefit
plan (or other class of benefit which the PBGC has
elected to insure), and there have been no
"reportable events" (not waived) or "prohibited
transactions" with respect to any such plan, as
those terms are defined in Section 4043 of ERISA
and Section 4975 of the Internal Revenue Code of
1986, as amended, respectively;
5.1.17 BROKERAGE.
No member of the Borrowing Group nor any of
their respective Affiliates has dealt with any
broker or agent in connection with the Loan;
5.1.18 GIFTS AND CONTRIBUTIONS.
No member of the Borrowing Group nor any of
their respective Affiliates has:
17
<PAGE>
A. made any contributions, payments or
gifts of its funds or property to or for
the private use of any government
official, employee, agent or other
Person where either the payment or the
purpose of such contribution, payment or
gifts is illegal under the laws of the
United States, any state thereof or any
other jurisdiction (foreign or
domestic);
B. established or maintained any
unrecorded fund or asset for any
purpose or has made any false or
artificial entries on any of its books
or records for any reason;
C. made any payments to any Person with the
intention or understanding that any part of such
payment was to be used for any other purpose other
than that described in the documents supporting
the payment; or
D. made any contribution, or has reimbursed
any political gift or contribution made by any
Other Person, to candidates for public office,
whether federal, state or local, where such
contribution would be in violation of applicable
law;
5.1.19 REGULATION U.
The Borrower is not engaged in the business
of extending credit for the purpose of purchasing
or carrying margin stock (within the meaning of
Regulation U of the Board-of Governors of the
Federal Reserve System), and no part of the
proceeds of the Loan will be used to purchase or
carry any margin security or to extend credit to
others for the purpose of purchasing or carrying
any margin security or in any other manner which
would involve a violation of any of the
regulations of the Board of Governors of the
Federal Reserve System. The Borrower is not an
"investment company" within the meaning of the
Investment Company Act of 1940, as amended;
5.1.20 DEFAULT UNDER LOAN DOCUMENTS.
No event or state of facts which constitutes,
or which, with notice or lapse of time, or both,
could constitute, a Loan Default has occurred and
is continuing;
5.1.21 PRINCIPAL PLACE OF BUSINESS.
The principal place of business and chief
executive office of the Borrower is located at c/o
Emeritus Corporation, 3131 Elliott Avenue, Suite-
500, Seattle, Washington 98121-2162 (referred to
herein as the "Principal Place of Business");
5.1.22 LABOR MATTERS.
There are no proceedings now pending, nor, to
the best of the Borrower's knowledge, threatened
with respect to the operation of the Facility
before the National Labor Relations Board, State
Commission on Human Rights and Opportunities,
State Department of Labor, U.S. Department of
Labor or any other Governmental Authority having
jurisdiction of employee rights with respect to
hiring, tenure and conditions of employment, and
no member of the Borrowing Group has experienced
any material controversy with any Facility
administrator or other employee of similar stature
or with any labor organization which has or is
likely to have, a materially adverse effect upon
the financial condition and/or operations of the
Facility; and
18
<PAGE>
5.1.23 INTELLECTUAL PROPERTY.
The Borrower is duly licensed or authorized
to use all (if any) copyrights, rights of
reproduction, trademarks, trade-names, trademark
applications, service marks, patent applications,
patents and patent license rights, (all whether
registered or unregistered, U.S. or foreign),
inventions, franchises, discoveries, ideas,
research, engineering, methods, practices,
processes, systems, formulae, designs, drawings,
products, projects, improvements; developments,
know-how and trade secrets which are used in or
necessary for the operation of the Facility in
accordance with its Primary Intended Use, without
conflict with or infringement of any, and subject
to no restriction, lien, encumbrance, right, title
or interest in others.
5.1.24 MANAGEMENT AGREEMENTS.
There is no Management Agreement in force and
effect as of the date hereof.
6. COVENANTS
6.1 FINANCIAL COVENANTS.
As long as any of the Loan Documents may
remain in effect:
6.1.01 THE BORROWER'S DEBT COVERAGE RATIO.
From and after the second anniversary of
the date hereof until the fourth anniversary
hereof, the Facility and all of the other
Group Four Acquisition Facilities shall
maintain for each Fiscal Quarter an aggregate
Debt Coverage Ratio equal to or greater than
1.1 to 1 and from and after the fourth
anniversary thereof and for the remainder of
the Term, the Facility and all of the other
Group Four Acquisition Facilities shall
maintain for each Fiscal Quarter an aggregate
Debt Coverage Ratio equal to or greater than
1.2 to 1.
6.1.02 THE BORROWER'S INDEBTEDNESS.
Intentionally deleted;
6.1.03 THE BORROWER'S ASSETS.
Intentionally deleted;
6.1.04 THE BORROWER'S NET WORTH.
Intentionally deleted;
6.1.05 THE GUARANTOR'S INDEBTEDNESS.
Intentionally deleted;
6.1.06 THE GUARANTOR'S ASSETS.
From and after December 31, 1999 and for the
remainder of the Term, the Guarantor shall
maintain a ratio of Consolidated Current Assets to
Consolidated Current Liabilities equal to or
greater than 1 to 1 as of the end of each Fiscal
Year;
19
<PAGE>
6.1.07 THE GUARANTOR'S NET WORTH.
Throughout the Term, the Guarantor shall
maintain a Net Worth of not less than Forty
Million Dollars ($40,000,000.00);
6.1.08 EARNINGS.
Intentionally deleted;
6.1.09 LIABILITY FOR BORROWED MONEY.
Neither the Borrower nor the General Partner,
on behalf of the Borrower, shall create, incur,
assume or suffer to exist any liability for
borrowed money except (a) Indebtedness to the
Lender under the Loan Documents, (b) Impositions
allowed pursuant to the provisions of this
Agreement, (c) unsecured normal trade debt
incurred upon customary terms in the ordinary
course of business, (d) other Indebtedness of the
Borrower in the aggregate principal amount not to
exceed TWO HUNDRED THOUSAND DOLLARS ($200,000)
incurred, for the exclusive use of the Facility,
on account of purchase money indebtedness or
finance lease arrangements, each of which shall
not exceed the fair market value of the assets or
property acquired or leased and shall not extend
to any assets or property other than those
purchased or leased and purchase money security
interests in equipment and equipment leases which
comply with the provisions of Section 4.4, (e)
Indebtedness of the Borrower to any Affiliate,
provided, that, such Indebtedness is fully
subordinated to the Loan Obligations pursuant to
the Affiliated Party Subordination Agreement, and
(f) indebtedness specifically permitted by the
Meditrust/Emeritus Transaction Documents;
6.1.10 ASSUMPTION OF LIABILITY.
Neither the Borrower nor the General Partner
on behalf of the Borrower shall assume, guarantee,
endorse, contingently agree to purchase or
otherwise become directly or contingently liable
(including, without limitation, liable by way of
agreement, contingent or otherwise, to purchase,
to provide funds for payment, to supply funds to
or otherwise to invest in any debtor or otherwise
to assure any creditor against loss) in connection
with any Indebtedness of any other Person, except
by the endorsement of negotiable instruments for
deposit or collection or similar transactions in
the ordinary course of business and except for a
guaranty of the Indebtedness of the Guarantor in
connection with the Working Capital Loan which
expressly limits recourse under such guaranty to
the Receivables;
6.2 COLLECTION AND ENFORCEMENT COSTS.
Upon demand, the Borrower shall reimburse the
Lender for all costs and expenses, including,
without limitation, reasonable attorneys' fees and
expenses and court costs, paid or reasonably
incurred by the Lender in connection with the
collection of any sum due hereunder, or in
connection with the enforcement of any of the
Lender's rights or any member of the Borrowing
Group's obligations under this Agreement or any of
the other Loan Documents. Any amount due and
payable to the Lender pursuant to the provisions
of this Section shall be a demand obligation and,
to the extent permitted by law, shall be added to
the Loan Obligations and shall be secured by the
Liens created by the Loan Documents as fully and
effectively and with the same priority as every
other obligation of the Borrower secured thereby
and, if not paid within ten (10) days after
demand, shall thereafter, to the extent permitted
by applicable law, bear interest at the
20
<PAGE>
Advances Rate until the date of payment. The
obligation of the Borrower to pay the outstanding
principal balance, interest (including, without
limitation, Additional Interest) and all other
costs, charges and sums due hereunder or under any
of the other Loan Documents shall continue in full
force and effect and in no way shall be impaired,
until the actual payment thereof to the Lender. In
the event of(a) a sale, conveyance, transfer or
other disposition of the Mortgaged Property, (b)
any further agreement given to secure the payment
of the obligations set forth herein or (c) any
agreement or stipulation extending the time or
modifying the terms of payment set forth herein;
the Borrower shall nevertheless remain obligated
to pay the indebtedness evidenced by this
Agreement, as extended or modified by any such
agreement or stipulation, unless the Borrower is
released and discharged from such obligation by a
written agreement executed by the Lender.6.3
Financial Statements and Other Information.
6.3 FINANCIAL STATEMENTS AND OTHER INFORMATION
The Borrower shall furnish or shall cause to
be furnished to the Lender the following
statements, information and other materials:
6.3.01 ANNUAL STATEMENTS.
Within ninety (90) days after the end of each
of their respective fiscal years:
A. a copy of the Consolidated Financials
for each of (i) the Borrower and (ii)
the Guarantor for the preceding fiscal
year, certified and, in the case of the
Guarantor, audited by, and with the
unqualified opinion of, independent
certified public accountants acceptable
to the Lender and certified as true and
correct by the Borrower, and the
Guarantor, as the case may be (and,
without limiting anything else contained
herein, the Consolidated Financials for
the Borrower shall contain a detailed
balance sheet for the Mortgaged Property
as of the last day of such fiscal year
and a statement of earnings from the
Mortgaged Property for such fiscal year
showing, among other things, all rents
and other income therefrom and all
expenses paid or incurred in. connection
with the operation of the Mortgaged
Property);
B. statements certified as true and correct
by the Borrower and the Guarantor
stating, to the best of the signer's
knowledge and belief after making due
inquiry, whether the Borrower, and/or
the Guarantor, as the case may be, is in
default in the performance or observance
of any of the terms of this Agreement or
any of the other Loan Documents and, if
so, specifying all such defaults, the
nature thereof and the steps being taken
to immediately remedy the same; and
C. a copy of all letters from the
independent certified accountants
engaged to perform the annual audits
referred to above, directed to the
management of the Guarantor regarding
the existence of any reportable
conditions or material weaknesses;
6.3.02 ANNUAL STATEMENT OF LEASES.
Within ninety (90) days after the end of each
fiscal year of the Borrower, a statement certified
as true and correct by the Borrower, setting forth
all Leases of the Mortgaged Property as of the
last day of such fiscal year, the respective areas
demised
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thereunder, the names of the Lessees thereunder,
the respective expiration dates of the Leases, the
respective rentals provided for therein, and such
other information pertaining to the Leases as may
be reasonably requested by the Lender;
6.3.03 MONTHLY STATEMENTS.
Within thirty (30) days after the end of each
calendar month:
A. a statement certified as true and
correct by the Borrower setting forth
the Gross Revenues of the Mortgaged
Property for the immediately preceding
month;
B. an unaudited, detailed month and year to
date income and expense statement for
the Mortgaged Property which shall
include a comparison to corresponding
budget figures, occupancy statistics
(including the actual number of
residents, the number of beds and units
available and total resident days for
such month) and resident mix breakdowns
for each resident day during such month
(classifying residents by the type of
care required and source of payment);
and
C. a calculation showing compliance or non-
compliance, as the case may be, with the
financia1 covenants set forth in Section
6.1 hereof for the applicable period,
including, with respect to the
calculation of the Borrower's Debt
Coverage Ratio, a schedule substantially
in the form attached hereto as EXHIBIT
G;
6.3.04 QUARTERLY FINANCIAL STATEMENTS.
Within thirty (30) days after the end of its
respective fiscal quarters, unaudited Consolidated
Financials for the Borrower certified as true and
correct by the Borrower.
6.3.05 QUARTERLY STATEMENT OF ADDITIONAL
INTEREST.
Within thirty (30) days after each calendar
quarter, the Borrower shall provide the Lender
with a calculation of the Additional Interest
payable for such quarter;
6.3.06 QUARTERLY STATEMENTS OF THE GUARANTOR.
Within forty-five (45) days after the end of
each of its fiscal quarters, unaudited
Consolidated Financials for the Guarantor
certified as true and correct by the Guarantor;
6.3.07 ANNUAL BUDGET.
By the end of the fiscal year for the
Facility, the Borrower, any Lessee and any Manager
shall submit a proposed financial and capital
expenditures budget for the Facility for the next
fiscal year and a report detailing the capital
improvements completed in the immediately prior
fiscal year;
6.3.08 PERMITS AND CONTRACTS.
Promptly but in no event more than ten (10)
days after the issuance or execution thereof, as
the case may be, true and complete copies of all
(a) Permits which constitute operating licenses
for the Facility issued by any Governmental
Authority having
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jurisdiction over assisted living matters and (b)
Contracts (involving payments in the aggregate in
excess of $ 100,000 per annum), including, without
limitation, all Provider Agreements;
6.3.09 CONTRACT NOTICES.
Promptly but in no event more than ten (10)
days after the receipt thereof, true and complete
copies of any notices, consents, terminations or
statements of any kind or nature relating to any
of the Contracts involving payments in the
aggregate in excess of $100,000 per annum (other
than those issued in the ordinary course of
business);
6.3.10 PERMIT OR CONTRACT SURVEYS, NOTICES,
REPORTS AND DEFAULTS.
Promptly but in no event more than ten (10)
days after the receipt thereof, true and complete
copies of all surveys, follow-up surveys,
complaint surveys, examinations, compliance-
certificates, inspection reports, statements
(other than those statements that are furnished in
the ordinary course of business), terminations and
notices of any kind (other than those notices that
are furnished in the ordinary course of business)
issued or provided to the Borrower by any
Governmental Authority, Accreditation Body or
Third Party Payor, including, without limitation,
any notices pertaining to any delinquency in, or
proposed revision of, the Borrower's obligations
under the terms and conditions of any Permits or
Contracts now or hereafter issued by or entered
into with any Governmental Authority,
Accreditation Body or Third Party Payor and the
response(s) thereto made by or on behalf of the
Borrower.
6.3.11 OFFICIAL NOTICES, FILINGS AND REPORTS.
Upon the completion or filing thereof,
complete copies of all Permit applications (other
than those that are furnished in the ordinary
course of business), notices (other than those
that are furnished in the ordinary course of
business), statements (other than those that are
furnished in the ordinary course of business),
annual reports, cost reports and other reports or
filings of any kind (other than those that are
furnished in the ordinary course of business)
provided by the Borrower to any Governmental
Authority, Accreditation Body or Third Party Payor
with respect to the Mortgaged Property;
6.3.12 PUBLIC INFORMATION.
Upon the completion or filing, mailing or
other delivery thereof, complete copies of all
financial statements, reports, notices and proxy
statements, if any, sent by any member of the
Borrowing Group (which is a publicly held
corporation) to its shareholders and of all
reports, if any, filed by any member of the
Borrowing Group (which is a publicly held
corporation) with any securities exchange or with
the Securities Exchange Commission;
6.3.13 OTHER INFORMATION.
With reasonable promptness, such other
information as the Lender may reasonably request
from time to time respecting (i) the financial
condition and affairs of each member of the
Borrowing Group and the Mortgaged Property and
(ii) the licensing and the operation of the
Mortgaged Property; including, without limitation,
financial statements, certificates and consents
from accountants and any other financial and
23
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licensing or operational information as may be
required or requested by any Governmental
Authority;
6.3.14 DEFAULT CONDITIONS.
As soon as possible and in any event within
five (5) days after the occurrence of each Loan
Default or each event or state of facts which,
with the giving of notice or lapse of time or
both, could constitute such a Loan Default, a
written statement of the Borrower setting - forth
details of such Loan Default or event and the
action which the Borrower proposes to take with
respect thereto;
6.3.15 OFFICIAL ACTIONS.
Promptly but in no event more than ten (10)
days after the commencement thereof, notice of all
actions, suits and proceedings before any
Governmental Authority or Accreditation Body which
may have a material adverse effect on (i) the
ability of any member of the Borrowing Group to
perform any of its obligations under any of the
Loan Documents or (ii) the Mortgaged Property;
6.3.16 AUDIT REPORTS.
Promptly after receipt, a copy of all audits
or reports submitted to Borrower by an independent
public accountants in connection with any annual,
special or interim audits of the books of Borrower
and, if requested by the Lender, any letter of
comments directed by such accountant to the
management of Borrower;
6.3.17 ADVERSE DEVELOPMENTS.
Promptly but in no event more than ten (10)
days after the Borrower acquires knowledge
thereof, written notice of:
A. the potential termination of any Permit
or Provider Agreement necessary for the
operation or ownership of the Mortgaged
Property;
B. any loss, damage or destruction to or of
the Mortgaged Property in excess of
TWENTY-FIVE THOUSAND DOLLARS ($25,000)
(regardless of whether the same is
covered by insurance);
C. any material controversy involving the
Borrower and (i) any Facility
Administrator or Facility employee of
similar stature or (ii) any labor
organization or (iii) the Manager or any
employee of the Manager which has, or is
reasonably likely to have, a material
adverse effect on the financial
condition and/or operation of the
Facility;
D. any controversy that calls into question
the eligibility of the Borrower or the
Facility for participation in any Third
Party Program in which the Facility is
participating;
E. any refusal of reimbursement by any
Third Party Payor which, singly or
together With all other such refusals by
any Third Party Payors, could reasonably
be expected to have a materially adverse
effect on the financial condition of the
Borrower; and
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F. any fact within the special knowledge of
any member of the Borrowing Group, or
any other development in the business or
affairs of any member of the Borrowing
Group, which could reasonably be
expected to be materially adverse to the
business, properties, assets or
condition, financial or otherwise, of
any member of the Borrowing Group or the
Mortgaged Property;
6.3.18 WORKING CAPITAL LOAN.
Promptly after receipt thereof, copies of any
notices with respect to default from a lender of a
Working Capital Loan.
6.3.19 RESPONSES TO INSPECTION REPORTS.
Within thirty (30) days after receipt of a
Facility inspection report from the Lender, a
written response describing in detail prepared
plans to address concerns raised by the inspection
report; and
6.3.20 EVIDENCE OF ANNUAL FACILITY UPGRADE
EXPENDITURE.
Within (30) days after the end of each Loan
Year commencing with the third Loan Year, evidence
satisfactory to Lender that the Borrower has
fulfilled its obligation to make the Annual
Facility Upgrade Expenditure in accordance with
the terms of Section 6.24.
Any certificate, instrument, notice or other
document to be provided to the Lender hereunder or
under any of the other Loan Documents by any
member of the Borrowing Group shall be signed by
an executive officer of such member (in the event
that any of the foregoing is not an individual)
having a position of Vice President or higher and
with respect to financial matters, any such
certificate, instrument notice or other document
shall be signed by the chief financial officer or
treasurer of such member.
No certificate, instrument, notice or other
document including, without limitation, any
financial statements, furnished or to be furnished
to the Lender pursuant to the terms hereof or of
any of the other Loan Documents shall contain any
untrue statement of a material fact or shall omit
to state a material fact necessary in order to
prevent all statements contained therein from
being misleading.
The Lender shall afford any information
received pursuant to the provisions of the Loan
Documents the same degree of confidentiality that
the Lender affords similar information proprietary
to the Lender; provided, however, that the Lender
shall have the unconditional right to (a) disclose
any such information as the Lender deems necessary
or appropriate in connection with any sale,
transfer, conveyance, participation, assignment or
foreclosure of any of the Loan Documents and/or
any interest therein and (b) use such information
in any litigation or arbitration proceeding
between the Lender and any member of the Borrowing
Group. Without limiting the foregoing, the Lender
may also disclose any information furnished to it
pursuant to any of the Loan Documents as and to
the extent (i) counsel to the Lender determines
that such disclosure is necessary pursuant to 15
U.S.C. 77a-77aa or 15 U.S.C. 78a-78jj and the
rules and regulations promulgated thereunder, (ii)
the Lender is required or requested by any
Governmental Authority to disclose any such
information and/or (iii) the Lender is required or
requested to disclose any such information by any
of its and/or any of the Meditrust Entities'
lenders. The Lender or potential lender shall not
be liable in any way for any
25
<PAGE>
subsequent disclosure of such information by any
Person to whom the Lender provided such
information in accordance with the terms hereof.
Nevertheless, in connection with any such
disclosure, the Lender shall inform all recipients
of any such information of the confidential nature
thereof. The Lender shall observe any prohibitions
or limitations on the disclosure of any such
information under applicable confidentiality law
or regulations to the extent that the same are
applicable to such information.
6.4 MAINTENANCE OF EXISTENCE.
During the entire time that this Agreement
remains in full force and effect; the Borrower
shall keep in effect its existence and rights as a
partnership under the laws of the state of its
formation and its right to own property and
transact business in the state in which the
Mortgaged Property is situated.
6.5 REPRESENTATIONS AND WARRANTIES.
All representations and warranties contained
in this Agreement shall constitute continuing
representations and warranties which shall remain
true, correct and complete throughout the Term.
Notwithstanding the provisions of the foregoing
sentence but without derogation from any other
terms and provisions of this Agreement, including,
without limitation, those terms and provisions
containing covenants to be performed or conditions
to be satisfied on the part of the Borrower, the
representations and warranties contained in
Sections 5.1.05(A), 5.1.05(B), 5.1.OS(D), 5.1.10,
5.1.11, 5:1.12(B), 5.1.12(C), 5.1.13(B),
5.1.13(C), 5.1.14, 5.1.15, 5.1.16, 5.1.20, 5.1.21,
5.1.22, 5.2.05(A), 5.2.05(C), 5.2.05(D), in the
second sentence of Section 5.1.08, in the second
and third sentences of Section 5.1.0 (A), in the
second and third sentences of Section 5.1.13(D),
in the second sentence of Section 5.2.07 and in
the second and third sentences of Section 5.2.08
hereof shall not constitute continuing
representations and warranties throughout the
Term.
6.6 CONDUCT OF THE BORROWER'S BUSINESS.
The Borrower will maintain, and cause any
Lessee and any Manager to maintain, as applicable,
experienced and competent professional management
with respect to its business and with respect to
the Mortgaged Property. The Borrower, any Lessee
and any Manager shall conduct, in the ordinary
course, the operation of the Facility and the
Borrower shall not enter into any other business
or venture other than the development, ownership
and/or operation of any health care facility owned
or financed by any Meditrust Entity.
6.7 PRINCIPAL PLACE OF BUSINESS, LOCATION OF
THE COLLATERAL, BOOKS AND RECORDS.
The Borrower shall provide the Lender thirty
(30) days' prior written notice of any change of
its Principal Place of Business from its current
Principal Place of Business. The Borrower shall
maintain the Collateral, including without
limitation, all books and records relating to the
Borrower's business, at solely its Principal Place
of Business and at the Mortgaged Property. The
Borrower shall not (a) remove the Collateral,
including, without limitation, any books or
records relating to the Collateral and/or the
Borrower's business from either the Mortgaged
Property or its Principal Place of Business or (b)
relocate its Principal Place of Business until
after receipt of a certificate from the Lender,
signed by an officer thereof, stating that the
Lender has, to its satisfaction, obtained all
26
<PAGE>
documentation that it deems necessary or desirable
to obtain, maintain, perfect and confirm the first
priority security interests granted in the Loan
Documents.
The Borrower shall cause to be kept and
maintained, and shall permit the Lender and its
representatives to inspect at all reasonable
times, accurate books of account in which complete
entries will be made in accordance with GAAP
reflecting all financial transactions of the
Borrower, as applicable (showing, without
limitation, all materials ordered and received and
all disbursements, accounts payable and accounts
receivable in connection with the operation of the
Mortgaged Property).
6.8 RESTRICTIONS.
6.8.01 RESTRICTIONS RELATING TO THE BORROWER.
Except as may otherwise be expressly provided
herein or in the Mortgage, the Borrower shall not,
without the prior written consent of the Lender,
in each instance, which consent may be withheld in
the sole and absolute discretion of the Lender:
A. convey, assign, hypothecate, transfer,
dispose of or encumber, or permit the conveyance,
assignment, transfer, hypothecation, disposal or
encumbrance of all or
B. any part of any legal or beneficial interest
in the Mortgaged Property; provided, however, that
this restriction shall not apply to (i) the
Permitted Encumbrances that may be created after
the date hereof pursuant to the Loan Documents,
(ii) Liens against Personal Property securing
Indebtedness permitted under Section 6.1.09(d)
relating to equipment leasing or financing for the
exclusive use of the Facility, (iii) Leases to the
Guarantor or any Affiliate of the Guarantor which
are subordinate to the Loan Documents and which
comply with the provisions of Section 6.9; (iv)
the sale, conveyance, assignment, hypothecation,
lease or other transfer of any material asset or
assets (whether now owned or hereafter acquired),
the fair market value of which equals or is less
than TWENTY FIVE THOUSAND DOLLARS ($25,000),
individually, or ONE HUNDRED THOUSAND DOLLARS
($100,000) collectively; (v) without limitation as
to amount, the disposition in the ordinary course
of business of any obsolete, worn out or defective
fixtures, furnishings or equipment used in the
operation of the Facility provided that the same
are replaced with fixtures, furnishings or
equipment of equal or greater utility or value;
(vi) without limitation as to amount, any sale of
inventory by the Borrower in the ordinary course
of business; and (vii) subject to the terms of the
Negative Pledge Agreement and the Affiliated Party
Subordination Agreement, distributions and/or
dividends to the Borrower's partners and (viii)
Residents Agreements;
B. permit the use of the Mortgaged Property
or the Facility for any purpose other
than the Primary Intended Use; or
C. permit any Person other than the
Borrower to be the licensed operator of
the Facility; or
27
<PAGE>
D. liquidate, dissolve or merge or
consolidate with or permit the General
Partner to liquidate, dissolve or merge
or consolidate with any other Person
except, subject to Lender's prior
written consent, which consent shall not
be unreasonably withheld, with an
Affiliate of Borrower, the business and
activities of which are limited to those
subject to the Meditrust/Emeritus
Transaction Documents (as that term is
defined in the Agreement Regarding
Related Transactions) to which such
Affiliate is a party.
The occurrence of any of the foregoing shall
be deemed to be an Event of Default.
6.8.02 INTENTIONALLY OMITTED
6.8.03 INTENTIONALLY OMITTED
6.9 AFFILIATE TRANSACTIONS.
6.9.01 Neither Borrower, nor the General
Partner, on behalf of the Borrower,
shall enter into any transaction with
any Affiliate pertaining to the
Mortgaged Property, including, without
limitation, the purchase, sale or
exchange of any property, the rendering
of any service to or with any Affiliate
and the making of any loan or other
extension of credit, except in the
ordinary course of, and pursuant to the
reasonable requirements of such entity's
business and upon fair and reasonable
terms no less favorable to such entity
than would be obtained in a comparable
arms'-length transaction with any Person
that is not an Affiliate. .
6.9.02 Without limiting the provisions of
any other Section of this Agreement or
the. Affiliated Party Subordination
Agreement, any payments to be made by
the Borrower, or the General Partner on
behalf of the Borrower to (a) any member
of the Borrowing Group (or any Affiliate
of any member of the Borrowing Group) or
(b) any Affiliate of the Borrower, in
connection with any transaction between
the Borrower and such Person, including,
without limitation, the purchase, sale
or exchange of any property, the
rendering of any service to or by any
such Person (including, without
limitation, all allocations of any so-
called corporate or central office
costs, expenses and charges of any kind
or nature) or the making of any loan or
other extension of credit or the making
of any equity investment, shall be
subordinate to the complete payment and
performance of all Loan Obligations;
provided, however, that all such
subordinated payments may be paid at any
time unless: (i) after giving effect to
such payment, the Borrower shall be
unable to comply with any of its
respective obligations under any of the
Loan Documents or (ii) a Loan Default
has occurred and is continuing and has
not been expressly waived in writing by
the Lender or an event or state of facts
exists, which, with notice or the
passage of time,. or both, would
constitute a Loan Default.
6.10 NON-COMPETITION.
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6.10.01 The Borrower and the Guarantor
acknowledge that any competition by any
member of the Borrowing Group with any
Purchaser upon the transfer of title to
such Purchaser by reason of the Lender's
-exercise of any rights and remedies
granted under any of the Loan Documents,
including without limitation, the
exercise of the power of sale under the
Mortgage, any other foreclosure of the
Mortgage or any other proceedings
brought to enforce the rights of the
holder of the Mortgage or by any other
method, would cause irreparable harm to
the Lender and the Purchaser.
6.10.02 From and after the date hereof
until the fifth anniversary of the date
of any such transfer of title to the
Mortgaged Properly to any Purchaser, no
member of the Borrowing Group nor any
Person holding or controlling, directly
or indirectly, any interest in any
member of the Borrowing Group
(collectively, the "Limited Parties"),
shall be involved in any capacity in or
lend any of their names to or engage in
any capacity in any assisted living
facility (or other facility operated for
any use included within the definition
of Primary Intended Use), center, unit
or program (or in any Person engaged in
any such activity or any related
activity competitive therewith), whether
such competitive activity shall be as an
officer, director, owner, employee,
agent, advisor, independent contractor,
developer, lender, sponsor, venture
capitalist, administrator, manager,
investor, partner, joint venturer,
consultant or other participant in any
capacity whatsoever with respect to an
assisted living facility, center, unit
or program located within a five (5)
mile radius of.. the Mortgaged Property.
6.10.03 The Borrower and the Guarantor
hereby acknowledge and agree that none
of the time span, scope or area covered
by the foregoing restrictive covenants
is or are unreasonable and that it is
the specific intent of the Borrower and
the Guarantor that each and all of the
restrictive covenants set forth
hereinabove shall be valid and
enforceable as specifically set forth
herein. The Borrower and the Guarantor
further agree that these restrictions
are special, unique, extraordinary and
reasonably necessary for the protection
of the Lender and any Purchaser and that
the violation of any such covenant by
any of the Limited Parties would cause
irreparable damage to the Lender and any
Purchaser for which a legal remedy alone
would not be sufficient to fully protect
such parties.
6.10.04 Therefore, in addition to and
without limiting any other remedies
available at law or hereunder, in the
event that any of the Limited Parties
breaches any of the restrictive
covenants hereunder or shall threaten
breach of any of such covenants, then
the Lender and any Purchaser shall be
entitled to obtain equitable remedies,
including, without limitation, specific
performance and injunctive relief, to
prevent or otherwise restrain a breach
of this Section 6. 10 (without the
necessity of posting a bond) and to
recover any and all costs and expenses
(including, without limitation,
attorneys' fees and expenses and court
costs) reasonably incurred in enforcing
the provisions of this Section 6.10. The
existence of any claim or cause of
action of any of the Limited Parties or
any member of the Borrowing Group
against the Lender or any Purchaser,
whether predicated on this Agreement or
29
<PAGE>
otherwise, shall not constitute
a defense to the enforcement by the
Lender or any Purchaser of the foregoing
restrictive covenants and the Limited
Parties shall not defend on the basis
that there is an adequate remedy at law.
6.10.05 Without limiting any other
provision of this Agreement, the parties
hereto acknowledge that the foregoing
restrictive covenants are severable and
separate. If at any time any of the
foregoing restrictive covenants shall be
deemed invalid or unenforceable by a
court having jurisdiction over this
Agreement, by reason of being vague or
unreasonable as to duration, or
geographic scope or scope of activities
restricted, or for any other reason,
such covenants shall be considered
divisible as to such portion and such
covenants shall be immediately amended
and reformed to include only such
covenants as are deemed reasonable and
enforceable by the court having
jurisdiction over this Agreement to the
full duration, geographic scope and
scope of restrictive activities deemed
reasonable and thus enforceable by said
court; and the parties agree
that such covenants as so amended and
reformed, shall be valid and binding-as
though the invalid or unenforceable
portion has. not been included therein.
6.10.06 The provisions of this Section
6.10 shall survive the early termination
of the Term by reason of a transfer of
title to the Mortgaged Property as
described in the first paragraph of this
Section 6.10 and any satisfaction of the
Loan Obligations in connection therewith
or subsequent thereto. The parties
hereto acknowledge and agree that any
Purchaser may enforce the provisions of
this Section 6.10, as a third party
beneficiary.
6.11 ERISA.
The Borrower shall not establish or permit
any Lessee to establish any new pension or defined
benefit plan or modify any such existing plan for
employees subject to ERISA, which plan provides
any benefits based on past service without the
advance consent of the Lender to the amount of the
aggregate past service liability thereby created,
which consent shall not be unreasonably withheld.
6.12 FORGIVENESS OF INDEBTEDNESS.
The Borrower will not waive, or permit any
Manager or Lessee which is an Affiliate to waive
any debt or claim, except in the ordinary course
of its business.
6.13 VALUE OF ASSETS.
Except as disclosed in the financial
statements provided to the Lender as of the date
hereof, the Borrower will not write up (by
creating an appraisal surplus or otherwise) the
value of any of its assets above their cost to the
Borrower, less the depreciation regularly
allowable thereon.
6.14 CHANGES IN FISCAL YEAR AND ACCOUNTING
PROCEDURES.
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Upon notice to Lender, Borrower may (a)
change its fiscal year or capital structure or (b)
change, alter, amend or in any manner modify in
accordance with GAAP any of its current accounting
procedures related to the method of revenue
recognition, billing procedures or determinations
of doubtful accounts or bad debt expenses or
permit any of its Subsidiaries to so change its
fiscal year, provided that, in the event of such
change, modification or alteration, Borrower and
Lender shall make such adjustments to the
calculation of Additional Interest and the
financial covenants contained herein as Lender
shall reasonably require to make the same
consistent in result with the calculation thereof
immediately prior to such change, modification or
alteration.
6.15 CHANGES IN EXECUTIVE OFFICERS.
Intentionally Omitted.
6.16 THE BORROWER'S AGREEMENTS TO PERFORM CERTAIN
OBLIGATIONS.
The Borrower agrees faithfully to perform,
pay and observe all agreements, covenants,
indebtedness, obligations and liabilities of the
Borrower to the Lender, whether such agreements,
covenants, indebtedness, obligations and
liabilities are direct or indirect, absolute or
contingent, due or to become due, existing or
hereafter arising, including, without limitation,
all of the Borrower's obligations under all of the
Loan Documents. The payment of all obligations and
the performance of all covenants of and agreements
by the Borrower under the Loan Documents shall be
absolute and unconditional, irrespective of any
defense or any rights of set-off, recoupment or
counterclaim the Borrower might otherwise have
against the Lender, and the Borrower shall pay
absolutely net during the Term all payments to be
made as prescribed in the all of the Loan
Documents, free of any deductions and without
abatement, diminution or set-off.6.17
Participation in Third Party Payor Programs.
If the Borrower shall participate in a Third
Party Payor Program, Borrower shall remain
eligible to participate in such Third Party Payor
Programs, in accordance with all requirements
thereof (including, without limitation, all
applicable Provider Agreements), if and to the
extent remaining eligible shall be necessary for
the prudent operation of the Facility in the good
faith exercise of commercially reasonable business
judgment.
6.18 NO DEFAULT.
Intentionally Omitted
6.19 INTENTIONALLY OMITTED.
6.20 COVENANTS REGARDING MORTGAGED PROPERTY.
6.20.01 IMPOSITIONS.
A. Subject to the provisions of Section 9
hereof, the Borrower shall pay, or cause
to be paid, before any fine, penalty,
interest or cost may be added for non-
payment, all real estate taxes, ground
rents, sewer rents, water charges and
all other municipal and Governmental
assessments, fees (including, without
limitation, license, permit, inspection,
authorization and similar fees), taxes,
rates, charges, impositions, levies,
liabilities, obligations, special
assessments and
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Liens of every kind and nature
(hereinafter collectively referred to as
the "Impositions") that now or hereafter
may be imposed, suffered, placed,
assessed, levied or filed at any time,
upon (i) the Borrower, (ii) the
Borrower's interest in the Mortgaged
Property, (iii) the Mortgaged Property
or any Rent therefrom or any estate,
right, title or interest therein, (iv)
any occupancy, leasing, operation, use
or possession of, sales from, or
activity conducted on, or in connection
with, the Mortgaged Property and/or (v)
the Lender, but only to the extent that
any Imposition is imposed upon the
Lender as a result of the Loan
transaction, or which by any legal
Requirement may have priority over the
indebtedness secured either in lien or
in distribution out of the proceeds of
any judicial sale of the Mortgaged
Properly (without regard to any law
heretofore or hereafter enacted imposing
payment in whole or in part upon the
Lender). Notwithstanding the foregoing,
nothing contained in this Agreement
shall be construed to require Borrower
to pay (x) any tax based on net income
(whether denominated as a franchise or
capital stock or other tax) imposed on
Lender or any other Person, except
Borrower or its successors, (y) any net
revenue tax of Lender or any other
Person, except Borrower and its
successors, (z) any tax imposed with
respect to the sale, exchange or other
disposition by Lender of the Mortgaged
Property or the proceeds thereof.
Furthermore, if any such Imposition is
of record, the same shall be promptly
satisfied and discharged of record and
evidence of such discharge of record
(satisfactory to the Lender) shall be
forwarded to the Lender on or before the
date required hereunder for payment of
such Imposition. If any Imposition is
not paid within the time hereinabove
specified, the Lender shall have the
right, but not the obligation, to pay
the same, together with any penalty and
interest thereon, and any amount so paid
or advanced by the Lender and all costs
and expenses reasonably incurred in
connection therewith (including, without
limitation, attorneys' fees and expenses
and court costs), shall be a demand
obligation of the Borrower to the
Lender, and to the extent permitted by
applicable law, shall be added to the
Loan Obligations and shall be secured by
the Liens created by the Loan Documents
as fully and effectively and with the
same priority as every other obligation
of the Borrower secured thereby and, if
not paid within ten (10) days after
demand, shall thereafter, to the extent
permitted by applicable law, bear
interest at the Advances Rate until the
date of payment.
B. The Borrower hereby assigns to
the Lender all rights of the Borrower
now or hereafter arising in and to the
refund of any Imposition and any
interest thereon. If, at the time of
receipt of any such refund by the
Lender, a Loan Default or a Related
Party Default has occurred, then the
Lender may apply said refund in
reduction of the Obligations; otherwise,
the Lender shall promptly forward any
such refund to the Borrower.
C. If any such Imposition may, at the
option of the taxpayer, lawfully be paid
in installments (whether or not interest
shall accrue on the unpaid balance of
such Imposition), Borrower may exercise
the option to pay the same (and any
accrued interest on the unpaid balance
of such
32
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Imposition) in installments
and, in such event, shall pay such
installments during the term of this
Agreement (subject to Borrower's right
to contest) as the same respectively-
become due and before any fine, penalty,
premium, further interest or cost
may be added thereto.
6.20.02 TAX DEPOSITS.
A. At the option of the Lender, upon the
occurrence of an event or circumstance
which, with the giving of notice or the
passage of time would constitute a Loan
Default, the Borrower shall, upon the
written request of Lender, deposit with
the Lender, on the first day of the
calendar month immediately following
such request and on the first day of
each calendar month thereafter (each of
which dates is hereinafter referred to
as a "Monthly Tax Deposit Date") until
the payment in full of the Loan
Obligations, a sum equal to one twelfth
(1/12) of the Impositions to be levied,
charged, filed, assessed or imposed upon
or against the Mortgaged Property within
one (1) year after said Monthly Tax
Deposit Date. If the amount of the
Impositions to be levied, charged,
assessed or imposed within the ensuing
one (1) year period shall not be fixed
upon any Monthly Tax Deposit Date, such
amount for the purpose of computing the
tax deposit to be made by the Borrower
hereunder shall be estimated by the
Lender, with an appropriate adjustment
to be promptly made between the Borrower
and the Lender as soon as the fixed
amount of such Impositions is
determinable.
B. The sums deposited by the Borrower under
this Section 6.20.02 shall be held by
the Lender and shall be applied toward
the payment of the Impositions when due.
Any such deposits may be commingled with
other assets of the Lender and shall be
invested by the Lender at such bank as
the Lender from time to time may select,
and the Lender shall not be liable to
the Borrower or any other Person based
on the Lender's choice of investment
vehicles, any consequent loss of
principal or interest or any
unavailability of funds based on such
choice of investment; provided, however,
that notwithstanding the foregoing, the
Lender shall only invest any such
deposit in any of the investment
vehicles described on Exhibit A of the
Deposit Pledge Agreement. Furthermore,
the Lender shall bear no responsibility
for the financial condition of, or any
act or omission by, the Lender's
depository bank. The income from such
investment or interest on such deposit
shall accrue for the benefit of the
Borrower. The Borrower shall give not
less than ten (10) days' prior written
notice to the Lender in each instance
when an Imposition is due, specifying
the Imposition to be paid and the amount
thereof, the place of payment and the
last day on which the same may be paid
in order to be within the time limit
specified above.
C. If for any reason the sums on
deposit with the Lender under this
Section. 6.20.02 shall not be sufficient
to pay an Imposition within the time
specified in this Section, then, within
ten (10) days after demand by the Lender
the Borrower shall deposit sufficient
sums so that the Lender may pay such
Imposition in full, together with any
33
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penalty and interest thereof. The
Lender may change its estimate of any
Imposition for any period on the basis
of a change in an assessment or tax rate
or on the basis of a prior
miscalculation or for any other good
faith reason; in which event, within ten
(10) days after demand by the Lender,
the Borrower shall deposit with the
Lender the amount in excess of the sums
actually deposited which would
theretofore have been payable under the
revised estimate.
D. If any Imposition shall be levied,
charged, filed, assessed or imposed upon
or against the Mortgaged Property and if
such Imposition shall also be a levy,
charge, assessment or imposition upon or
for any other real or personal property
not covered by the Liens created by the
Loan Documents, then the computation of
the amounts to be deposited under this
Section 6.20.02 shall be based upon the
entire amount of such Imposition and the
Borrower shall not have the right to
apportion any deposit with respect to
such Imposition.
E. Upon an assignment of the Mortgage by
the Lender, the Lender shall transfer
all amounts deposited pursuant to the
provisions of this Section 6.20.02 that
are then in its possession to such
assignee (as the subsequent holder of
the Mortgage) and the original Lender
named herein shall thereupon be
completely released from all liability
with respect to such tax deposits so
transferred and the Borrower shall look
solely to said assignee (as the
subsequent holder of the Mortgage) in
reference thereto. The Lender shall
provide written notice to the Borrower
of any such assignment of the Mortgage
and any such transfer of tax deposits.
F. All amounts deposited with the Lender
pursuant to the provisions of this
Section 6.20.02 shall be held by the
Lender as additional security for the
sums secured by the Liens created by the
Loan Documents and, upon the occurrence
of any Loan Default, the Lender may, in
its sole and absolute discretion, apply
said amounts toward payment of the Loan
Obligations. Upon the complete payment
and performance of the Loan Obligations,
any sums then held by the Lender under
this Section 6.20.02 shall be refunded
to the Borrower; unless a Related Party
Default has occurred, in which event
such sums may be applied toward the
Obligations.
G. The Borrower shall deliver to the Lender
copies of all notices, demands, claims,
bills and receipts in relation to the
Impositions immediately upon the earlier
to occur of (1) ten (10) days following
receipt thereof by Borrower and (2)
prior to the date when such Imposition
is due and payable.
6.20.03 CHANGE IN TAXES.
A. In the event any tax (other than any
income tax or franchise tax assessed
against the Lender, except to the extent
that any such tax is assessed against
the Lender in lieu of any other
Imposition that would have otherwise
been assessed against the Borrower or
the Mortgaged Property) shall be due or
become due and payable to any
Governmental Authority with respect to
the execution and delivery or
recordation of
34
<PAGE>
any of the Loan Documents or the
interest of the Lender in the Mortgaged
Property, the Borrower shall pay such
tax at the time and in the manner
required by applicable law (without
regard to whether any such tax is
imposed in whole or in part on the
Lender) and the Borrower shall and
hereby agrees to hold harmless, defend
(with counsel reasonably acceptable to
the Lender) and indemnify the Lender
against any liability of any nature
whatsoever as a result of the imposition
of any such tax. Notwithstanding the
foregoing, the Lender shall have the
option of conducting its own defense
with counsel of its own choice. If
Lender reasonably believes that Borrower
is not performing its obligations to
defend Lender in a manner reasonably
satisfactory to Lender. Furthermore, the
aforesaid indemnification agreement
shall include, without limitation,
reasonable attorneys' fees and expenses
and court costs reasonably incurred by
the Lender in connection with the
imposition of any such taxes and the
enforcement of said indemnification
agreement. The Borrower shall not claim
any credit on, or make any deduction
from, the Obligations by reason of the
payment of any such tax;
B. If any Legal Requirement becomes
effective after the date hereof changing
(in any manner) any of the present Legal
Requirements as to the taxation of notes
or debts secured by mortgages, for
federal, state or local purposes, or the
manner of collection of any Impositions,
so as to affect any of the Loan
Documents, then, upon demand, the
Borrower shall make such payments to the
Lender and take such other steps as may
be necessary or desirable in the
Lender's reasonable discretion, to place
the Lender in the same financial
position as it was in prior to any such
enactment; failing which, at the option
of the Lender and upon demand, the Loan
Obligations shall become due and payable
upon six (6) months' prior written
notice to the Borrower. In the event of
any such acceleration of the Loan
Obligations, provided that a Loan
Default has not occurred, the Borrower
shall not be required to pay the Lender
a Prepayment Fee.
C. The indemnity provisions of this 6.20.03
shall survive the complete payment and
performance of the Obligations and the
foreclosure of the Mortgage.
D. Notwithstanding the foregoing, nothing
contained in this Agreement shall be
construed to require Borrower to pay (x)
any tax based on net income (whether
denominated as a franchise or capital
stock or other tax) imposed on Lender or
any other Person, except Borrower or its
successors, (y) any net revenue tax of
Lender or any other Person, except
Borrower and its successors or (z) any
tax imposed with respect to the sale;
exchange or. other disposition by Lender
of the Mortgaged Property or the
proceeds thereof.
6.20.04 INTENTIONALLY OMITTED.
6.20.05 USE; COMPLIANCE WITH LAW.
A. At all times until the Loan
Obligations are fully paid and performed
and the Mortgage is discharged, the
Mortgaged Property shall be
35
<PAGE>
maintained in good order,
repair and condition, and the Borrower
expressly agrees that it will neither
permit nor suffer any waste upon the
Mortgaged Property, nor cause or permit
any nuisance thereon. Subject to the
provisions of Section 8 hereof, no
additional Improvement may be
constructed on the Land, nor may any
Improvement on the Land be materially
altered, removed or demolished without
the prior written consent of the Lender
in each instance, which consent may be
withheld in the Lender's reasonable
discretion. Without limiting any of the
Lender' s other rights of entry pursuant
to the terms of the Mortgage or any of
the other Loan Documents, the Borrower
shall permit the Lender to enter the
Mortgaged Property at any reasonable
time and upon reasonable notice (except
in the case of an emergency) to
determine whether the Borrower and the
Mortgaged Property are in compliance
with the provisions of this Section
6.20.05.
B. Subject to the provisions of
Section 8 hereof, the Borrower covenants
that the Mortgaged Property shall be
continuously operated in accordance with
its Primary Intended Use (unless such
operations are temporarily interrupted
as a result of any Casualty or any
permitted renovations or repairs to the
Facility) and Other Permitted Uses. The
Borrower shall not allow the Mortgaged
property to be used for any use other
than its Primary Intended Use and such
Other Permitted Uses, without the prior
written consent of the Lender in each
instance, which consent may be withheld
in the Lender's sole and absolute
discretion.
C. No use shall be made or
permitted to be made of the Mortgaged
Properly and no acts shall be done which
cause the cancellation of any insurance
policy required pursuant to the terms of
this Agreement, nor shall the Borrower,
any Manager of any other Person sell or
otherwise provide to residents, other
occupants or invitees therein, or permit
to be kept, used or sold in or about the
Mortgaged Property any article which may
be prohibited by any Legal Requirement
or by the standard form of fire
insurance policies, any other insurance
policies required to be carried
hereunder or fire underwriters'
regulations.
D. The Borrower shall not initiate,
join in or consent to any zoning changes
affecting the Mortgaged Property nor
initiate, join in or consent to any
private restrictive covenant or other
public or private restriction upon the
use of the Mortgaged Property without
the Lender's prior written consent, in
each instance, which consent shall not
unreasonably be withheld.
E. Upon the request of the Lender,
at any time and from time to time while
this Agreement remains in full force and
effect, the Borrower shall engage
independent professional consultants,
engineers and inspectors (qualified to
do business in the state where the
Mortgaged Property is located and
acceptable to the Lender) to perform any
environmental and structural
investigations and other inspections of
the Mortgaged Property as the Lender may
request in order to detect (a) any
structural deficiencies in the
Improvements or the utilities servicing
the Mortgaged Property or (b) the
presence of any condition that may be
harmful to the environment or present a
health hazard to the
36
<PAGE>
residents and/or the other
occupants of the Facility. In the event
that the Lender determines that the
results of such investigations and
inspections are unsatisfactory, within
thirty (30) days of notice from the
Lender, the Borrower shall undertake
such appropriate remedial actions as may
be reasonably requested by the Lender to
correct any such unsatisfactory
conditions, and shall thereafter
diligently and continuously prosecute
such remedial actions to completion;
provided, however, that in the event
results of any such testing or
inspection reflect the same satisfactory
results as the results of a similar
testing or inspection initiated by
Lender within the prior twelve (12)
month period, the costs and expenses of
such testing or inspection shall be the
responsibility of Lender.
F. Borrower will maintain, and
cause any Lessee and any Manager to
maintain, experienced and competent
professional management with respect to
its business and with respect to the
Mortgaged Property. Borrower, any Lessee
and any Manager shall conduct, in the
ordinary course, the operation of the
Facility, and Borrower and any Lessee
which is an Affiliate of Borrower shall
not enter into any other business or
venture during the Term other than
activities in which Borrower or such
Lessee are permitted to engage by the
provisions of the Meditrust/Emeritus
Transaction Documents.
G. Borrower and the Mortgaged
Properly and all uses thereof shall
comply with (i) all applicable Lega1
Requirements (except to the extent being
duly contested in accordance with the
terms hereof, (ii) all Permits and
Contracts, (iii) all Insurance
Requirements, (iv) the Loan Documents,
and (v) the Permitted Encumbrances.
H. At all times for so long -as the
Loan Obligations remain outstanding, all
utilities necessary for the use and
operation of the Facility shall be
available to the lot lines of the
Mortgaged Property: (i) in sufficient
supply-and capacity; (ii) through
validly created and existing easements
of record appurtenant to or encumbering
the Mortgaged Property (which easements
shall not impede or restrict the
operation of the Facility); and (iii)
without need for any Permits and
Contracts required to be issued by or
entered into with any Governmental
Authority, except as already obtained or
executed, as the case may be, or as
otherwise shown, to the satisfaction of
the Lender, to be readily obtainable.
6.21 MANAGEMENT AGREEMENTS.
From and after the date hereof; neither the
Borrower nor any Lessee shall enter into any
Management Agreement without the prior written
consent of the Lender, in each instance, which
consent will not be unreasonably withheld. There.
shall be no change in the ownership or control
(directly or indirectly) of any Manager under any
Management Agreement without the prior written
consent of the Lender, in each instance, which
consent shall not be unreasonably withheld. The
Borrower and any Lessee, at their sole cost and
expense, promptly and fully perform or cause to be
performed every covenant, condition, promise and
obligation of the owner of the Mortgaged Property
or such Lessee under any Management Agreement.
Neither the Borrower nor any Lessee shall cancel
(other than in connection with the exercise by the
Borrower or the Lessee of any of its
37
<PAGE>
remedies under the Management Agreement as a
result of any default by the Manager thereunder),
transfer or assign or amend, in any material
respect, any Management Agreement or consent to
the cancellation (other than in connection with
the exercise by the Borrower or the Lessee of any
of its remedies under the Management Agreement as
a result of any default by the Manager
thereunder), transfer or assignment or material
amendment of any Management Agreement by any party
thereto, without the prior written consent of the
Lender, in each instance, which consent shall not
be unreasonably withheld.
Each Management Agreement shall provide that
the Lender shall be provided notice of any
defaults thereunder and, at the Lender's option,
an opportunity to cure such default. The Borrower
or any Lessee shall furnish to the Lender, within
three (3) days after receipt thereof, or after the
mailing or service thereof by the Borrower or any
Lessee, as the case may be, a copy of each notice
of default which the Borrower or any Lessee shall
give to; or receive from any Person, based upon
the occurrence, or alleged occurrence, of any
default in the performance of any covenant,
condition, promise or obligation under any
Management Agreement.
Whenever and as often as the Borrower or any
Lessee shall. fail to perform, promptly and fully,
at their sole cost and expense, any covenant,
condition, promise or obligation on the part of
the owner of the Mortgaged Property or a Lessee
thereof under and pursuant to any Management
Agreement, the Lender, or a lawfully appointed
receiver of the Mortgaged Property, may, at their
respective Options (and without any obligation to
do so), after five (5) days' prior notice to the
Borrower (except in the case of an emergency)
enter upon the Mortgaged Property and perform, or
cause to be performed, such work, labor, services,
acts or things, and take such other steps and do
such other acts as they may deem advisable, to
cure such defaulted covenant, condition, promise
or obligation, and any amount so paid or advanced
by the Lender or such receiver and all costs and
expenses reasonably incurred in connection
therewith (including, without limitation,
attorneys' fees and expenses and court costs),
shall be a demand obligation of the Borrower to
the Lender or such receiver, and, to the extent
permitted by applicable law, shall be added to the
Loan Obligations and shall be secured by the Liens
created by the Mortgage and the other Loan
Documents as fully and effectively and with the
same priority as every other obligation thereunder
and, if not paid within ten (10) days after
demand, shall thereafter, to the extent permitted
under applicable law, bear interest at the
Advances Rate until the date of payment.
6.22 ACQUISITION OF ADDITIONAL PROPERTY.
In the event that at any time during the Term
the Borrower holds the fee title to or a leasehold
interest in any real property and/or personal
property which is used in any way in connection
with the Facility (but is not subject to the liens
created by the Mortgage), the Borrower shall (a)
provide the Lender with prior notice of such
acquisition and (b) shall take such actions and
enter into such agreements (substantially similar
to the Loan Documents) as the Lender shall
reasonably request in order to grant the Lender a
first priority mortgage or other security interest
in such real property and personal property,
subject only to the Permitted Encumbrances.
Without limiting the foregoing, it is acknowledged
and agreed that all revenues generated from the
operation of such additional real property shall
be included in the determination of Gross Revenues
(subject to such adjustments as agreed upon in
Section 3.8.04).
38
<PAGE>
6.23 ACCEPTABLE LICENSED OPERATOR.
Intentionally Omitted.
6.24 ANNUAL FACILITY UPGRADE EXPENDITURES.
Borrower shall spend an amount equal to the
Annual Facility Upgrade Expenditure on Upgrade
Renovations to the Facility each Loan Year
commencing with the third Loan Year. Borrower will-
furnish and shall cause to be furnished to Lender
evidence satisfactory to Lender that Borrower has
fulfilled its obligation to make the Annual
Facility Upgrade Expenditure within ninety (90)
days after the end of Borrower's fiscal year.
6.25 REPAIRS; RESTRICTIONS.
6.25.1 BORROWER'S RESPONSIBLITIY. Borrower,
at its sole cost and expense, shall keep the
Mortgaged Property and all private roadways,
sidewalks and curbs appurtenant thereto which
are under Borrower's control in good order
and repair (whether or not the need for such
repairs occurs as a result of Borrower's use,
any prior use, the elements or the age of the
Mortgaged Property or such private roadways,
sidewalks and curbs or any other cause
whatsoever other than Lender's gross
negligence or willful misconduct) and,
subject to Sections 6.26 and 8.2, Borrower
shall promptly, with the exercise of all
reasonable efforts, undertake and diligently
complete all necessary and appropriate
repairs, replacements, renovations,
restorations, alterations and modifications
thereof of every kind and nature, whether
interior or exterior, structural or non-
structural, ordinary or extraordinary,
foreseen or unforeseen or arising by reason
of a condition (concealed or otherwise)
existing at any time and thereafter until the
Loan Obligations have been fully paid and
performed. In addition, Borrower, at its sole
cost and expense, shall make all repairs,
modifications, replacements, renovations and
alterations of the Mortgaged Property (and
such private roadways, sidewalks and curbs)
that are necessary to comply with all
applicable Legal Requirements and Insurance
Requirements so that the Mortgaged Property
can be legally operated for the Primary
Intended Use and, if applicable, the Other
Permitted Uses. All repairs, replacements,
renovations, alterations, and modifications
required by the terms of this Section 6.25
shall be (a) performed in a good and
workmanlike manner in compliance with all
applicable Legal Requirements, Insurance
Requirements and the requirements of Article
6.26 hereof, using new materials well suited
for their intended purpose and (b) consistent
with the operation of the Facility in a
reputable manner. Borrower 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 Mortgaged
Property for the Primary Intended Use and, if
applicable, the Other Permitted Uses. To the
extent that any of the repairs, replacements,
renovations, alterations or modifications
required by the terms of this Section 6.25
constitute Material Structural Work, Borrower
shall obtain Lender's prior written approval
(which approval shall not be unreasonably
withheld) of the specific repairs,
replacements, renovations, alterations and
modifications to be performed by or on behalf
of Borrower in connection with such Material
Structural Work. Notwithstanding the
foregoing, in the event of a bona fide
emergency during which Borrower is unable to
contact the appropriate representatives of
Lender, Borrower may commence such Material
Structural
39
<PAGE>
Work as may be necessary in order to address
such emergency without Lender's prior
approval, provided, however, that Borrower
shall immediately thereafter advise Lender of
such emergency and the nature and scope of
the Material Structural Work commenced and
shall obtain Lender's approval of the
remaining Material Structural Work to be
completed.
6.25.2 NO LENDER OBLIGATION. Lender shall
not, under any circumstances, be required to
build or rebuild any improvements on the
Mortgaged Property (or any private roadways,
sidewalks or curbs appurtenant thereto), or
to make any repairs, replacements,
renovations, alterations, restorations,
modifications, or renewals of any. nature or
description to the Mortgaged Property (or any
private roadways, sidewalks or curbs
appurtenant thereto), whether ordinary or
extraordinary, structural or non-structural,
foreseen or unforeseen, or to make any
expenditure whatsoever with respect thereto
in connection with this Loan Agreement, or to
maintain the Mortgaged Property (or any
private roadways, sidewalks or
curbs appurtenant thereto) in any way.
6.25.3 BORROWER MAY NOT OBLIGAE LENDER.
Nothing contained herein nor any action or
inaction by Lender shall be construed as (a)
constituting the consent or request of
Lender, express or implied, to any
contractor, subcontractor, laborer,
materialman or vendor to or for the
performance of any labor or services for any
construction, alteration, addition, repair or
demolition of or to the Mortgaged Property or
(b) except as otherwise provided in this Loan
Agreement, giving Borrower 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 Lender for the payment
thereof or to make any agreement that may
create, or in any way be the basis for, any
right, title or interest in, or Lien or claim
against, Lender.
6.25.4 ENCROACHMENTS: TITLE RESTRICTIONS. If
any of the Improvements shall, at any time,
encroach upon any property, street or right-
of way adjacent to the Mortgaged Property, or
shall violate the agreements or conditions
contained in any lawful restrictive covenant
or other Lien now or hereafter affecting the
Mortgaged Property, or shall impair the
rights of others under any easement, right-of
way or other Lien to which the Mortgaged
Property is now or hereafter subject, then
promptly upon the request of Lender, Borrower
shall, at its sole cost and expense, subject
to Borrower's right to contest the existence
of any encroachment, violation or impairment
as set forth in Section 9, (a) obtain valid
and effective waivers or settlements of all
claims, liabilities and damages resulting
from each. such encroachment, violation or
impairment or (b) make such alterations to
the Improvements, and take such other
actions, as Borrower 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 Improvements. Notwithstanding the
foregoing, Borrower shall, in any event, take
all such actions as may be reasonably
necessary in order to be able to continue the
operation of the Improvements for the Primary
Intended Use and, if applicable, the Other
Permitted Uses substantially in the manner
and to the extent that the Improvements were
operated prior to the assertion of such
encroachment, violation or impairment and
nothing contained herein shall limit
Borrower's obligations to operate the
Property in accordance with its Primary
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Intended Use. Any such alteration made
pursuant to the terms of this Section 6.25.4
shall be completed in conformity with the
applicable requirements of Section 6.25.1 and
Section 6.26. Borrower's obligations under
this Section 6.25.4 shall be in addition to
and shall in no way discharge or diminish any
obligation of any insurer under any policy of
title or other insurance. If and to the
extent any obligation of an insurer under any
policy of title or other insurance exists and
Borrower has incurred costs and expenses with
respect to the subject matter of such
obligation and provided Lender is reasonably
satisfied with the resolution of such subject
matter, at the request of Borrower, Lender,
at Lender's option, shall either assign to
Borrower any right it may have to proceed
against such insurer or remit to Borrower any
amount which Lender recovers from such
insurer, minus any amounts needed to
reimburse Lender for its reasonable costs and
expenses, for the costs and expenses incurred
by Borrower in reconstructing the Facility or
taking such other action reasonably required
in order to create a viable and functional
Facility under all of the circumstances.
6.26 MATERIAL STRUCTURAL WORK; CAPITAL ADDITIONS.
6.26.1 LENDER'S APPROVAL. Without the prior
written consent of Lender, which consent may be
withheld by Lender, in its sole and absolute
discretion, Borrower shall make no Capital
Addition or Material Structural Work to the
Mortgaged Property (including, without limitation,
any change in the size or unit capacity of the
Facility), except as may be otherwise expressly
required pursuant to Section 6.25.
6.26.2 GENERAL PROVISIONS AS TO CAPITAL
ADDITIONS AND CERTAIN MATERIAL STRUCTURAL WORK. As
to any Capital Addition or Material Structural
Work (other than such Material Structural Work
that is required to be performed pursuant to the
terms of Section 6.25) for which Lender has
granted its prior written approval, the following
terms and conditions shall apply unless otherwise
expressly set forth in Lender's written approval.
A. NO LIENS. Borrower shall not be
permitted to create any Lien on the Mortgaged
Property in connection with any Capital
Addition or Material Structural Work
(including, without limitation, Liens
relating to the provision of financing for a
Capital Addition) other than Liens expressly
permitted by the terms and provisions of this
Loan Agreement.
B. BORROWER'S PROPOSAL REGARDING CAPITAL
ADDITIONS AND MATERIAL STRUCTURAL WORK. If
Borrower desires to undertake any Capital
Addition or Material Structural Work,
Borrower shall submit to Lender in writing a
proposal setting forth in reasonable detail
any proposed Capital Addition or Material
Structural Work and shall provide to Lender
copies of, or information regarding, the
applicable plans and specifications, Permits,
Contracts and any other materials concerning
the proposed Capital Addition or Material
Structural Work, as the case may be, as
Lender may reasonably request. Without
limiting the generality of the foregoing,
each such proposal pertaining to any Capital
Addition shall indicate the approximate
projected cost of constructing such Capital
Addition, the use or uses to which it will be
put and a good faith estimate of the change,
if any, in the Gross Revenues that Borrower
anticipates will result from the construction
of such Capital Addition.
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C. LENDER'S OPTIONS REGARDING CAPITAL
ADDITIONS AND MATERIAL STRUCTURAL WORK.
Lender shall have the options of: (a) denying
permission for the construction of the
applicable Capital Addition or Material
Structural Work, (b) offering to finance the
construction of the Capital Addition pursuant
to Section 626.3 on such terms as may be
specified by Lender, including the terms of
any amendment to this Loan Agreement,
including, without limitation, an increase in
Loan Amount based on Lender's then existing
terms and prevailing conditions, (c) allowing
Borrower to separately pay for or finance the
construction of the Capital Addition, subject
to compliance with the terms and conditions
of Section 6.25, Section 6.26, Section
8.2.03, all applicable Legal Requirements,
all other requirements of this Loan Agreement
and to such other terms and conditions as
Lender may in its discretion reasonably
impose or (d) any combination of the
foregoing. Unless Lender notifies Borrower in
writing of a contrary election within thirty
(30) days of Borrower's request or unless
Lender is required to consent thereto
pursuant to this Section 6.26, Lender shall
be deemed to have denied the request for the
Capital Addition or Material Structural Work.
In the event and to the extent Lender has
granted permission for the construction of
the applicable Capital Addition or Material
Structural Work and (x) Lender has not
offered to finance the construction of the
same or (y) Borrower declines to accept the
financing offered by Lender, Borrower may
separately finance such construction,
.subject to the limitation on Liens set forth
in Section 6.26.2A, or pay for such
construction itself. In the event Borrower
declines to accept the financing offered by
Lender or if Lender has not offered such
financing to Borrower and proposes to
obtaining financing from another Person,
Borrower shall inform Lender in writing of
the terms and conditions of such financing
and shall provide Lender with a copy of a
commitment letter evidencing the same and
Lender may, by giving notice thereof to
Borrower within twenty (20) days following
being so informed, elect to provide financing
to Borrower at the effective rate of interest
as such financing. Lender shall not
unreasonably withhold its permission for the
construction of Material Structural Work
which is necessary to protect the safety or
welfare of residents of the Facility.
6.26.3 LENDER MAY ELECT TO FINANCE CAPITAL
ADDITIONS. If Lender elects to- offer financing
for the proposed Capital Addition and Borrower
accepts Lender's financing proposal, the
provisions of Section 6.26 shall apply.
A. ADVANCES. All advances of funds for
any such financing shall be made in
accordance with Lender's then standard
construction loan requirements and
procedures, which may include, without
limitation, the requirements and procedures
applicable to Work under Section 8.2.03.
B. LENDER'S GENERAL REQUIREMENTS. If
Lender agrees to finance the proposed Capital
Addition and Borrower accepts Lender's
proposal therefor, in addition to all other
items which Lender or any applicable
Financing Party may reasonably require,
Borrower shall provide to Lender the
following:
(a) prior to any advance of funds,
(i) any information, opinions,
certificates, Permits or documents
reasonably requested by Lender or any
applicable Financing Party which are
necessary to confirm that Borrower is
reasonably expected to be able to use
the Capital Addition upon completion
thereof in accordance with the
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Primary Intended Use and/or, if
applicable, the Other Permitted Uses and
(ii) evidence satisfactory to Lender and
any applicable Financing Party that all
Permits required for the construction
and use of the Capital Addition have
been received, are in full force and
effect and are not subject to appeal,
except only for those Permits which
cannot in the normal course be obtained
prior to commencement or completion of
the construction; provided, that, Lender
and any applicable Financing Party are
furnished with reasonable evidence that
the same is reasonably expected to be-
available in the normal course of
business without unusual condition;
(b) prior to any advance of funds,
an Officer's Certificate and, if
requested, a certificate from Borrower's
architect, setting forth in reasonable
detail the projected (or actual, if
available) Capital Addition Cost;
(c) a mortgage, deed of trust or
similar instrument granting Lender a
mortgage lien on the land acquired for
the purpose of construction of Capital
Additions ("Additional Land");
(d) upon completion of the Capital
Addition, a final as-built survey
thereof reasonably satisfactory to
Lender, if required by Lender;
(e) during and following the
advance of funds and the completion of
the Capital Addition, endorsements to
any outstanding policy of title
insurance covering the Mortgaged
Property satisfactory in form and
substance to Lender (i) updating the
same without any additional exception
except as may be reasonably permitted by
Lender and (ii) increasing the coverage
thereof by an amount equal to the Fair
Market Value of the Capital Addition
and/or increasing the coverage thereof
by an amount equal to the fair market
value of the Additional Land and
including the Additional Land in the
premises covered by such title insurance
policy;
(f) simultaneous with the initial
advance of funds, if appropriate, (i)
Lender's policy of title insurance
insuring Borrower's fee simple title to
any Additional Land free and clear of
all Liens except those approved by
Lender and (ii) an owner's policy of
title insurance and a lender's policy of
title insurance reasonably satisfactory
in form and substance to Lender;
(g) following the completion of the
Capital Addition, if reasonably deemed
necessary by Lender, an appraisal of the
Mortgaged Property by an M.A.I.
appraiser acceptable to Lender, which
states that the Fair Market Value of the
Mortgaged Property upon completion of
the Capital Addition exceeds the Fair
Market Value of the Mortgaged Property
prior to the commencement of such
Capital Addition by an amount not less
than one hundred twenty-five percent
(125%) of the Capital Addition Cost; and
(h) during or following the
advancement of funds, prints of
architectural and engineering drawings
relating to the Capital Addition and
such other materials, including, without
limitation, the
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modifications to outstanding policies of
title insurance contemplated by
subsection (e) above, opinions of
counsel, appraisals, surveys, certified
copies of duly adopted resolutions of
the board of directors of Borrower
authorizing the execution and delivery
of all amendments and any other
documents and instruments as may be
reasonably required by Lender and any
applicable Financing Party.
C. PAYMENT OF COSTS. By virtue of making
a request to finance a Capital Addition,
whether or not such financing is actually
consummated, Borrower shall be deemed to have
agreed to pay, upon demand, all costs and
expenses reasonably incurred by Lender and
any Person participating with Lender in any
way in the financing of the Capital Addition
Cost, including, but not limited to (a) fees
and expenses of their respective attorneys,
(b) all photocopying expenses, if any, (c)
the amount of any filing, registration and
recording taxes and fees, (d) documentary
stamp taxes and intangible taxes (e) title
insurance charges and appraisal fees.
6.26.4 GENERAL LIMITATIONS. Without in any
way limiting Lender's options with respect to
proposed Capital Additions or Material Structural
Work: (a) no Capital Addition or Material
Structural Work shall be completed that could,
upon completion, significantly alter the character
or purpose or detract from the value or operating
efficiency of the Mortgaged Property, or
significantly impair the revenue-producing
capability of the Mortgaged Property, or adversely
affect the ability of Borrower to comply with the
terms of this Loan Agreement; (b) no Capital
Addition or Material Structural Work shall be
completed which would tie in or connect any
Improvements on the Mortgaged Property with any
other improvements on property adjacent to the
Mortgaged Property (and not part of the Mortgaged
Property) including, without limitation, tie-ins
of buildings or other structures or utilities,
unless Borrower shall have obtained the prior
written approval of Lender, which approval may be
withheld in Lender's sole and absolute discretion
and (c) all proposed Capital Additions and
Material Structural Work shall be architecturally
integrated and consistent with the Mortgaged
Property.
6.27. NON-CAPITAL ADDITIONS. Borrower shall
have the obligation and right to make repairs,
replacements and alterations which are not Capital
Additions as required by the other Sections of
this Loan Agreement, but in so doing, Borrower
shall always comply with and satisfy the
conditions of Section 6.26. Borrower shall have
the right, from time to time, to make additions,
modifications or improvements to the Mortgaged
Property which do not constitute Capital Additions
or Material Structural Work as it may deem to be
desirable or necessary for its uses and purposes,
subject to the same limits and conditions imposed
under Sections 6.25 and 6.26. The cost of any such
repair, replacement, alteration, addition,
modification or improvement shall be paid by
Borrower and the results thereof shall be included
under the terms of the Mortgage and become a part
of the Mortgaged Property, without payment
therefor by Lender at any time. Notwithstanding
the foregoing, all such additions, modifications
and improvements which affect the structure of any
of the Improvements, or which involve the
expenditure of more than FIFTY THOUSAND DOLLARS
($50,000.00), shall be undertaken only upon
compliance with the provisions of Section 6.26,
all applicable Legal Requirements and all other
applicable requirements of this Loan Agreement;
provided, however, that in the event of a bona
fide emergency during which Borrower is unable to
contact the appropriate representatives of Lender,
Borrower may commence such additions,
modifications and improvements as may be necessary
in order to address such emergency without
Lender's prior approval, as long as Borrower
immediately thereafter
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advises Lender of such emergency and the nature
and scope of the additions, modifications and
improvements performed and obtains Lender's
approval of the remaining work to be completed.
Any such addition, modification and improvement
which affects the structure of any of the
Mortgaged Improvements which is not a Capital
Addition or Material Structural Work shall be
exempt from the requirements of Section 6.26
hereof.
7. THE LENDER'S RIGHT TO MAKE PAYMENTS AND TAKE
OTHER ACTION
The Lender may, after ten ( 10) Business
Days' prior notice to the Borrower of its
intention so to do (except in an emergency when
such shorter notice shall be given as is
reasonable under the circumstances), pay any sums
due or claimed to be due for labor or materials
furnished in connection with the ownership,
construction, development, maintenance,
management, repair, use or operation of the
Mortgaged Property, and any other sums which in
the reasonable opinion of the Lender, or its
attorneys, should be paid, and may take such other
and further action which in the reasonable opinion
of the Lender is necessary in order to secure the
protection and priority of the security interests
granted to the Lender pursuant to the Loan
Documents and the performance of all obligations
under the Loan Documents. The Lender, in its sole
and absolute discretion, may charge any such
payments against any advance that may otherwise be
due hereunder to the Borrower or may otherwise
collect such amounts from the Borrower, and the
Borrower agrees to repay to the Lender all such
amounts, notwithstanding that the aggregate
indebtedness of the Borrower to the Lender
hereunder may exceed the Loan Amount. Any amount
which is not so charged against advances due
hereunder and all costs and expenses reasonably
incurred by the Lender in connection therewith
(including, without limitation, attorneys' fees
and expenses and court costs) shall be a demand
obligation of the Borrower and, to the extent
permitted -by applicable law, shall be added to
the Loan Obligations and secured by the Liens
created by the Loan Documents, as fully and
effectively and with the same priority as every
other obligation of the Borrower thereunder and,
if not paid within ten (10) days after demand,
shall thereafter, to the extent permitted under
applicable law, bear interest at the Advances Rate
until the date of payment.
If the Borrower fails to observe or cause to
be observed any of the provisions of this
Agreement and such failure continues beyond any
applicable notice or cure period provided for
under this Agreement, the Lender or a lawfully
appointed receiver of the Mortgaged Property, at
their respective options, from time to time may
perform, or cause to be performed, any and all
repairs and such other work as they deem necessary
to bring the Mortgaged Property into compliance
with the provisions af this Agreement may enter
upon the Mortgaged Property for any of the
foregoing purposes, and the Borrower hereby waives
any claim against the Lender or such receiver
arising out of such entry or out of any other act
carried out pursuant to this Section. All amounts
so expended or incurred by the Lender and by such
receiver and all costs and expenses reasonably
incurred in connection therewith (including,
without limitation, attorneys' fees and expenses
and court costs), shall be a demand obligation of
the Borrower to the Lender or such receiver, and,
to the extent permitted by law, shall be added to
the Obligations and shall be secured by the Liens
created by the Loan Documents as fully and
effectively and with the same priority as every
other obligation of the Borrower secured
thereunder and, if not paid within ten (10) days
after demand, shall thereafter, to the extent
permitted by applicable law, bear interest at the
Advances Rate until the-date of payment.
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<PAGE>
8. INSURANCE; CASUALTY; TAKING
8.1 GENERAL INSURANCE REQUIREMENTS.
The Borrower shall at its sole cost and
expense keep the Mortgaged Property and the
business operations conducted thereon insured as
set forth below.
8.1.01 TYPES AND AMOUNTS OF INSURANCE.
The Borrower's insurance shall include
the following:
A. property loss and physical damage
insurance on an all-risk basis
(with only such exceptions as the
Lender may in its reasonable
discretion approve) covering the
Mortgaged Property (exclusive of
the Land) for its full replacement
cost, which cost shall be reset
once a year at the Lender's option,
with an agreed-amount endorsement
and a deductible not in excess of
TWENTY FIVE THOUSAND DOLLARS
($25,000.00). Such insurance shall
include, without limitation, the
following coverages: (i) increased
cost of construction, (ii) cost of
demolition, (iii) the value of the
undamaged portion of the Facility
and (iv) contingent liability from
the operation of building laws,
less exclusions provided in the
normal "All Risk" insurance policy.
During any period of construction,
such insurance shall be on a
builder's-risk, completed value,
non-reporting form with permission
to occupy;
B. flood insurance (if the Mortgaged
Property or any portion thereof is
situated in an area which is
considered a flood risk area by the
U.S. Department of Housing and
Urban Development or any other
Governmental Authority that may in
the future have jurisdiction over
flood risk analysis) in limits
reasonably acceptable to the Lender
and subject to the availability of
such flood insurance;
C. boiler and machinery insurance
(including related electrical
apparatus and components) under a
standard comprehensive form,
providing coverage against loss or
damage caused by explosion of steam
boilers, pressure vessels or
similar vessels, now or hereafter
installed on the Mortgaged
Property, in limits reasonably
acceptable to the Lender;
earthquake insurance (if reasonably
deemed necessary by the Lender) in
limits and with deductibles
reasonably acceptable to the
Lender;
E. environmental impairment
liability insurance (if available
on commercially reasonable terms
and deemed reasonably necessary by
Lender) in limits and with
deductibles reasonably acceptable
to the Lender;
F. business interruption
insurance in an amount equal to the
aggregate amount of the principal
and interest payments to be made in
one year under the Note plus the
aggregate sum of the
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Impositions relating to
the Mortgaged Property due and
payable during one (1) year;
G. commercial general public
liability insurance including
coverages commonly found in the
Broad Form Commercial Liability
Endorsements with amounts not less
than FIVE MILLION DOLLARS
($5,000,000) per occurrence with
respect to bodily injury and death
and THREE MILLION DOLLARS
($3,000,000) for property damage;
H. professional liability
insurance in an amount not less
than TEN MILLION DOLLARS
($10,000,000) for each medical
incident;
I. physical damage insurance
on an all-risk basis (with only
such exceptions as the Lender in
its reasonable discretion shall
approve) covering the Borrower's
tangible Personal Property for the
full replacement cost thereof and
with a deductible not in excess of
one percent (1%) of the full
replacement cost thereof;
J. Workers' Compensation and
Employers' Liability Insurance
providing protection against all
claims arising out of injuries to
all employees of the Borrower or of
a sub-contractor (employed on the
Mortgaged Properly or any portion
thereof in amounts equal for
Workers' Compensation, to the
statutory benefits payable to
employees in the state in which the
Mortgaged Property is located and
for Employers' Liability, to limits
of not less than ONE HUNDRED
THOUSAND DOLLARS ($100,000) for
injury by accident, ONE HIINDRED
THOUSAND DOLLARS ($100,000) per
employee for disease and FIVE
HUNDRED THOUSAND DOLLARS ($500,000)
disease policy limit;
K. subsidence insurance (if
deemed necessary by the Lender) in
limits acceptable to the Lender;
and
L. such other insurance as the
Lender from time to time may
reasonably require. and also, as
may from time to time be required
by applicable Legal Requirements.
8.1.02 INSURANCE COMPANY REQUIREMENTS.
All such insurance required by this Agreement
or any of the other Loan Documents shall be issued
and underwritten by insurance companies licensed
to do insurance business by, and in good standing
under the laws of, the state where the Mortgaged
Property is situated and which companies have and
maintain a rating of A-X or better by A.M. Best
Co.
8.1.03 POLICY REQUIREMENTS.
Every policy of insurance from time to time
required under this Agreement or any of the other
Loan Documents (other than worker's compensation)
shall name the
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Lender as loss payee, mortgagee, secured party and
additional named insured as its interest may
appear. If an insurance policy covers properties
other than the Mortgaged Property, then the Lender
shall be so named with respect only to the
Mortgaged Property. Each such policy, where
applicable or appropriate, shall:
A. include an agreed amount endorsement and
loss payee, additional named insured,
mortgagee and secured patty
endorsements, in forms acceptable to the
Lender in its reasonable discretion;
B. provide that the coverages may not be
canceled or materially modified or
allowed to expire except upon thirty
(30) days' prior written notice to the
Lender;
C. be payable to the Lender notwithstanding
any defense or claim that the insurer
may have to the payment of the same
against any other Person holding any
other interest in the Mortgaged
Property;
D. be endorsed with standard
noncontributory clauses in favor of and
in form reasonably acceptable to the
Lender;
E. expressly waive any right of subrogation
on the part of the insurer against the
Lender or the Borrowing Group; and
F. otherwise be in such forms as shall be
reasonably acceptable to the Lender.
8.1.04 NOTICES; CERTIFICATES AND POLICIES.
The. Borrower shall promptly provide to the
Lender copies of any and all notices (including
notice of non-renewal), claims and demands which
the Borrower receives from insurers of the
Mortgaged Property. At least ten (10) days prior
to the expiration of any insurance policy required
hereunder, the Borrower shall deliver to the
Lender certificates and evidence of insurance
relating to all renewals and replacements thereof,
together with evidence, satisfactory to the
Lender, of payment of the premiums thereon. The
Borrower shall deliver to the Lender original
counterparts or copies certified by the insurance
company to be true and complete copies, of all
insurance policies required hereunder not later
than ten (10) days after receipt thereof by the
Borrower. Borrower shall use its best efforts to
obtain such counterparts or copies within ninety
(90) days after the effective date of each such
policy.
8.1.05 THE LENDER'S RIGHT TO PLACE INSURANCE.
If the Borrower shall fail to obtain any
insurance policy required hereunder, or shall fail
to deliver the certificate and evidence of
insurance relating to any such policy to the
Lender, or if any insurance policy required
hereunder (or any part thereof shall expire or be
canceled or become void or voidable by reason of
any breach of any condition thereof or if the
Lender determines that such insurance coverage is
unsatisfactory by reason of the failure or
impairment of the capital of any insurance company
which wrote any such policy, upon demand by the
Lender, the Borrower shall promptly but in any
event no more than ten (10) days thereafter obtain
new or additional insurance coverage on the
Mortgaged Property, or for those risks required to
be insured by the provisions hereof, satisfactory
to the Lender, and, at its option, the Lender may
obtain such insurance and pay the premium or
premiums therefor; in which event, any amount so
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paid or advanced by the Lender and all costs and
expenses reasonably incurred by the Lender in
connection therewith (including, without
limitation, attorneys' fees and expenses and court
costs), shall be a demand obligation of the
Borrower to the Lender and, to the extent
permitted by law, shall be added to the Loan
Obligations and shall be secured by the Liens
created by the Loan Documents as fully and
effectively and with the same priority as every
other obligation of the Borrower secured
thereunder and, if not paid within ten (10) days
after demand, shall thereafter, to the extent
permitted under applicable law, bear interest at
the Advances Rate until the date of payment.
8.1.06 PAYMENT OF PROCEEDS.
All insurance policies required hereunder
(except for general public liability, professional
liability and workers' compensation and employers
liability insurance) shall provide that in the
event of loss, injury or damage, all proceeds
shall be paid to the Lender alone (rather than
jointly to the Borrower and the Lender). The
Lender is hereby authorized to adjust and
compromise any such loss with the consent of the
Borrower or, following any Event of Default,
whether or not cured, without the consent of the
Borrower, and to collect and receive such proceeds
in the name of the Lender and the Borrower, and
the Borrower appoints the Lender (or any agent
designated by the Lender) as the Borrower's
attorney-in-fact with full power of substitution,
to endorse the Borrower's name upon any check in
payment thereof. Subject to the provisions of
Section 8.3 hereof, such insurance proceeds shall
be applied first toward reimbursement of all costs
and expenses reasonably incurred by the Lender in
collecting said insurance proceeds, then toward
payment of the Loan Obligations or any portion
thereof, then due and payable, in such order as
the Lender determines, and then in whole or in
part toward restoration, repair or reconstruction
of the Mortgaged Property for which such insurance
proceeds shall have been paid. In the event the
Lender shall apply such proceeds towards the
repayment of the Loan Obligations, provided that
no Loan Default then exists, no Prepayment Fee
shall be due in connection therewith.
8.1.07 IRREVOCABLE POWER OF ATTORNEY.
The power of attorney conferred on the Lender
pursuant to the provisions of Section 8.1, being
coupled with an interest, shall be irrevocable for
as long as this Agreement is in effect or any Loan
Obligations are outstanding, and shall not be
affected by any disability or incapacity which the
Borrower may suffer and shall survive the same.
Such power of attorney, is provided solely to
protect the interests of the Lender and shall not
impose any duty on the Lender to exercise any such
power, and neither the Lender nor such attorney-in-
fact shall be liable for any act, omission, error
in judgment or mistake of law, except as the same
may result from its gross negligence or wilful
misconduct.
8.1.08 BLANKET POLICIES.
Notwithstanding anything to the contrary
contained herein, the Borrower's obligations to
carry the insurance required hereunder may be
brought within the coverage of a so-called blanket
policy or policies of insurance carried and
maintained by the Borrower and its Affiliates;
provided, however, that the coverage afforded to
the Lender shall not be reduced or diminished or
otherwise be different from that which would exist
under a separate policy meeting all other
requirements of this Agreement by reason of the
use of such blanket policy of insurance, and
provided, further, that the requirements of
Section 8.1 are otherwise satisfied.
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8.1.09 NO SEPARATE INSURANCE.
The Borrower shall not, on the Borrower's own
initiative or pursuant to the request or
requirement of any other Person, take out separate
insurance concurrent in form or contributing in
the event of loss with the insurance required
hereunder to be furnished by the Borrower, or
increase the amounts of any then existing
insurance by securing an additional policy or
additional policies, unless (a) all parties having
an insurable interest in the subject matter of the
insurance, including the Lender, are included
therein as additional insureds and (b) losses are
payable under said insurance in the same manner as
losses are required to be payable under this
Agreement. The Borrower shall immediately notify
the Lender of the taking out of any such separate
insurance or of the increasing of any of the
amounts of the then existing insurance by securing
an additional insurance policy or policies.
8.1.10 ASSIGNMENT OF UNEARNED PREMIUMS.
The Borrower hereby assigns to the Lender all
rights of the Borrower in and to any unearned
premiums on any insurance policy required
hereunder to be furnished by the Borrower which
may become payable or are refundable after the
occurrence of an Event of Default hereunder. In
the event of a foreclosure of the Mortgaged
Property or a conveyance of the Mortgaged Property
in connection with a deed-in-lieu of foreclosure
transaction, the insurance policies required to be
maintained hereunder, including all right, title
and interest of the Borrower thereunder, shall
become the absolute property of the Lender subject
to any limitation on assignment provided for
therein.
8.2 FIRE OR OTHER CASUALTY OR CONDEMNATION.
8.2.01 RESTORATION FOLLOWING FIRE, CASUALTY
OR CONDEMNATION.
In the event of any damage or destruction to
the Mortgaged Property by reason of fire or other
hazard or casualty (a "Casualty") or a taking by
power of eminent domain or conveyance in lieu
thereof of all or any portion of the Mortgaged
Property (a "Condemnation"), the Borrower shall
give immediate written notice thereof to the
Lender and, subject to the terms of Section 8.3
hereof, the Borrower shall proceed with reasonable
diligence, in full compliance with all applicable
Legal Requirements, to perform such repairs,
replacement and reconstruction work (hereinafter
referred to as the "Work") to restore the
Mortgaged Property to the condition it was in
immediately prior to such damage or destruction
and to a condition adequate to operate the
Facility for its Primary Intended Use and in
compliance with Legal Requirements. All Work shall
be performed and completed in accordance with all
Legal Requirements and the other requirements of
this Agreement within one hundred and twenty (120)
days following the occurrence of the damage or
destruction plus a reasonable time to compensate
for Unavoidable Delays (including for the purposes
of this paragraph, delays in obtaining Permits and
in adjusting insurance losses), but in no event
beyond two-hundred and seventy (270) days
following the occurrence of the Casualty or the
Condemnation.
8.2.02 PROCEDURES.
In the event that any Casualty or
Condemnation results in non-structural damage to
the Mortgaged Properly in excess of FIFTY THOUSAND
DOLLARS ($50,000), or in any structural damage to
the Mortgaged Property regardless of the extent of
such
structural damage, or in any event of
Condemnation, prior to commencing the Work, the
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Borrower - shall comply with the following
requirements:
A. The Borrower shall furnish to the Lender
complete plans and specifications for
the Work (collectively, the "Plans and
Specifications"), for the Lender's
approval, in each instance, which
approval shall not be unreasonably
withheld. The Plans and Specifications
shall bear the signed approval thereof
by an architect, licensed to do business
in the state where the Mortgaged
Property is located, reasonably
satisfactory to the Lender and shall be
accompanied by a written estimate from
the architect, bearing the architect's
seal, of the entire cost of completing
the Work, and to the extent feasible,
the Plans and Specifications shall
provide for Work of such nature, quality
and extent, that, upon the completion
thereof, the Mortgaged Property shall be
at least equal in value and general
utility to its value and general utility
prior to the Casualty or Condemnation
and shall be adequate to operate the
Facility for its Primary Intended Use;
B. The Borrower shall furnish to the Lender
certified or photostatic copies of all
Permits and Contracts required by all
applicable Legal Requirements in
connection with the commencement and
conduct of the Work to the extent the
same can be secured in the ordinary
course prior to the commencement of
construction;
C. The Borrower shall furnish to the Lender
a cash deposit or a payment and
performance bond sufficient to pay for
completion of and payment for the Work
in an amount not less than the
architect's estimate of the entire cost
of completing the Work, less the amount
of properly insurance proceeds, if any,
then held by the Lender and which the
Lender shall be required to apply toward
restoration of the Mortgaged Property as
provided in Section 8.3;
D. The Borrower shall furnish to the Lender
such insurance with respect to the Work
(in addition to the insurance required
under Section 8.1 hereof in such amounts
and in such forms as is reasonably
required by the Lender; and
E. The Borrower shall not commence any of
the Work until the Borrower shall have
complied with the requirements set forth
in clauses A through D immediately
above, as applicable, and thereafter the
Borrower shall perform the Work
diligently, in a good and workmanlike
fashion and in good faith in accordance
with (i) the Plans and Specifications
referred to clause A immediately above,
(ii) the Permits and Contracts referred
to in clause B immediately above and
(iii) all applicable Legal Requirements
and other requirements of this
Agreement; provided, however, that in
the event of a bona fide emergency
during which Borrower is unable to
contact the appropriate representatives
of Lender, Borrower may commence such
Work as may be necessary in order to
address such emergency without Lender's
prior approval, as long as
Borrower immediately thereafter advises
Lender of such emergency and the nature
and scope of the Work performed and
obtains Lender's approval of the
remaining Work to be completed.
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8.2.03 DISBURSEMENT OF INSURANCE PROCEEDS AND
CONDEMNATION AWARDS. If, as provided in Section
8.3, Lender is required to apply any Condemnation
awards or property insurance proceeds toward
repair or restoration of the Mortgaged Property,
then as long as the Work is being diligently
performed by Borrower in accordance with the terms
and conditions of this Loan Agreement, Lender
shall disburse such insurance proceeds or
Condemnation awards from time to time during the
course of the Work in accordance with and subject
to satisfaction of the following provisions and
conditions. Lender shall not be required to make
disbursements more often than at thirty (30) day
intervals. Borrower shall submit a written request
for each disbursement at least ten (IO) Business
Days in advance and shall comply with the
following requirements in connection with each
disbursement:
(a) Prior to the commencement of
any Work, Borrower shall have received
Lender's written approval of the Plans
and Specifications (which approval shall
not be unreasonably withheld) and the
Work shall be supervised by an
experienced construction manager with
the consultation of an architect or
engineer qualified and licensed to do
business in the state where the
Mortgaged Property is located (in the
event Lender reasonably determines that
the Work is of a nature for which the
involvement of such architect or
engineer is appropriate). Borrower shall
not make any changes in, and shall not
permit any changes in, the quality of
the materials to be used in the Work,
the Plans and Specifications or the
Work, whether by change order or
otherwise, without the prior written
consent of Lender, in each instance
(which consent may be withheld in
Lender's sole and absolute discretion);
provided, however, that such consent
shall not be required for any individual
change which has been approved by the
architect, which does not materially
affect the structure or exterior of the
Facility, and the cost of which does not
exceed TEN THOUSAND DOLLARS ($10,000) or
which changes, in the aggregate, do not
exceed ONE HUNDRED THOUSAND DOLLARS
($100,000) in cost. Notwithstanding the
foregoing, prior to making any change in
Plans and Specifications, copies of all
change orders shall be submitted by
Borrower to Lender and Borrower shall
also deliver to Lender evidence
satisfactory to Lender, in its
reasonable discretion, that all
necessary Permits and/or Contracts
required by any Governmental Authority
in connection therewith have been
obtained or entered into, as the case
may be.
(b) Each request for payment shall
be accompanied by (x) a certificate of
the architect or engineer, bearing the
architect's or engineer's seal, and (y)
a certificate of the general contractor,
qualified and licensed to do business in
the state where the Mortgaged Property
is located, that is performing the Work
(collectively, the "Work -
Certificates"), each dated not more than
ten (10) days prior to the application
for withdrawal of funds, and each
stating:
(i) that all of the Work performed
as of the date of the
certificates has been
completed in compliance with
the approved Plans and
Specifications, applicable
Contracts and all applicable
Legal Requirements; .
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(ii) that the sum then requested to
be withdrawn has been paid by
Borrower or is justly due to
contractors, subcontractors,
materialmen, engineers,
architects or other Persons,
whose names and addresses
shall be stated therein, who
have rendered or furnished
certain services or materials
for the Work, and the
certificate shall also include
a brief description of such
services and materials and the
principal subdivisions or
categories thereof and the
respective amounts so paid or
due to each of said Persons in
respect thereof and stating
the progress of the Work up to
the date of said certificate;
(iii) that the sum then
requested to be withdrawn,
plus all sums previously
withdrawn, do not exceed the
cost of the Work insofar as
actually accomplished up to
the date of such certificate;
(iv) that the remainder of the
funds held by Lender will be
sufficient to pay for the full
completion of the Work in
accordance with the Plans and
Specifications;
(v) that no part of the cost of
the services and materials
described in the applicable
Work Certificate has been or
is being made the basis of the
withdrawal of any funds in any
previous or then pending
application; and
(vi) that, except for the amounts,
if any, specified in the
applicable Work Certificate to
be due for services and
materials, there is no
outstanding indebtedness
known, after due inquiry,
which is then due and payable
for work, labor, services or
materials in connection with
the Work which, if unpaid,
might become the basis of a
vendor's, mechanic's,
laborer's or materialman's
statutory or other similar
Lien upon the Mortgaged
Property.
(c) Borrower shall deliver to
Lender satisfactory evidence that the
Mortgaged Property and all materials and
all property described in the Work
Certificates are free and clear of
Liens, except (i) Liens, if any,
securing indebtedness due to Persons
(whose names and addresses and the
several amounts due them shall be stated
therein) specified in an applicable Work
Certificate, which Liens shall be
discharged upon disbursement of the
funds then being requested or duly
contested in accordance with the terms
of this Loan Agreement and (ii) the
Permitted Encumbrances. Lender shall
accept as satisfactory evidence of the
foregoing lien waivers in customary form
from the general contractor and all
subcontractors performing the Work,
together with an endorsement of its
title insurance policy (relating to the
Mortgaged Property) in form acceptable
to Lender, dated as of the date of the
making of the then current disbursement,
confirming the foregoing.
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<PAGE>
(d) If the Work involves alteration
or restoration of the exterior of any
Improvement that changes the footprint
of any Improvement, Borrower shall
deliver to Lender, upon the request of
Lender, an "as-built" survey of the
Mortgaged Property dated as of a date
within ten (I 0) days prior to the
making of the first and final advances
(or revised to a date within ten (10)
days prior to each such advance) showing
no encroachments other than such
encroachments, if any, by the
Improvements upon or over the Permitted
Encumbrances as are in existence as of
the date hereof.
(e) Borrower shall deliver to
Lender (i) an opinion of counsel
(satisfactory to Lender both as to
counsel and as to the form of opinion)
prior to the first advance opining that
all necessary Permits for the repair,
replacement and/or restoration of the
Mortgaged Property which can be obtained
in the ordinary course as of said date
have been obtained and that the
Mortgaged Property, if repaired,
replaced or rebuilt in accordance, in
all material respects, with the approved
Plans and Specifications and such
Permits, shall comply with all
applicable Legal Requirements subject to
such limitations as may be imposed on
such opinion under local law and (ii) if
applicable, an architect's certificate
(satisfactory to Lender both as to the
architect and as to the form of the
certificate) prior to the final advance,
certifying that the Mortgaged Property
was repaired, replaced or rebuilt in
accordance, in all material respects,
with the approved Plans and
Specifications and complies with all
applicable Legal Requirements,
including, without limitation, all
Permits referenced in the foregoing
clause (i).
(f) There shall be no Loan Default
or any state of facts or circumstance
existing which, with the giving of
notice and/or the passage of time, would
constitute any Loan Default.
Lender, at its option, may waive any of the
foregoing requirements in whole or in part in any
instance. Upon compliance by Borrower with the
foregoing requirements (except for such
requirements, if any, as Lender may have expressly
elected to waive), and to the extent of (x) the
insurance proceeds, if any, which Lender may be
required to apply to restoration of the Mortgaged
Property pursuant to the provisions of this Loan
Agreement and (y) all other cash deposits made by
Borrower, Lender shall make available for payment
to the Persons named in the Work Certificate the
respective amounts stated in said certificate(s)
to be due, subject to a retention often percent
(l0%) as to all hard costs of the Work (the
"Retainage"). It is understood that the Retainage
is intended to provide a contingency fund to
assure Lender that the Work shall be fully
completed in accordance with the Plans and
Specifications and the requirements of Lender.
Upon the full and final completion of all of the
Work in accordance with the provisions hereof, the
Retainage shall be made available for payment to
those Persons entitled thereto.
Upon completion of the Work, and as a condition
precedent to making any further advance, in
addition to the requirements set forth above,
Borrower shall promptly deliver to Lender:
(i) if applicable, written certificates of
the architect or engineer, bearing the
architect's or engineer's seal, and the
general contractor, certifying that the
Work has been fully completed in a good
and
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workmanlike manner in material
compliance with the Plans and
Specifications and all applicable Legal
Requirements;
(ii) an endorsement of its title insurance
policy (relating to the Mortgaged
Property) in form reasonably acceptable
to Lender insuring the Mortgaged
Property against all mechanic's and
materialman's liens accompanied by the
final lien waivers from the general
contractor and all subcontractors;
(iii) a certificate by Borrower in form and
substance reasonably satisfactory to
Lender, listing all costs and expenses
in connection with the completion of the
Work and the amount paid by Borrower
with respect to the Work; and
(iv) a temporary certificate of occupancy (if
obtainable) and all other applicable
Permits and Contracts issued by or
entered into with any Governmental
Authority with respect to the Primary
Intended Use not already delivered to
Lender and, to the extent applicable,
the Other Permitted Uses and by the
appropriate Board of Fire Underwriters
or other similar bodies acting in and
for the locality in which the Mortgaged
Property is situated with respect to the
Facility; provided, that within thirty
(30) days after completion of the Work,
Borrower shall obtain and deliver to
Lender a permanent certificate of
occupancy for the Mortgaged Properly,
subject to seasonal delays.
Upon completion of the Work and delivery of
the documents required pursuant to the provisions
of this Section 8.2, Lender shall pay the
Retainage to Borrower or to those Persons entitled
thereto and if there shall be insurance proceeds,
awards or cash deposits, other than the Retainage,
held by Lender in excess of the amounts disbursed
pursuant to the foregoing provisions, then
provided that no Loan Default has occurred and is
continuing, nor any state of facts or
circumstances which, with the giving of notice
and/or the passage of time would constitute a Loan
Default, Lender shall pay over such proceeds,
awards or cash deposits to Borrower.
No inspections or any approvals of the Work
during or after construction shall constitute a
warranty or representation by Lender, or any of
its agents, as to the technical sufficiency,
adequacy or safety of any structure or any of its
component parts, including, without limitation,
any fixtures, equipment or furnishings, or as to
the subsoil conditions or any other physical
condition or feature pertaining to the Mortgaged
Property. All acts, including any failure to act,
relating to Lender are performed solely for the
benefit of Lender to assure the payment and
performance of the Loan Obligations and are not
for the benefit of Borrower or the benefit of any
other Person.
8.3 DISPOSITION OF INSURANCE PROCEEDS AND
CONDEMNATION AWARDS.
8.3.01 PROCEEDS TO BE RELEASED TO PAY FOR
WORK.
In the event of any Casualty or Condemnation,
except as provided in Section 8.3.02, the Lender
agrees to make insurance proceeds or Condemnation
awards available to the Borrower for repair or
restoration of the Mortgaged Property, provided
that:
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<PAGE>
A. The Mortgaged Property has not been
rendered Unsuitable for its Primary
Intended Use or temporarily
Unsuitable For Its Primary Intended
Use for a period that is likely to
or which does, subject to
Unavoidable Delays, exceed two
hundred seventy (270) days.
B. No Loan Default shall then exist,
nor any state of facts or
conditions which, with the giving
of notice or passage of time, or
both, would constitute such a Loan
Default;
C. The Borrower demonstrates to the
Lender's satisfaction that the
Borrower has the financial ability
to satisfy its obligations under
the Loan Documents during such
repair or restoration;
D. No Lease material to operation of
the Facility immediately prior to
such Casualty or Condemnation shall
have been canceled or terminated,
nor contain any still exercisable
right to cancel or terminate, due
to such Casualty or Condemnation if
and to the extent that the income
from such Lease is necessary in
order to avoid the violation of any
of the financial covenants set
forth in this Agreement or
otherwise to avoid the creation of
a Loan Default;
E. The insurance proceeds or
Condemnation awards are released
under the funding arrangements
specified in Section 8.2 hereof;
F. Borrower will be reasonably likely
to obtain within 90 days all
necessary. Permits in order to
perform all Work;
G. If such Casualty or Condemnation
occurs during the last twenty four
(24) months of the Term, the Work
would take less than nine (9)
months to complete; and
H. The Mortgaged Property continues to
comply with all Legal Requirements
after such Casualty or
Condemnation.
8.3.02 PROCEEDS NOT TO BE RELEASED TO PAY FOR
WORK
If the conditions set forth in Section 8.3.01
are not satisfied the Lender will not be required
to make the insurance proceeds or Condemnation
awards available for repair or restoration of the
Mortgaged Property. In such case, such proceeds or
awards shall be applied to reduce Loan
Obligations, in which event the Borrower shall not
be obligated to repair or restore the Mortgaged
Property. Any application of such proceeds or
awards toward payment of the Loan Obligations
shall be at par without any Prepayment Fee and the
monthly payments due under the Note shall be
adjusted accordingly based upon the then
outstanding principal balance of the Loan (after
application of the insurance proceeds to the, Loan
Obligations and in accordance with an amortization
schedule reasonably acceptable to Lender and
Borrower; provided, however, that if there then
exists any Loan Default, the Prepayment Fee shall
also be due.
Furthermore, if the Lender is not required to
and elects not to make the insurance proceeds or
Condemnation awards available for the repair and
restoration of the Mortgaged Property, in addition
to applying such proceeds or awards to the Loan
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Obligations, as aforesaid, the Lender, at its
option and in its sole and absolute discretion,
may elect to declare the Loan Obligations due and
payable upon sixty (60) days' prior written notice
to the Borrower. Upon such acceleration, provided
that no Loan Default then exists, the Borrower
shall not be required to pay a Prepayment Fee to
the Lender.
8.3.03 THE BORROWER RESPONSIBLE FOR SHORT-
FALL.
If the cost of the Work exceeds the amount of
proceeds received by the Lender from the property
insurance required under this Agreement or the
amount of the Condemnation award received by the
Lender in accordance with the terms hereof(net of
costs and expenses incurred by the Lender in
collecting the same); the Borrower shall be
obligated to contribute any excess amount needed
to repair or restore the Mortgaged Properly and
pay for the Work. Such amount shall be paid by the
Borrower to the Lender together with any other
property insurance proceeds for application to the
cost of the Work. .
8.3.04 SPECIAL RIGHT TO REBUILD
Anything contained in Section 8.3.02 above
notwithstanding, if following any Casualty,
Borrower will be unable, as a result of any
applicable Legal Requirements, to rebuild
and. operate the Facility for the Primary
Intended Use and, if applicable, the (Other
Permitted Uses, but will be able to rebuild
and operate an assisted living facility (the
"New Use Facility") providing substantially
similar services as the Facility immediately
prior to such Casualty and having units equal
in number to at least seventy-five per cent
(75%) of the number of units included in the
Primary Intended Use (the "New Primary
Intended Use"), as in effect immediately
prior to any such Casualty, then, Borrower
may rebuild the New Use Facility in
accordance with the terms and provisions of
Article 8, so long as (a) Borrower is
otherwise able to comply with, and does
comply with, all of the terms and conditions
of Article 8 and (b) the projections for the
New Use Facility, as reasonably approved by
Lender, indicate that Borrower shall be able
to maintain for the New Use Facility, for
each Fiscal Quarter of the Term, including
all Extended Terms (as defined in the Note,
commencing with the first Fiscal Quarter
following the first anniversary of the
earlier of the issuance of a temporary
certificate of occupancy therefor or the
completion of the Work, a Debt Coverage Ratio
equal to or greater than I.1 to 1 (the
"Minimum Coverage Ratio"). In such case, for
purposes of compliance with the terms and
conditions of this Article 8 by Borrower and
for the balance of the Term following such
Casualty, the Primary Intended Use shall be
deemed to be the New Primary Intended Use and
the Facility shall be deemed to be the New
Use Facility. Borrower shall deliver to
Lender the projections referred to in clause
(b) above, together with calculations, based
thereon, showing the Minimum Coverage Ratio,
prior to the commencement of any Work.
8.4 THE BORROWER'S PROPERTY:
All insurance proceeds payable by reason of
any loss of or damage to any of the Borrower's
Personal Property shall be paid to the Lender as
secured party and shall be paid by the Lender to
the Borrower to reimburse the Borrower for the
cost of repairing or replacing the damaged
Personal Property subject to the provisions and
conditions set forth in the other provisions of
this Agreement, mutatis, mutandis.
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<PAGE>
8.5 RESTORATION OF THE BORROWER'S PROPERTY.
If the Borrower is required or elects to
restore the Facility, the Borrower shall either
(a) restore all alterations and improvements made
by the Borrower, and the Borrower's Personal
Property, or (b) replace such alterations and
improvements and the Borrower's Personal Property
with improvements or items of the same or better
quality and utility in the operation of the
Mortgaged Property; provided, however, that
Borrower shall be obligated to restore the
Tangible Personal Property only to the extent
desirable for the prudent operation of the
Facility in the good faith exercise of
commercially reasonable business judgment.
8.6 OBLIGATION TO ACCOUNT.
Upon the Borrower's written request, which
may not be made more than once in any three (3)
month period, the Lender shall provide the
Borrower a written accounting of the application
of all insurance proceeds received by the Lender.
8.7 INTENTIONALLY DELETED
8.8 RENT LOSS AND/OR BUSINESS INTERRUPTION
INSURANCE PROCEEDS.
Provided that no Loan Default then exists and
no state of facts exists which, with the giving of
notice or passage of time, or both, would
constitute a Loan Default, then the Lender shall
direct all rent loss and/or business interruption
insurance proceeds (collectively the "Rent
Insurance Proceeds") to be paid to Borrower. If a
Loan Default or such state of facts exists which,
with the giving of notice or passage of time, or
both, would constitute a Loan Default, then such
Rent Insurance Proceeds may be applied by the
Lender, at the Lender's option, toward payment of
the Loan Obligations and/or to the payment of the
cost of such repair, replacement or restoration of
the Facility, and/or to the payment of any
Imposition required to be paid by the Borrower
(the nonpayment of which is a default under this
Agreement), and/or to the payment of any monthly
tax deposit, any monthly insurance deposit or
other amount required to be paid by the Borrower
under the provisions of this Agreement.
9. PERMITTED CONTESTS
9.1 BORROWER'S RIGHT TO CONTEST.
Unless a Loan Default or any state of facts
which, with the giving of notice or the passage of
time or both would constitute a Loan Default then
exists, upon prior written notice to the Lender,
any member of the Borrowing Group at their sole
cost and expense, may contest, by appropriate
legal proceedings conducted in good faith and with
due diligence (until the resolution thereof, the
amount, validity or application, in whole or in
part, of any Imposition, any Legal Requirement,
the decision of any Governmental Authority related
to the operation of the Mortgaged Property for its
Primary Intended Use or any Lien or claim not
otherwise permitted by in this Agreement;
provided, that (a) prior written notice of such
contest is given to the Lender, (b) in the case of
an unpaid Imposition, Lien or claim, the
commencement and continuation of such proceedings
shall suspend the collection thereof from the
Lender and/or any member of the Borrowing Group
and compliance by any applicable member of the
Borrowing Group with the contested Legal
Requirement or other matter may legally be delayed
pending the prosecution of any such proceeding
without the occurrence or creation of any
additional Lien, charge or liability of any kind
against the Mortgaged Property, (c) neither the
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Mortgaged Property nor any interest of the Lender
therein would be in any immediate danger of being
sold, forfeited, attached or lost as a result of
such proceeding, (d) in the case of a Legal
Requirement, neither the Lender nor any member of
the Borrowing Group would be in any intermediate
danger of civil or criminal liability for failure
to comply therewith pending the. outcome of such
proceedings, (e) in the event that any such
contest shall involve a sum of money or potential
loss in excess of TWENTY FIVE THOUSAND DOLLARS
($25,000), then, in any such event, the Borrower
shall deliver to the Lender an Officer's
Certificate and opinion of counsel, if the Lender
deems the delivery of an opinion to be
appropriate, opinion as to the validity of the
statements set forth in clauses (b), (c) and (d),
to the extent applicable, (f) the Borrower shall
give such cash security (or letter of credit in
form and substance acceptable to the Lender) as
may be demanded in good faith by the Lender to
insure the ultimate payment of any fine, penalty,
interest or cost and to prevent any sale or
forfeiture of the affected portion of the
Mortgaged Property by reason of such non-payment
or non-compliance, (g) if such contest be finally
resolved against the Lender or any member of the
Borrowing Group, the Borrower shall promptly pay
(or cause to be paid) the amount required to be
paid, together with all interest and penalties
accrued thereon and, if applicable, the Borrower,
shall comply with and shall cause any Borrower and
any Manager to comply with the applicable Legal
Requirement and (h) no state of facts or
circumstance exist which constitutes, or with the
passage of time and/or the giving of notice, could
constitute a Loan Default; provided, however, the
provisions of this Section 9 shall not be
construed to permit the Borrower to contest the
payment of any other sums payable by the Borrower
to the Lender under any of the Loan Documents.
9.2 LENDER'S COOPERATION.
Lender, at Borrower's sole cost and expense,
shall execute and deliver to Borrower such
authorizations and other documents as may
reasonably be required in any such contest, so
long as the same does not expose Lender to any
civil or criminal liability, and, if reasonably
requested by Borrower, of if Lender so desires,
Lender shall join as a party therein.
9.3 BORROWER'S INDEMNITY.
Borrower shall indemnify, defend (with
counsel acceptable with Lender) and save Lender
harmless against any liability, cost or expense of
any kind, including, without limitation,
attorneys' fees and expenses that may be imposed
upon Lender in connection with any such contest
and any loss resulting therefrom and in the
enforcement of this indemnification.
10. EVENTS OF DEFAULT
Each of the following shall constitute an
"Event of Default" hereunder and shall entitle the
Lender to exercise its remedies hereunder and
under any of the other Loan Documents:
A. any failure of the Borrower to pay any
amount due hereunder or under any of the
other Loan Documents within ten (10)
days following the date when such
payment was due;
B. any failure in the observance or
performance of any other covenant, term,
condition. or warranty provided in this
Agreement or any of the other Loan
Documents, other than the payment of any
monetary
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obligation and other than as
specified in subsections (C) through (V)
below (referred to herein as a "Failure
to Perform"), continuing for thirty (30)
days after the giving of notice by the
Lender to the Borrower specifying the
nature of the Failure to Perform; except
as to matters not susceptible to cure
within thirty (30) days, provided that
with respect to such matters, (i) the
Borrower commences the cure thereof
within thirty (30) days after the giving
of such notice by the Lender to the
Borrower, (ii) the Borrower continuously
prosecutes such cure to completion,
(iii) such cure is completed within one
hundred twenty (120) days after the
giving of such notice by the Lender to
the Borrower and (iv) such Failure to
Perform does not impair the Lender's
rights with respect to the Mortgaged
Property or otherwise impair the
Collateral or the Lender's security
interest therein;
C. the occurrence of any default or
breach of condition continuing beyond
the expiration of the applicable notice
and grace periods, if any, under any of
the other Loan Documents;
D. if any representation, warranty or
statement contained herein or in any of
the other Loan Documents proves to be
untrue in any material respect as of the
date when made or at any time during the
Term if such representation or warranty
is a continuing representation or
warranty pursuant to Section 6.5;
E. if any member of the Borrowing Group
shall (i) voluntarily be adjudicated a
bankrupt or insolvent, (ii) seek or
consent to the appointment of a receiver
or trustee for itself or for the
Mortgaged Property, (iii) file a
petition seeking relief under the
bankruptcy or other similar laws of the
United States, any state or any
jurisdiction, (iv) make a general
assignment for the benefit of creditors,
(v) make or offer a composition of its
debts with its creditors or (vi) be
unable to pay its debts as such debts
mature;
F. if any court shall enter an order
judgment or decree appointing, without
the consent of any member of the
Borrowing Group, a receiver or trustee
for such member or for any of the
Mortgaged Property, and such order,
judgment or decree shall remain in
force, undischarged or unstayed; ninety
(90) days after it is entered;
G. if any petition is filed against any
member of the Borrowing Group which
seeks relief under the bankruptcy or
other similar laws of the United States,
any state or any other jurisdiction and
such petition is not dismissed within
ninety (90) days after it is filed;
H. in the event that, without the prior
written consent of the Lender, in each
instance, which consent may be withheld
by the Lender in its sole and absolute
discretion:
i. all or any portion of the interest
of any partner, shareholder or
member in any member of the
Borrowing Group (other than
Guarantor) shall be, on any one or
more occasions, directly or
indirectly, sold, assigned,
hypothecated or otherwise
transferred (whether by operation
of law or
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otherwise), if such
member of the Borrowing Group
shall be a partnership, joint
venture, syndicate or other group,
without the prior written consent
of Lender, in each instance, which
consent may be withheld by Lender
in its reasonable discretion, with
respect to a sale, assignment,
hypothecation or other transfer to
an Affiliate of Borrower, the
business and activities of which
are limited to those subject to
the Meditrust/Emeritus Transaction
Documents (as defined in the
Agreement Regarding Related
Transactions) to which such
Affiliate is a party, and in all
other cases, in its sole and
absolute discretion;
ii. the shares of the issued and
outstanding capital stock of any
member of the Borrowing Group
(other than Guarantor) shall be, on
any one or more occasions, directly
or indirectly, sold, assigned,
hypothecated or otherwise
transferred (whether by operation
of law or otherwise), if such
member of the Borrowing Group shall
be a corporation; without the prior
written consent of Lender, in each
instance, which consent may be
withheld by Lender in its
reasonable discretion with respect
to a sale, assignment,
hypothecation or other transfer to
a Meditrust/Emeritus Transaction
Affiliate and in all other cases,
in its sole and absolute
discretion; or
iii. all or any portion of the
beneficial interest in any member
of the Borrowing Group (other than
Guarantor) shall be, directly or
indirectly, sold or. otherwise
transferred (whether by operation
of law or otherwise), if such
member of the Borrowing Group shall
be a trust, without the prior
written consent of Lender, in each
instance, which consent may be
withheld by Lender in its
reasonable discretion with respect
to a sale, assignment,
hypothecation or other transfer to
a Meditrust/Emeritus Transaction
Affiliate and in all other cases,
in its sole and absolute
discretion;
Notwithstanding the foregoing, no consent of
Lender to a pledge by Borrower of its stock to a
lender of a Working Capital Loan satisfying the
requirements of Section 4.4 shall be required (a
"Working Capital Stock Pledge").
J. the occurrence of a default or breach of
condition continuing beyond the
expiration of the applicable notice and
grace periods, if any, in connection
with the payment or performance of any
other material obligation of the
Borrower, if the applicable creditor or
obligee elects to declare the
obligations of the Borrower or the
applicable Borrower under the applicable
agreement due and payable or to exercise
any other right or remedy available to
such creditor or obligee, or, whether or
not such creditor or obligee has so
elected or exercised such creditor's or
obligee's rights and remedies
K. may involve or result in the
taking of possession of or the creation
of a lien on the. Mortgaged Property;
provided, however, that in any event,
the election by the applicable creditor
or obligee to declare the obligations of
the Borrower or- the applicable Borrower
under the
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applicable agreement due and
payable or to exercise any other right
or remedy available to such creditor or
obligee shall be an Event of Default
hereunder only if such obligations,
individually or in the aggregate, are in
excess of TWO HUNDRED FIFTY THOUSAND
DOLLARS ($250,000);K. the occurrence of
a Related Party Default;
L. the occurrence of any default or
breach of condition which is not cured
within any applicable period under a
Working Capital Loan secured by a
Working Capital Stock Pledge (or any
documents executed in connection
therewith) or the exercise of any
ownership rights by the lender of a
Working Capital Loan secured by a
Working Capital Stock Pledge;
M. except as a result of any
Casualty or a partial or complete
Condemnation, if the Borrower ceases
operation of the Facility for a period
in excess of thirty (30) days (referred
to herein as a "Failure to Operate");
N. if one or more judgments against
the Borrower or attachments against the
Mortgaged Property which in the
aggregate exceed TWO HUNDRED FIFTY
THOUSAND DOLLARS ($250,000) or which may
materially and adversely interfere with
the ownership and/or the operation of
the Facility remain unpaid, unstayed on
appeal, undischarged, unbonded or
undismissed for a period of thirty (30)
days;
O. if any malpractice award or
judgment exceeding any applicable
professional liability insurance
coverage by more than FIVE HUNDRED
THOUSAND DOLLARS ($500,000) shall be
rendered against any member of the
Borrowing Group and either (i)
enforcement proceedings shall have been
commenced by any creditor upon such
award or judgment or (ii) such award or
judgment shall continue unsatisfied and
in effect for a period of ten (10)
consecutive days without an insurance
company satisfactory to the Lender (in
its sole and absolute discretion) having
agreed to fund such award or judgment in
a manner satisfactory to the Lender (in
its sole and absolute discretion) and in
either case such award or judgment
shall, in the reasonable opinion of the
Lender, have a material adverse affect
on the ability of any member of the
Borrowing Group to operate the Facility;
P. if any Provider Agreement
material to the operation or financial
condition of the Mortgaged Property
shall be terminated prior to the
expiration of the term thereof or,
without the prior written consent of the
Lender, in each instance, which consent
may be withheld in the Lender's
reasonable discretion, shall not be
renewed or extended
upon the expiration of the
stated term thereof;
Q. if, after the Borrower has obtained
approval for participation in the
Medicare and/or. Medicaid programs with
regard to the operation of the Facility,
a final unappealable determination is
made by the applicable Governmental
Authority that the Borrower shall have
failed to comply with applicable
Medicare and/or Medicaid regulations in
the operation of the Facility, as a
result of which failure the Borrower is
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declared ineligible to continue
its participation in the Medicare and/or
Medicaid programs; and such
determination could reasonably be
expected to have a material adverse
effect on the operation or financial
condition of the Mortgaged Property;
R. if any member of the Borrowing Group
receives notice of a final unappealable
determination by applicable Governmental
Authorities of the revocation of any
Permit required for the lawful
construction or operation of the
Facility in accordance with its Primary
Intended Use or, if applicable, the
Other Permitted Uses; or the loss of any
Permit under any other circumstances
under which any member of the Borrowing
Group is required to cease the operation
of the Facility in accordance with its
Primary Intended Use and the Other
Permitted Uses;
S. any failure to maintain the insurance
required pursuant to Section 8 of this
Agreement in force and effect at all
times until the Loan Obligations are
fully paid and performed and the
Mortgage is discharged;
T. the entry of an order by a Court with
jurisdiction over the Mortgaged Property
to close the Facility, to transfer one
or more residents from the Facility as a
result of an allegation of abuse or
neglect or to take any action to
eliminate an emergency situation then
existing at the Facility, if such order
has not been stayed pending appeal
within ten (10) days following such
entry;
U. the appointment of a temporary
manager (or operator) for the Mortgaged
Property by any Governmental Authority;
V. any failure to replenish the
Cash Collateral in accordance with the
terms of the Deposit Pledge Agreement,
if so required under Section 1 of the
Deposit Pledge Agreement;
W. except as expressly permitted by
the Loan Documents, if, without the
prior written consent of Lender in each
instance, which consent may be withheld
by Lender in its sole and absolute
discretion, Borrower's interest, or any
interest of a Lessee which is an
Affiliate of Borrower, in the Mortgaged
Property shall be, directly or
indirectly, mortgaged, encumbered (by
any voluntary or involuntary Lien other
than the Permitted Encumbrances),
subleased, sold, assigned, hypothecated
or otherwise transferred (whether by
operation of law or otherwise) or upon
the sale, exchange, assignment,
transfer, conveyance or other
disposition of all or any portion of the
Mortgaged Property oz the Leases oz
Rents (or any interest thereon) ;
X. the occurrence of any default or breach
of condition continuing for more than
thirty. (30) days under any credit
agreement, loan agreement or other
agreement establishing a major line of
credit (including, without limitation, a
major line of credit or a Working
Capital Loan which is not secured by a
Working Capital Stock Pledge)(or any
documents executed in connection with
such lines of credit) on behalf of
Guarantor without regard to whether the
applicable creditor has
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elected to declare the
indebtedness due and payable under such
line of credit or to exercise any other
right or remedy available to it or the
occurrence of any such default or breach
of condition if the applicable creditor
has elected to declare the indebtedness
due and payable under such line of
credit or to exercise any other right or
remedy available to it. For the purpose
of this provision, a major line of
credit shall mean and include any line
of credit established in an amount equal
to or greater than ONE MILLION DOLLARS
($1,000,000) with respect to a line of
credit for which Guarantor is an
obligor, endorser, surety or guarantor;
or
Y. the death, incapacity, liquidation,
dissolution, or termination of existence
of any member of the Borrowing Group or
the merger or consolidation of any
member of the Borrowing Group with any
other Person, except as expressly
permitted by the terms of this
Agreement.
11. REMEDIES IN EVENT OF DEFAULT
Upon the occurrence of an Event of Default,
at the option of the Lender, which may be
exercised at any time after an Event of Default
shall have occurred, the entire outstanding
principal balance of the Loan, together with all
interest (including, without limitation,
Additional Interest), costs, charges and other
amounts due under all of the Loan Documents, shall
immediately become due and payable and upon such
acceleration, all amounts due hereunder shall bear
interest at the Advances Rate. Subject to the
requirements of applicable law, all materials at
that time on or near the Mortgaged Property which
are the property of the Borrower shall be subject
to the Liens created by the Loan Documents. The
Lender is authorized, but not obligated in any
event, to do all such things in connection with
the operation of the Facility as the Lender, in
its sole and absolute discretion, may deem
advisable, including, without limitation, the
right to make any payments with respect to any
obligation of the Borrower to the Lender or to any
other Person in connection with the operation of
the Facility and to take any and all such action,
either in the Lender's own name or in the name of
the Borrower, and the Borrower hereby grants the
Lender an irrevocable power of attorney to act in
its name in connection with the foregoing. This
power of attorney, being coupled with an interest,
shall be irrevocable until all of the Obligations
are fully paid and performed and shall not be
affected by any disability or incapacity which the
Borrower may suffer and shall survive the same.
The power of attorney conferred on the Lender by
the provisions of this Section 11 is provided
solely to protect the interests of the Lender and
shall not impose any duty on the Lender to
exercise any such power and neither the Lender nor
such attorney-in-fact shall be liable for any act,
omission, error in judgment or mistake of law,
except as the same may result from its gross
negligence or wilful misconduct. In the event that
the Lender takes possession of the Mortgaged
Property and assumes control of the Facility as
aforesaid, it shall not be obligated to continue
the operation of the Facility for any period of
time longer than the Lender shall see fit (in its
sole and. absolute discretion), and the Lender may
thereafter, at any time, abandon its efforts and
refuse to make further payments for the account of
the Borrower. For the purposes of determining
Additional Interest upon the occurrence of an
Event of Default for a Failure to Operate, it
shall be deemed that the Additional Interest for
such period where operations of the Facility had
ceased would be equal to the highest annualized
rate that Additional Interest accrued during the
five (5) preceding calendar years or such shorter
period of time as this Agreement is in force and
effect.
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In addition, at the Lender's option and
without demand, notice or protest, the occurrence
of any such Event of Default shall also constitute
a default under any one or more of the Related
Party Agreements.
12. GENERAL
12.1 Agreement Not Assignable.
The Borrower shall not suffer any attachment,
whether by trustee process or otherwise, to be
made or attempted against the Borrower's interest
in, to or under this Agreement or any of the other
Loan Documents or in or to any payment, advance or
other sums hereunder or thereunder, and shall not,
without the prior written consent of the Lender
(in each instance, which consent may be withheld
in the Lender's sole and absolute discretion), or,
except as may be permitted in connection with a
transfer permitted under Section 6.19 (and even
then, only after the satisfaction of all of the
requirements of the Lender relating to such
transfer), assign or transfer any of the same or
any interest therein. Any such assignment or
transfer made without the Lender's consent shall
be void and of no force or effect.
12.2 JOINT AND SEVERAL.
If any party to this Agreement or any of the
other Loan Documents shall be comprised of more
than one Person, all agreements, conditions,
covenants, provisions, stipulations, powers of
attorney, authorizations, waivers, releases,
options, undertakings, rights and benefits made or
given by such party shall be joint and several,
and shall bind and affect all Persons who are
defined herein or therein as such party as fully
as though all of them were specifically named
herein or therein wherever any term identifying
such party is used.
12.3 REMEDIES CUMULATIVE.
The rights and remedies set forth under this
Agreement are in addition to all other rights and
remedies afforded to the Lender under any of the
other Loan Documents or at law or in equity, all
of which are hereby reserved by the Lender, and
this Agreement is made and accepted without
prejudice to any such rights and remedies. All of
the rights and remedies of the Lender under each
of the Loan Documents shall be separate and
cumulative and may be exercised concurrently or
successively in the Lender's sole and absolute
discretion.
12.4 FURTHER ASSURANCES.
At any time and from time to time, upon the
written request by the Lender, the Borrower and
the Guarantor shall promptly make, execute and
deliver, or cause to be made, executed and
delivered, to the Lender and, where appropriate,
cause to be recorded or filed (and, from time to
time thereafter, to be re-recorded or refiled) at
such time and in such offices and places as shall
be deemed desirable by the Lender (in its sole and
absolute discretion), any such agreements,
amendments, assignments, instruments of further
assurance, certificates and other documents as the
Lender may, in its sole and absolute discretion,
deem desirable to (a) enable the Lender to
negotiate the Note and to assign the Loan
Documents or any portion of its interest; (b)
enable the Lender to enter into participation
agreements with respect to all or any portion of
the Obligations or (c) effectuate, complete,
perfect or continue and preserve the rights,
remedies and
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obligations under any of the Loan Documents,
including, without limitation, any document
requested in order to perfect or continue the
security interests created under the Loan
Documents as first priority security interests in
the Collateral; provided, however, that, except as
to the costs and expenses reasonably incurred by
the Lender in connection with the items referred
to in the foregoing clause (c), no such additional
document or other instrument requested by the
Lender hereunder shall increase the Obligations.
Any failure by the Borrower or the Guarantor
to comply with any request pursuant to this
Section 12.4 within twenty (20) days after such
written request is made by the Lender shall be an
Event of Default hereunder and upon such Event of
Default, the Lender may make, execute, record,
file, re-record and refile any and all such
amendments, assignments, instruments, certificates
and documents for and in the name of the Borrower
or the Guarantor, and the Borrower and the
Guarantor each hereby appoints the Lender as its
attorney-in-fact, with full power of substitution,
to take such actions (on behalf of and in the name
of the Borrower or the Guarantor as the case may
be) as the Lender, in its sole and absolute
discretion; may deem necessary or desirable to
effectuate the intent of this Section 12.4.
The power of attorney conferred on the Lender
by the provisions of this Section 12.4, being
coupled with an interest, shall be irrevocable
until the Obligations are fully paid and performed
and shall not be affected by any disability or
incapacity which either the Borrower or the
Guarantor may suffer and shall survive the same.
Such power of attorney is provided solely to
protect the interests of the Lender and shall not
impose any duty on the Lender to exercise any such
power and neither the Lender nor such attorney-in-
fact shall be liable for any act, omission, error
in judgment or mistake of law, except as the same
may result from its gross negligence or willful
misconduct.
12.5 INVALIDITY.
If any provision of this Agreement or any of
the other Loan Documents or the application
thereof to any Person or circumstance, for any
reason and to any extent, shall be held to be
invalid or unenforceable, neither the remainder of
this Agreement or other Loan Document nor the
application of such provision to any other Person
or circumstance shall be affected thereby, but
rather the same shall be enforced to the greatest
extent permitted by applicable law.
Notwithstanding the foregoing, it is the
intention of the parties hereto that if any
provision- of any of the Loan Documents is capable
of two (2) constructions, one of which would
render the provision void and the other of which
would render the provision valid, then such
provision-shall be construed in accordance with
the construction which renders such provision
valid.
12.6 MARSHALLING, JURY TRIAL AND OTHER RIGHTS.
To the maximum extent permitted by law, the
Borrower and the Guarantor each hereby waives and
renounces for itself" and its administrators,
legal representatives, successors and assigns, all
rights to the benefits of any statute of
limitations and any moratorium, reinstatement,
marshalling, forbearance, valuation, stay,
extension, redemption, appraisement, and exemption
now provided, or which may hereafter be provided,
by the Constitution and laws of the United States
of America and of any state thereof, both as to
itself and in and to all of its property, real and
personal, against the enforcement and collection
of the Obligations. The Borrower and the Guarantor
each hereby (a) transfers, conveys and assigns to
the Lender a sufficient amount of such
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exemption as may be set apart in bankruptcy, to
pay the obligations of the Borrower and the
Guarantor under the Loan Documents in full, with
all costs of collection, and (b) directs any
trustee in bankruptcy having possession of such
exemption to deliver to the Lender a sufficient
amount of property or money set apart as exempt to
pay the obligations of the Borrower and the
Guarantor under the Loan Documents.
The power of attorney conferred on the Lender
pursuant to the provisions of this Section 12.6
being coupled with an interest, shall be
irrevocable until all of the Obligations has been
fully paid and performed, shall not be affected by
any disability or incapacity which either the
Borrower or the Guarantor may suffer and shall
survive the same. Such power of attorney, is
provided solely to protect the interests of the
Lender and shall not impose any duty on the Lender
to exercise any such power, and neither the Lender
nor such attorney-in-fact shall be liable for any
act, omission, error in judgment or mistake of
law, except as the same may result from its gross
negligence or wilful misconduct.
TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE
PARTIES HERETO EACH HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES ANY RIGHT IT MAY NOW OR
HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THE LOAN OR ANY OF THE LOAN DOCUMENTS.
The Borrower and the Guarantor each hereby
certifies that neither the Lender, nor any of the
Lender's representatives, agents or counsel has
represented, expressly or otherwise, that the
Lender would not, in the event of any such suit,
action or proceeding, seek to enforce this waiver
of the right to trial by jury, and acknowledges
that the Lender has been induced by this waiver
(among other things) to enter into the loan
transaction evidenced by the Loan Documents, and
further acknowledges that it (i) has read the
provisions of this Agreement and in particular,
the paragraph containing this waiver; (ii) has
consulted legal counsel; (iii) understands the
rights that it is granting in this Agreement and
the rights that it is waiving in this paragraph in
particular and (iv) makes the waivers set forth
herein knowingly, voluntarily and intentionally.
12.7 NO WAIVERS.
The Lender shall not by any act, delay,
omission or otherwise (including, without
limitation, the exercise of any right or remedy
hereunder) be deemed to have waived any of its
rights -or remedies hereunder or under any of the
other Loan Documents unless such waiver is in
writing and signed by the Lender, and then, only
to the extent specifically set forth therein. No
waiver at any time of any of the terms,
conditions, covenants or warranties of any of the
Loan Documents shall be construed as a waiver of
any other term, condition, covenant or warranty of
any of the Loan Documents, nor shall such a waiver
in any one instance or circumstance be construed
as a waiver of the same term, condition, covenant
or warranty in any subsequent instance or
circumstance. No such failure, delay or waiver
shall be construed as creating a requirement that
the Lender must thereafter, as a result of such
failure, delay or waiver, give notice to any
member of the Borrowing Group or any other Person
that the Lender does not intend to give a further
waiver or to refrain from insisting upon the
strict performance of the terms, conditions,
covenants and warranties set forth in the Loan
Documents before the Lender can exercise any of
its rights or remedies under any of the Loan
Documents or before any Loan Default can occur or
as establishing a course of dealing for
interpreting the conduct of and agreements between
the Lender and any member of the Borrowing Group
or any other Person.
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The acceptance by the Lender of any payment
that is less than payment in full of all amounts
due under any of the Loan Documents at the time of
the making of such payment shall not (a)
constitute a waiver of the right to exercise any
of the Lender's remedies at that time or at any
subsequent time, (6) constitute an accord and
satisfaction or (c) nullify any prior exercise of
any remedy; without the express written consent of
the Lender. Any failure by the Lender to
accelerate the indebtedness due under this
Agreement or any of the other Loan Documents by
reason of a default hereunder or thereunder, any
acceptance by the Lender of a past due
installment, or any indulgence granted by the
Lender from time to time shall not be construed
(i) as a novation of this Agreement or any of the
other Loan Documents or as a reinstatement of the
indebtedness evidenced thereby or as a waiver of
such right of acceleration or of the right of the
Lender thereafter to insist upon strict compliance
with the terms of this Agreement or any of the
other Loan Documents or (ii) to prevent the
exercise of such right of acceleration or any
other right granted hereunder or under applicable
law; and, to the maximum extent permitted by law,
the Borrower and the Guarantor each hereby
expressly waives the benefit of any statute or
rule of law or equity now provided, or which may
hereafter be provided, which would produce a
result contrary to or in conflict with the
foregoing.
Whether or not for consideration paid or
payable to the Lender and, except as may be
otherwise specifically agreed to by the Lender, no
forbearance on the part of the Lender or extension
of the time for the payment of the whole or any
part of the Obligations, or any other indulgence
given by the Lender to the Borrower or any other
Person, shall operate to release or in any manner
affect the original liability of the Borrower or
such other Person, or the priority of the Mortgage
or to limit, prejudice or impair any right of the
Lender, including, without limitation, the right
to realize upon the Collateral; or any part
thereof, for any of the obligations evidenced or
secured by the-Loan Documents; notice of any such
extension, forbearance or indulgence being hereby
waived by the Borrower and the Guarantor and all
those claiming by, through or under the Borrower
or the Guarantor.
12.8 USURY.
In the event that fulfillment of any
provision of any of the Loan Documents, at the
time performance of such provision shall be due
and as a result of any circumstance, shall involve
transcending the limit of validity presently or
hereinafter prescribed by any applicable usury
statute or any other law, with regard to
obligations of like character and amount, then
ipso facto the obligation to be fulfilled shall be
reduced to the limit of such validity, so that in
no event shall any exaction be possible under any
of the Loan Documents that is in excess of the
limit of such validity. In no event shall the
Borrower or the Guarantor be bound to pay for the
use, forbearance or detention of the money loaned
pursuant hereto, interest of more than the maximum
rate, if any, permitted by law to be charged by
the Lender; the right to demand any such excess
being hereby expressly waived by the Lender.
12.9 PARTICIPANTS.
The Lender reserves the right, from time to
time during the Term, to (a) enter into
participation agreements with respect to the Loan
or (b) assign, directly or as collateral, all or
any portion of the Obligations or all of the
Lender's rights therein; and each member of the
Borrowing Group shall cooperate with the Lender in
connection with the execution of any such
participation agreements or the transfer of any
such assignments.
Such cooperation shall include without
limitation:
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A. supplying financial statements of the
Borrower, the Guarantor and the
Facility;
B. providing estoppel certificates (i)
consenting to such participations or
assignments, (ii) confirming the
respective obligations of each member of
the Borrowing Group under the Loan
Documents, (iii) confirming the amount
of the then outstanding principal
balance of the Loan and the amounts of
any tax or insurance escrow deposits
held by the Lender, (iv) stating whether
any member of the Borrowing Group has
any defenses, offsets or credits against
the payment of any amounts due or the
performance of any obligations under the
Loan Documents and (v) stating whether
any default or any state of facts which,
with the passing of time or the giving
of notice or both, could constitute a
default, exists under the Loan
Documents;
C. making such modifications or alterations
to the Loan Documents as the Lender may
reasonably request; provided, however
that such modifications and alterations
shall not increase any of the Borrower's
or the Guarantor's monetary obligations
under the Loan Documents or materially
modify any other obligations of the
Borrower or the
Guarantor under the Loan Documents;
D. providing such other documentation
relating to the Loan and the Mortgaged
Property as the Lender may reasonably
request; and .
E. making the Mortgaged Property available
for inspection, during normal business
hours, upon reasonable notice from the
Lender.
The Lender shall have the right to provide
potential participants and assignees with any and
all financial, licensing and other information
provided to the Lender pursuant to the Loan
Documents upon informing such recipients of the
confidential nature of such information. The terms
and conditions of any participation agreements
with respect to the Loan or any assignment of all
or any of the obligations evidenced or secured by
the Loan Documents and the Lender's rights and
remedies therein shall be determined by the Lender
in its sole and absolute discretion.
12.10 SUCCESSORS AND ASSIGNS.
This Agreement and the other Loan Documents
shall be binding on and inure to the benefit of
(a) the Borrower and the Guarantor and their
respective heirs, executors, administrators, legal
representatives and permitted successors and
assigns and (b) the Lender, any other Person who
may now or hereafter hold any interest in the Loan
and their respective successors and assigns.
Notwithstanding the foregoing, neither the
Borrower nor the Guarantor shall not assign any of
its rights or obligations hereunder or under any
of the Loan Documents without the prior consent of
the Lender, in each instance, which consent may be
withheld in the Lender's sole and absolute
discretion.
12.11 NO THIRD PARTY BENEFICIARIES.
This Agreement and the other Loan Documents
are solely for the benefit of the Lender, its
successors, assigns and participants (if any), the
Meditrust Entities, the Indemnified Parties, the
Borrower and the Guarantor, and, except as
otherwise expressly set forth in any of the Loan
Documents, nothing contained therein shall confer
upon
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anyone other than such parties any right to insist
upon or to enforce the performance or observance
of any of the obligations contained therein. All
conditions to the obligations of the Lender to
advance or make available the proceeds of the
Loan, insurance proceeds or Condemnation awards,
or to release any deposits held for Impositions or
insurance proceeds are imposed solely and
exclusively for the benefit of the Lender, its
successors, assigns and participants and the
Meditrust Entities. No other Person shall have
standing to require satisfaction of such
conditions in accordance with their terms and no
other Person shall, under any circumstances, be a
beneficiary of such conditions, any or all of
which may be freely waived in whole or in part by
the Lender at any time, if, in the Lender's sole
and absolute discretion. the Lender deems it
advisable or desirable to do so.
12.12 GOVERNING LAW; JURISDICTION.
Except as may be otherwise expressly provided
in this Section 12.12, elsewhere in this Agreement
and in any of the other Loan Documents, all claims
relating, in any way, to the negotiation and/or
consummation of the Loan, the Lender's
relationship with any member of the Borrowing
Group in connection with the Loan and/or the
performance of any obligation under any of the
Loan Documents shall in all respects be governed,
construed, applied and enforced in accordance with
the internal laws of the Commonwealth of
Massachusetts without regard to principles of
conflicts of law. Notwithstanding the foregoing
choice of law:
A. the procedures governing the creation,
perfection and priority of the Liens
pertaining to real property and tangible
personal property created by the
Mortgage and the Assignment of Leases
and the enforcement by the Lender of its
rights and remedies under the Mortgage,
the Assignment of Leases and the other
Loan Documents with respect to the
Mortgaged Property or other Collateral,
including by way of illustration, but
not in limitation, actions for
foreclosure, for injunctive relief or
for the appointment of a receiver shall
be governed by the laws of the state
where such Mortgaged Property or other
Collateral are located;
B. the Lender shall comply with applicable
law in the state where the Mortgaged
Property or other Collateral is located
to the extent required by the law of
such jurisdiction in connection with the
foreclosure of the Liens created under
the Mortgage and the other Loan
Documents with respect to the Mortgaged
Property or other Collateral; and
C. the provisions of Federal law and the
law of the state where the Mortgaged
Property is located shall apply in
defining the terms Hazardous Substances,
Environmental Laws and Legal
Requirements as such terms are used in
Loan Documents, with respect to the
Mortgaged Property and the Borrowing
Group.
Nothing contained herein or in any provisions
of the other Loan Documents shall be construed to
provide that the substantive law of the state
where the Mortgaged Property or any other
Collateral is located shall apply to any parties'
rights and obligations under any of the Loan
Documents, which, except as expressly provided in
clauses (A), (B) and (C) above, are and shall
continue to be governed by the substantive law of
the Commonwealth of Massachusetts. In addition,
the fact that portions of the Loan Documents may
include provisions drafted to conform to the law
of the State where the Mortgaged Property is
located is not intended, nor shall it be deemed,
in any way, to
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derogate the parties' choice of law as set forth
or referred to in this Loan Agreement or in the
other Loan Documents. The parties further agree
that the Lender may enforce its rights under the
Loan Documents including, but not limited to, its
rights to sue the Borrower or to collect any
outstanding indebtedness in accordance with
applicable law.
Each party-hereto hereby consents to personal
jurisdiction in any state or Federal Court located
within the Commonwealth of Massachusetts, as well
as to the jurisdiction of all courts from which an
appeal may be taken from the aforesaid courts, for
the purposes of any suit, action or other
proceeding arising out of, or with respect to any
of the Loan Documents, the negotiation and/or
consummation of the Loan, the Lender's
relationship with any member of the Borrowing
Group in connection with the Loan and/or the
performance of any obligation or exercise of any
remedy under any of the Loan Documents and
expressly waives any and all objections it may
have as to venue in any of such courts.
12.13 NOTICES.
Any notice, request, demand, statement or
consent made hereunder or under any of the other
Loan Documents shall be in writing and shall be
deemed duly given if personally delivered, sent by
certified mail, return receipt requested, or sent
by a nationally recognized commercial overnight
delivery service with provisions for a receipt,
postage or delivery charges prepaid, and shall be
deemed given when personally delivered, postmarked
or placed in the possession of such mail or
delivery service and addressed as follows:
If to the Borrower: ESC I, L.P.
c/o Emeritus Corporation
3131 Elliott Avenue,
Suite 500
Seattle, Washington 98121-
2162
Attn: President
With a copy to: The
Nathanson Group
1411 Fourth Avenue, Suite
905
Seattle, Washington 98101
Attn: Randi S. Nathanson,
Esq.
If to the Lender: Meditrust
Mortgage Investments,
Inc.
197 First Avenue
Needham Heights,
Massachusetts 02194 Attn:
President
With copies to: Meditrust
Mortgage Investments, Inc.
197 First Avenue
Needham Heights,
Massachusetts 02194
Attn: General Counsel
Hutchins, Wheeler &
Dittmar
101 Federal Street
Boston, Massachusetts
02110
Attn: Jack H. Fainberg,
Esq.
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or at such other place as any party hereto may
from time to time hereafter designate to the other
in writing. Any notice given to the Borrower by
the Lender at any time shall not imply that such
notice or any further or similar notice was or is
required.
12.14 LIMITATION OF LIABILITY.
The Declaration of Trust establishing the
sole shareholder of the Lender, Meditrust, a
Massachusetts business trust (referred to herein
as "Meditrust"), dated August 6, I 985 (referred
to herein as the "Declaration"), a copy of which,
together with all amendments thereto, is duly
filed in the office of the Secretary of State of
the Commonwealth of Massachusetts, provides that
the name "Meditrust" refers to the trustees under
the Declaration collectively as trustees, but not
individually or personally; and that no trustee,
officer, shareholder, employee or agent of
Meditrust or any of its Subsidiaries shall be held
to any personal- liability, jointly, or severally,
for any obligation of, or claim against Meditrust
or any of its Subsidiaries. All Persons dealing
with Meditrust or the Lender, in any way, shall
look only to the assets of Meditrust or the
Lender, respectively, for the payment of any sum
or the performance of any obligation. Furthermore,
in no event shall the Lender or Meditrust ever be
liable to the Borrower, the Guarantor or any other
Person for any indirect or consequential damages
incurred by the Borrower, the Guarantor or such
other Person, resulting from any cause whatsoever.
Notwithstanding the foregoing, the Borrower and
the Guarantor hereby acknowledge and agree that
Meditrust is not a party to this Agreement or any
of the other Loan Documents and that the Borrower
and the Guarantor shall look only to the assets of
the Lender for the payment of any sum or
performance of any obligation due by or from the
Lender pursuant to the terms and provisions of the
Loan Documents.
12.15 ESTOPPEL CERTIFICATE.
Within ten (10) days after written request of
any other party hereto, any party to this
Agreement shall furnish a certificate or
affidavit, duly acknowledged, stating the amount
then due or outstanding under the Loan Documents,
whether there are any defaults under any of the
Loan Documents and whether or not any offsets or
defenses exist against the Obligations, and if so,
specifying such offsets and defenses. Within ten
(10) days following the written request of the
Lender, the Borrower shall furnish a certificate
or affidavit, duly acknowledged, stating the
amount then due under any other documents
evidencing any indebtedness of the Borrower
secured by a Lien
relating to the Mortgaged Property, whether there
are any defaults under such documents and whether
or not any offsets or defenses exist against the
amount due thereunder and if so, specifying such
offsets and defenses.
12.16 NO JOINT VENTURE OR PARTNERSHIP.
Neither anything contained in any of the Loan
Documents, nor the acts of the parties hereto
shall be construed to create a partnership or
joint venture between the Borrower or the
Guarantor and the Lender. Neither the Borrower nor
the Guarantor is the agent or representative of
the Lender, and nothing contained herein or in any
of the other Loan Documents shall be construed to
make the Lender liable to any Person for goods
delivered or services performed with respect to
the Mortgaged Property or for debts or claims
accruing against the Borrower or the Guarantor.
12.17 AMENDMENTS, WAIVERS AND MODIFICATIONS.
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Except as otherwise expressly provided herein
or in any other Loan Document, none of the terms,
covenants, conditions, warranties or
representations contained in this Agreement or in
any of the other Loan Documents may be renewed,
replaced, amended, modified, extended,
substituted, revised, waived, consolidated or
terminated, except by an agreement, in writing,
signed by (a) all parties to this Agreement or the
other applicable Loan Document, as the case may
be, with regard to any such renewal, replacement,
amendment, modification, extension, substitution,
revision, consolidation or termination or (b) the
Person against whom enforcement is sought with
regard to any waiver. The provisions of this
Agreement shall extend and be applicable to all
renewals, replacements, amendments, extensions,
substitutions, revisions, consolidations and
modifications of the Loan Documents, the Leases,
the Management Agreements, the Related Party
Agreements, the Permits and/or the Contracts; and
all references herein and in the other Loan
Documents to any of the Loan Documents, the
Leases, the Management Agreements, the Related
Party Agreements, the Permits and the Contracts
shall be deemed to include any renewals,
replacements, amendments, extensions,
substitutions, revisions, consolidations or
modifications thereof.
Notwithstanding the foregoing, any reference
contained in any of the Loan Documents, whether
express or implied, to any renewal, replacement,
amendment, extension, substitution, revision,
consolidation or modification of any of the Loan
Documents or of any Lease, Management Agreement,
Related Party Agreement, Permit or Contract is not
intended to constitute an agreement or consent by
the Lender to any such renewal, replacement,
amendment, extension, substitution, revision;
consolidation or modification of any of the Loan
Documents or any Lease, Management Agreement,
Related Party Agreement, Permit or Contract; but,
rather as a reference only to those instances
where the Lender may give, agree or consent to any
such renewal, replacement, amendment, extension,
substitution, revision, consolidation or
modification, as the same may be required pursuant
to the terms, covenants and conditions of any of
the Loan Documents.
12.18 WAIVERS.
The Borrower and the Guarantor jointly and
severally, waive presentment for payment, demand,
protest, notice of nonpayment, notice of dishonor,
protest of any dishonor, suretyship defenses,
notice of protest and protest of the Loan
Documents and the Related Party Agreements, and
all other notices in connection with (a) the
delivery or the acceptance of the Loan Documents
and/or the Related Party Agreements and any
reliance thereon and/or (b) the performance,
default. (except notice of default as specifically
elsewhere required under any of the Loan Documents
or any of the Related Party Agreements) or
enforcement of any obligation under any of the
Loan Documents or any of the Related Party
Agreements, and agree that the liability of each
of them shall be unconditional without regard to
the liability of any other party and shall not be
in any manner affected by any indulgence,
extension of time, renewal, waiver or modification
granted or consented to by the Lender (or any of
the other Meditrust Entities); and the Borrower
and the Guarantor consent to any and all
extensions of time, renewals, waivers or
modifications that may be granted or consented to
by the Lender (or any of the other Meditrust
Entities) with respect to the payment or
performance of any obligation under any of the
Loan Documents or the Related Party Agreements and
to the release of the Collateral (or any part
thereof and/or any other collateral securing any
of the Related Party Agreements, with or without
substitution, and agree that additional makers,
endorsers, guarantors or sureties may become
parties to the Loan Documents and/or any of the
Related Party Agreements without notice to them or
affecting the liability of the Borrower and the
Guarantor under the Loan Documents.
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12.19 CONTRIBUTION.
No Person obligated on account of any of the
Loan Documents may seek contribution from any
other Person also obligated unless and until all
liabilities, obligations and indebtedness to the
Lender of the Person from whom contribution is
sought have been satisfied in full.
12.20 CAPTIONS AND HEADINGS.
The captions and headings set forth in this
Agreement and the other Loan Documents are
included for convenience and reference only and
the words contained therein shall in no way be
held or deemed to define, limit, describe,
explain, modify, amplify or add to the
interpretation, construction or meaning of, or the
scope or intent of, this Agreement, any of the
other Loan Documents or any part hereof or
thereof.
12.21 TIME OF THE ESSENCE.
Time is of the essence of each and every
term, condition, covenant and warranty set forth
in this Agreement and in the other Loan Documents.
12.22 COUNTERPARTS.
This Agreement may be executed in one or more
counterparts, each of which taken together shall
constitute an original and all of which shall
constitute one and the same instrument.
12.23 RULES OF CONSTRUCTION.
References in this Agreement and each of the
other Loan Documents to "herein", "hereof" and
"hereunder" shall be deemed to refer to this
Agreement or each such other Loan Document, as the
case may be, and shall not be limited to the
particular text or Section in which such words
appear. The use in the Loan Documents of any
gender shall include all genders and the singular
number shall include the plural and vice versa as
the context may require. References in the Loan
Documents to the Lender's attorneys shall be
deemed to include, without limitation, special
counsel and local counsel for the Lender.
References in the Loan Documents to attorneys'
fees and expenses shall be deemed to include all
costs for administrative, paralegal and other
support staff.
References in the Loan Documents to the
Mortgaged Property shall be deemed to include
references to all of the Mortgaged Property and
references to any portion thereof. References in
the Loan Documents to the Land shall be deemed to
include references to all of the Land and
references to any portion thereof. References in
the Loan documents to the Real Property shall be
deemed to include references to all of the Real
Property and references to any portion thereof.
References in the Loan Documents to the Loan
Obligations shall be deemed to include references
to all of the Loan Obligations and references to
any portion thereof. References in the Loan
Documents to the Obligations shall be deemed to
include references to all of the Obligations and
references to any portion thereof. The word
"foreclosure" as used in any of the Loan Documents
shall be deemed to include the acquisition of the
Mortgaged Property. by voluntary deed or
assignment in lieu of foreclosure.
All exhibits annexed to any of the Loan
Documents as referenced therein shall be deemed
incorporated in such Loan Document by such
annexation and/or reference.
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As used in any of the Loan Documents, the
term "including", when following any general
statement, will not be construed to limit such
statement to the specific items or matters as
provided immediately following the term
"including" (whether or not non-limiting language
such as "without limitation" or "but not limited
to" or words of similar import are also used), but
rather will be deemed to refer to all items or
matters that could reasonably fall within the
broader scope of the general statement.
All accounting terms not specifically defined
in the Loan Documents shall be construed in
accordance with GAAP. Any requirement that
financial statements be Consolidated in form shall
apply only to such financial statements as relate
to a period during any portion of which the
relevant Person has one or more Subsidiaries.
While no Provider Agreements presently exist
with respect to the operation of the Mortgaged
Property (and/or any programs or services provided
at the Mortgaged Property) and, accordingly, the
provisions of this Agreement and the other Loan
Documents relating in any way to Provider
Agreements are presently inapplicable; in the
event that, at any time during the Term, the
Borrower or the Facility enters into any Provider
Agreement, then, all such provisions of this
Agreement and the other Loan Documents relating to
Provider Agreements shall apply with full force
and effect. In addition, while neither the
Borrower nor the Mortgaged Property is currently
under the jurisdiction of, or is otherwise subject
to the rules of, any Accreditation Body, and,
accordingly, the provisions of this Agreement and
the other Loan Documents relating in any way to
Accreditation. Bodies are presently inapplicable;
in the event that at any time during the Term, the
Borrower, any Lessee or the Mortgaged Property
falls under the jurisdiction of, or otherwise
becomes subject to the rules of, any Accreditation
Body, then, all such provisions of this Agreement
and the other Loan Documents relating to
Accreditation Bodies shall apply with full force
and effect.
12.24 GENERAL PROVISIONS APPLICABLE TO ALL LOAN
DOCUMENTS.
The provisions of Section 12 hereof shall
apply to all Loan Documents as if set forth in
full therein, except as may be otherwise expressly
provided in any other Loan Document.
12.25 ENTIRE AGREEMENT.
This Agreement and the other Loan Documents
set forth the entire agreement of the parties with
respect to the subject matter hereof and shall
supersede any prior writing regarding the subject
matter hereof in its entirety.
13. INDEMNIFICATIONS
13.1 BROKER'S FEE INDEMNIFICATION.
The Borrower and Lender each shall and hereby
agrees to indemnify, defend (with counsel
acceptable to the other) and hold the other
harmless from and against any and all claims for
any premiums or other charges, finder's fees,
taxes, brokerage fees or commissions and other
similar compensation due in connection with the
Loan. Notwithstanding the foregoing, the
indemnified party shall have the option of
conducting its own defense against any such claims
with counsel of the such party's choice, but at
the expense of the indemnified party, as
aforesaid. This indemnification shall include all
attorneys' fees and expenses and court costs
reasonably incurred by the indemnified party
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in connection with the defense against any such
claims and the enforcement of this indemnification
and shall survive the complete payment and
performance of the Loan Obligations and the
foreclosure of the Mortgage.
13.2 GENERAL INDEMNIFICATION.
Except with respect to the gross negligence
or wilful misconduct of Lender or any of the other
Indemnified Parties, as to which no indemnity is
provided, Borrower hereby agrees to defend with
counsel reasonably acceptable to Lender, against
all claims and causes of action and to indemnify
and hold harmless Lender and each of the other
Indemnified Parties from and against all damages,
losses, liabilities, obligations, penalties, costs
and expenses (including, without limitation,
reasonable attorneys' fees, court costs and other
expenses of litigation) suffered by, or claimed or
asserted against, Lender or any of the other
Indemnified Parties, directly or indirectly, by
any Person other than a member of the Borrowing
Group who prevails in such claim or action based
on, arising out of or resulting from (a) the use
and occupancy of the Mortgaged Property or any
business conducted therein, (b) any act, fault,
omission to act or misconduct by (i) any member of
the Borrowing Group, (ii) any Affiliate of
Borrower or (iii) any employee, agent, licensee,
business invitee; guest, customer, contractor or
such lessee of any of the foregoing parties,
relating to, directly. or indirectly, the
Mortgaged Properly, (c) any accident, injury or
damage whatsoever caused to any Person, including,
without limitation, any claim of malpractice, or
to the property of any Person in or about the
Mortgaged Property or outside of the Mortgaged
Property where such accident, injury or damage
results or is claimed to have resulted from any
act, fault, omission to act or misconduct by any
member of the Borrowing Group or any Affiliate of
Borrower or any employee, agent, licensee,
contractor or lessee of any of the foregoing
parties, (d) any Loan Default, (e) any claim
brought or threatened against Lender by any member
of the Borrowing Group or by any other Person on
account of (i) Lender's relationship with any
member of the Borrowing Group pertaining in any
way to the Mortgaged Property and/or the
transaction evidenced by the Loan Documents and/or
(ii) Lender's negotiation of, entering into and/or
performing any of its obligations and/or
exercising any of its right and remedies under any
of the Loan Documents, (f) any attempt by any
member of the Borrowing Group or any Affiliate of
Borrower to transfer or relocate any of the
Permits to any location other than the Mortgaged
Property and/or (g) the enforcement of this
indemnity. Any amounts which become payable by
Borrower under this Section 13.2.1 shall be a
demand obligation of Borrower to Lender payable as
Additional Interest. The indemnity provided for in
this Section 12.2.1 shall survive the complete
payment and performance of the Loan Obligations
and the foreclosure of the Mortgage.
14. SUBSTITUTION OF PROPERTY
14.1 SUBSTITUTION OF PROPERTY FOR MORTGAGED
PROPERTY.
Provided that no Loan Default has occurred
under any of the Loan Documents, (excluding any
Loan Default which has been waived in writing by
Lender) nor any event which, with the giving of
notice or the passage of time or both, would
constitute such a Loan Default, the Borrower shall
have the right from time to time (referred to
herein as the "Substitution Right"), exercisable
upon not less than ninety (90) days' prior written
notice to the Lender (referred to herein as a
"Substitution Notice") to substitute, on a date
specified in such Substitution Notice (such date,
as the same may be extended by express written
agreement of the Lender, shall be referred to
herein as a "Substitution Date"), the land,
buildings, fixture, furnishings, equipment and
other personal properly from time to time securing
this Loan (referred to herein as the "Secured
Property") with a Comparable
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Property. As used herein, the term "Comparable
Property" shall be defined as a health care
facility or facilities which the Lender determines
(A) has an appraised value greater than or equal
to the greater of (i) the appraised value of the
Mortgaged Property as of the date hereof or (ii)
the appraised value of the Secured Property
securing the Loan at the time that the applicable
Substitution Notice is furnished to the Lender
(based on appraisal criteria then in effect), (B)
has a Debt Coverage Ratio greater than or equal to
the greater of (i) the Debt Coverage Ratio of the
Mortgaged Property as of the date hereof or (ii)
the Debt Coverage Ratio of the Secured Property
securing the Loan at the time that the applicable
Substitution Notice is furnished to the Lender,
(C) provides a mix of services reasonably
acceptable to the Lender and (D) is otherwise
reasonably acceptable, in all respects, to the
Lender (based on the Lender's usual and customary
underwriting criteria then in effect). The
Borrower may not exercise its Substitution Right
more than once in any calendar year.
14.2 CONDITIONS TO SUBSTITUTION.
Without limiting the foregoing, as conditions
precedent to the consummation of any proposed
substitution: -
(i) as of the applicable Substitution
Date, no Loan Default shall have occurred
under any of the Loan Documents, nor shall
any event have occurred and be continuing
which with the giving of notice or the
passage of time or both would constitute such
a Loan Default;
(ii) the Lender shall have received,
engineering and inspection reports relating
to the healthcare facility or facilities
identified by the Borrower in the applicable
Substitution Notice (referred to herein as a
"Proposed Property"), reasonably satisfactory
in all respects to the Lender;
(iii) the Borrower shall have delivered
to the Lender (1) an MAI appraisal of the
Proposed Property (prepared by an appraiser
selected by the Borrower and approved by the
Lender), in form and substance reasonably
satisfactory to the Lender and (2) an
instrument survey of the premises upon which
the Proposed Property is located acceptable
to the Lender and the Title Company;
(iv) the Lender shall be satisfied as to
compliance of the Borrower, the Proposed
Property, the owner of the Proposed Property
(to the extent such owner is not the Borrower
as provided in subsection (xi) below) and/or
the proposed substitution, as the case may
be, with (1) all applicable land use, zoning,
subdivision and environmental laws and
regulations, (2) all applicable licensure
laws and regulations and (3) such other
matters as the Lender reasonably deems
relevant (including, without limitation,
whether the security interests granted to the
Lender in connection with the proposed
substitution may be avoided under the
Bankruptcy Code);
(v) the Borrower shall have delivered to
the Lender a mortgagee's title insurance
commitment issued by a title insurer
reasonably acceptable to the Lender (the
"Title Company"), in an amount equal to the
Loan Amount then outstanding, with such
endorsements as the Lender may reasonably
require insuring the first priority of the
Lender's valid mortgage lien on the
Borrower's fee title or leasehold title to
the Proposed Property and arrangements
satisfactory
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to the Lender shall have been made for the
issuance of a title insurance policy in
accordance with such title insurance
commitment;
(vi). the Borrower shall have delivered
an environmental site assessment report
relating to the Proposed Property, in form
and substance reasonably acceptable to the
Lender and prepared by an environmental
consultant reasonably acceptable to the
Lender;
(vii) the Lender shall have received
opinions of the Borrower's counsel as to (1)
the compliance of the Proposed Property with
land use, zoning, subdivision and
environmental laws and regulations, (2) the
compliance of the Borrower, the owner of the
Proposed Property (to the extent such owner
is not the Borrower as provided in subsection
(xi) below), the proposed substitution and
the Proposed Property with applicable health
care laws and regulations and various
applicable licensure laws and regulations,
(3) the due authorization, execution and
enforceability of the Substitution Documents
and (4) such other matters as are reasonably
requested, in form and substance reasonably
acceptable to the Lender;
(viii) the Borrower and Guarantor shall
have executed and delivered, or caused to be
executed and delivered, such documents as are
reasonably required by the Lender to
effectuate the substitution (collectively,
the "Substitution Documents"), including,
without limitation either lease documentation
such would be used for a Lease Conversion (if
the Proposed Project is to be acquired by
Lender or its Affiliates and leased to
Borrower) or if the Personal Property is
owned by the Borrower, amendments of the Loan
Documents, a mortgage and security agreement,
assignment of leases and rents and collateral
assignment of permits and contracts relating
to the Proposed Property, U.C.C. financing
statements and ratifications of the Loan
Documents. The Substitution Documents shall
be based upon and contain the same terms and
conditions as are set forth in the Loan
Documents in effect prior to the
substitution, except that such changes shall
be made as may be necessary or reasonably
appropriate under the circumstances to
effectuate the substitution and secure the
protection and priority of the security
interests granted to the Lender;
(ix) without limiting any other
provision contained herein, the Borrower
shall have delivered to the Lender such other
information and materials relating to the
Borrower, the owner of the Proposed Property
(to the extent such owner is not the Borrower
as provided in subsection (xi) below) and the
Proposed Property as the Lender may
reasonably request, including, without
limitation, leases, receipted bills,
management agreements, provider agreements,
cost reports, health care surveys, Permits,
evidence of legal and actual access to the
Proposed Property, evidence of the
availability and sufficiency of utilities
servicing the Proposed Property, historical
and current operating statements, detailed
budgets and fmancial statements and the
Lender shall have found the same to be
satisfactory in all respects;
(x) as of the date of the consummation
of the substitution, the Borrower or an
Affiliate of the Borrower shall be the
licensed operator of the Proposed Property;
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(xi) as of the date of the consummation
of the substitution, the Proposed Property
shall be owned or leased by the Borrower or
an Affiliate of the Borrower or Borrower or
an Affiliate of Borrower shall have the right
to acquire the Proposed Property pursuant to
a valid, binding and enforceable purchase
agreement (and Borrower or such Affiliates
shall have assigned all of such person' s
rights thereunder to Lender or its Affiliate
pursuant to an assignment in form and
substance acceptable to Lender; provided,
however that in the event that the Proposed
Property is owned by any such Affiliate, (i)
said Affiliate shall execute and deliver to
the Lender such Substitution Documents as may
be reasonably required by the Lender,
including, without limitation, an assumption
agreement pursuant to which such Affiliate
shall assume and agree to pay, perform,
satisfy and discharge promptly, punctually,
faithfully and completely all of the
Borrower's debts, liabilities, covenants,
agreements and obligations under all of the
Loan Documents and (ii) the Lender shall be
provided with such evidence as it may require
to determine that the granting by said
Affiliate of a mortgage relating to the
Proposed Property to secure the Loan does rot
constitute a fraudulent conveyance (under
applicable federal or state law);
(xii) the Borrower shall have delivered
to the Lender an insurance certificate
evidencing compliance with all of the
insurance requirements set forth in the Loan
Documents; and .
(xiii) the Lender shall have determined
that the Proposed Property constitutes a
Comparable Property.
14.3 CONVEYANCE TO BORROWER.
After the consummation of a substitution in
accordance with the terms hereof, the Lender shall
deliver to the Borrower releases of liens, in
recordable form and reasonably acceptable to the
Borrower, as well as termination statements, all
relating to the real and personal property which
is then no longer included in the Collateral.
14.4 EXPENSES.
Whether or not any proposed substitution is
consummated, the Borrower shall pay all of the out-
of pocket expenses and other costs incurred or
expended by the Lender in connection with any
proposed substitution (collectively referred to
herein as "Substitution Closing Costs"),
including, without limitation, reasonable
attorneys' fees and expenses, engineering costs,
consultants' fees, appraisal costs, audit and tax
review costs, out-of pocket travel expenses,
inspection fees, title insurance premiums and
other title fees, survey expenses, mortgage taxes,
transfer, documentary stamp and other taxes,
search charges of any nature, recording,
registration and filing costs, and any other costs
expended or incurred by the Lender in connection
with the preparation for and the documentation
and/or the closing of the proposed substitution.
The Substitution Closing Costs shall be a demand
obligation of the Borrower to the Lender and, if
not paid within ten (10) days after demand, shall
thereafter (to the extent permissible under
applicable law) bear interest at the Advances Rate
until the date of payment and, to the maximum
extent permitted by applicable law, shall be added
to the Loan Obligations and secured by the liens
of the Mortgage and the other Loan Documents, as
fully and effectively and with the same priority
as every other obligation thereunder and
hereunder.
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EXECUTED as a sealed instrument as of the day
and year first above mentioned.
WITNESS: LENDER:
MEDITRUST MORTGAGE
INVESTMENTS, INC.,
A Delaware corporation
/s/ Amelia C. Gentry By:/s/ Michael F. Bushee
-------------------------- -----------------------
Name: Amelia C. Gentry Name: Michael F. Bushee
WITNESS: BORROWER:
ESC I, L.P., a Washington
limited partnership
By: ESC G.P.I, Inc. a
Washington corporation,
Its sole General Partner
/s/ Jennifer A. Valenta By: /s/ Kelly J. Price
------------------------- ------------------------
Name. Jennifer Valenta Name: Kelly J. Price
Title: Vice President of Finance
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EXHIBIT B
DEFINITIONS
ACCREDITATION BODY: Any persons having or claiming
jurisdiction over the accreditation ,
certification, evaluation or operation of the
Facility.
ADDITIONAL INTEREST: As defined in Section 3.8.
ADDITIONAL INTEREST CALCULATION DATE: As defined
in Section 3.8.
ADVANCES RATE: The rate of interest per annum
equal to the greater of (a) eighteen percent (18%)
per annum or (b) a variable rate of interest per
annum equal to one hundred twenty percent (120%)
of the Prime Rate; but in no event in excess of
the maximum rate of interest permitted by
applicable law to be charged by the Lender.
AFFILIATE: With respect to any Person (a) any
other Person which, directly or indirectly,
controls or is controlled by or is under common
control with such Person, (b) any other Person
that owns, beneficially, directly or indirectly,
five percent (5%) or more of the outstanding
capital stock, shares or equity interests of such
Person or (c) any officer, director, employee,
general partner or trustee of such Person or any
other Person controlling, controlled by or under
common control with such Person (excluding
trustees and Persons serving in a fiduciary or
similar capacity who are not otherwise an
Affiliate of such Person). For the purposes of
this definition, the term "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, provider, however, that (a) for
purposes of determining a Related Party Default,
the percentage of outstanding capital stock,
shares of equity interests referenced in (ii)
above shall be fifty percent (50%), and (b) any
Person who is an Af3filiate by virtue of the
ownership thereof by Daniel R. Baty or his status
therein as an officer or director shall not be
deemed an Affiliate for purposes of determining a
Related Patty Default.
AFFILIATED PARTY SUBORDINATION AGREEMENT: As
defined in Section 4.1.
AGREEMENT REGARDING RELATED TRANSACTIONS: The
Second Amended and Restated Agreement Regarding
Related Transactions (Acquisition) dated of even
date, as amended from time to time, between
Lessee, Lessor and any Related Party that is party
to any Related Lease or Related Party Agreement.
Lessor and Lessee anticipate that the Agreement
Regarding Related Transactions will be amended
from time to time to include Affiliates of Lessor
and Lessee as parties thereto in connection with
future transactions and acknowledge and agree that
for all purposes under this Lease Agreement such
amendments shall be deemed to be included in this
definition.
ANNUAL FACILITY UPGRADE EXPENDITURE: An aggregate
annual amount equal to the product of TWO HUNDRED
DOLLARS ($200) (as increased as of the first day
of each Loan Year in which the Annual Facility
Upgrade Expenditure is to be made by an amount
equal to the product of the CPI Increase
multiplied by TWO HUNDRED DOLLARS ($200)) times
the number of units in the Facility, such amount
to be spent on Upgrade Renovations. The term "CPI
Increase" means a fraction, the numerator of which
is the Price Index in effect as of the first day
of the Loan Year in which the Annual Facility
Upgrade Expenditure is to be made and the
denominator of which is the. Price Index in effect
as of the date hereof. The term "Price Index"
means the Consumer Price
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Index for Urban Wage Earners and Clerical Workers,
All Items-Series A (1982-84=100), published by the
Bureau of Labor Statistics, U.S. Department of
Labor. If the Bureau of Labor Statistics should
cease to publish such Price Index in its present
form and calculated on the present basis, then the
most similar index published by the same Bureau
shall be used for the same purpose. If there is no
such similar index, a substitute index which is
then generally recognized as being similar to such
Price Index, such substitute index to be
reasonably selected by Lender.
APPROVAL DATE: As defined in Section 8.7.
ASSIGNMENT OF LEASES: As defined in Section 4.1.
BANKRUPTCY CODE: Subsection 365(h) of the United
States Bankruptcy Code, 11 U.S.C. Section 365(h),
as the same may hereafter be amended and including
any successor provision thereto.
BASE REVENUES: As defined in Section 3.8.
BORROWER: As defined in the preamble of this
Agreement and its successors and assigns.
BORROWING GROUP Collectively, the Borrower, the
Guarantor, the General Partner, any Lessee which
is an Affiliate of Borrower, and any Manager which
is an Affiliate of Borrower. .
BUSINESS DAY: Any day which is not a Saturday or a
Sunday or a public holiday under the laws of the
United States of America, the Commonwealth of
Massachusetts or the state in which the Lender's
depository bank is located.
CAPITAL ADDITION: Collectively, all new buildings
and additional structures annexed to any portion
of any of the Improvements and material expansions
of any of the Improvements which are constructed
on any portion of the Mortgaged Property during
the Term, including, without limitation, the
construction of a new wing or new story, the
renovation of any of the Improvements on the
Mortgaged Property and any expansion,
construction, renovation or conversion in
connection therewith (a) in order to provide a
functionally new facility that is needed or used
to provide services not previously offered or (b)
in order to (i) increase the bed capacity of a
Facility, (ii) change the purpose for which such
beds are utilized and/or (iii) change the
utilization of any material portion of any of the
Improvements.
CASH COLLATERAL: As defined in the Deposit Pledge
Agreement.
CASH FLOW: The Consolidated Net Income (or
Consolidated Net Loss), arising solely from the
operation of the Mortgaged Property, before
federal and state income taxes for any period ;
(a) the amount of the provision for depreciation
and amortization actually deducted on the books of
the applicable Person for the purpose of computing
such Consolidated Net Income (or Consolidated Net
Loss) for the period involved, (b) interest on the
Loan and on all payments with respect to all
Indebtedness and/or other obligations (including,
without limitation, management fees) which are
fully subordinated to the Loan, plus (c) any
indebtedness which is fully subordinated to the
Loan Obligations pursuant to the Affiliated Party
Subordination Agreement. .
CASUALTY: As defined in Section 82.
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CLOSING DATE: The date of this Agreement.
COLLATERAL: As defined in Section 4.3.
COMPETITIVE ACTIVITY: As defined in Section 6.10.
CONDEMNATION: As defined in Section 8.2.
CONSOLIDATED AND CONSOLIDATING: The consolidated
and consolidating accounts of the relevant Person
and its Subsidiaries in accordance with GAAP.
CONSOLIDATED FINANCIALS: For any fiscal year or
other accounting period for any Person and its
consolidated Subsidiaries, statements of earnings
and retained earnings and of changes in financial
position for such period and for the period from
the beginning of the respective fiscal year to the
end. of such period and the related balance sheet
as at the end of such period, together with the.
notes thereto, all in reasonable detail and
setting forth in comparative form the
corresponding figures for the corresponding period
in the preceding fiscal year, and prepared in
accordance with GAAP, and disclosing all
liabilities of such Person and its consolidated
subsidiaries, including, without limitation,
contingent liabilities. .
CONSULTANTS: Collectively, the architects,
engineers, inspectors, surveyors and other
consultants that are engaged, from time to time,
by the Lender to perform services for the Lender
in connection with the Loan.
CONTRACTS: As defined in the Mortgage.
CURRENT ASSETS: All assets of any Person which
would, in accordance with GAAP, be classified as
current assets.
CURRENT LIABILITIES: All liabilities of any Person
which would, in accordance with GAAP, be
classified as current liabilities.
CURRENT RATE: As defined in Section 3.6.
DEBT COVERAGE RATIO : The ratio of (a) Cash Flow
for each applicable period to (b) the total of all
interest and principal amortization (excluding
Additional Interest) required under all
Indebtedness paid or payable under the Note during
such period or accrued for such period.
DECLARATION: As defined in Section 12.13.
DEPOSIT PLEDGE AGREEMENT: As defined in Section
4.1.
DOLLARS: Lawful money of the United States of
America.
EARNINGS BEFORE INTEREST AND TAXES: The
Consolidated Net Income (or Consolidated Net Loss)
for any period, plus (a) all federal and state
income taxes (but not taxes in the nature of an ad
valorem property tax or a sales tax or an excise
tax) paid or accrued with respect to such period,
plus (b) all interest on any Indebtedness paid or
payable during such period.
ENVIRONMENTAL INDEMNITY AGREEMENT: As defined in
Section 4.1.
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ENVIRONMENTAL LAWS: As defined in the
Environmental Indemnity Agreement.
ERISA: The Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT: As defined in Section 10.
EXCESS GROSS REVENUES: As defined in Section
3.8.03.
FACILITY: As defined in Section 1.2.
FAILURE TO OPERATE: As defined in Section 10.
FAILURE TO PERFORM: As defined in Section 10.
FINANCING PARTY: Any Person who is or may be
participating with Lender in any way in connection
with the financing of any Capital Addition.
FINANCING STATEMENTS: Uniform Commercial Code
financing statements evidencing the security
interests granted to the Lender in connection with
the Loan.
FLEET: Fleet Bank of Connecticut, N.A.
GAAP: Generally accepted accounting principles,
consistently applied throughout the relevant
period.
GENERAL PARTNER: ESC G.P. I, Inc.
GOVERNMENTAL AUTHORITIES: Collectively, all
agencies, authorities, bodies, boards,
commissions, courts, instrumentalities,
legislatures and offices of any nature whatsoever
for any government unit, quasi-government or
political subdivision, whether federal, state,
county, district, municipal, city or otherwise,
and whether now or hereafter in existence.
GROSS REVENUES: Collectively, all revenues
generated by reason of the operation of the
Mortgaged Property (including Capital Additions),
directly or indirectly received or to be received
by the Borrower or any Affiliates of Borrower,
including, without limitation, all resident
revenues received or receivable for the use of, or
otherwise by reason of all rooms, units and other
facilities provided, meals served, services
performed, space or facilities subleased or goods
sold on or from the Mortgaged Property, including,
without limitation, except as otherwise
specifically provided below,
any consideration received under any subletting,
licensing or other arrangements with any Person
relating to the possession or use of any portion
of the Mortgaged Property and all revenues from
all. ancillary services provided at and/or
relating to the Mortgaged Property; provided,
however, that Gross Revenues shall not include non-
operating revenues such as interest income or gain
from the sale of assets not sold in the ordinary
course of business; and provided, further, that
there shall be excluded or deducted (as the case
may be) from such revenues:
A. all applicable contractual
allowances (relating to any period during the
Term and thereafter until the principal
indebtedness hereunder is paid in full) for
billings not paid by or received from the
appropriate Governmental Authorities or Third
Party Payors,
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B. all applicable allowances according
to GAAP for uncollectible accounts,
C. all proper resident billing credits
and adjustments according to GAAP relating to
health care accounting,
D. federal, state or local sales, use,
gross receipts and excise taxes and any tax
based upon or measured by said Gross Revenues
which is added to or made a part of the
amount billed to the resident or other
recipient of such services or goods, whether
included in the billing or stated separately,
E. provider discounts for hospital or
other medical facility utilization contracts,
if any,
F. the cost, if any, of any special
federal, state or local governmental program
imposed specially to provide or finance
indigent resident care (other than Medicare,
Medicaid and the like), .
G. deposits refundable to residents of
the Facility, and
H. payments received on behalf of, and
paid to, persons who are not Affiliates of
Borrower.
To the extent that the Mortgaged Property is
leased or occupied by an Affiliate of Borrower,
Gross Revenues calculated for all purposes of this
Agreement (including, without limitation, the
determination of the Additional Interest payable
under this Agreement) shall include the Gross
Revenues of such lessee with respect to the
premises demised under the applicable lease (i.e.,
the Gross Revenues generated from the operations
conducted on such leased portion of the Mortgaged
Property) and the rent received or receivable from
such lessee pursuant to such leases shall be
excluded from Gross Revenues for all such
purposes. As to any lease between Borrower and a
non-Affiliate of Borrower, only the rental
actually received by Borrower from such non-
Affiliate shall be included in Gross Revenues.
GROUP FOUR ACQUISITION FACILITIES: As defined in
the Agreement Regarding Related Transactions.
GUARANTOR: Emeritus Corporation, a Washington
corporation and its successors and assigns.
GUARANTY: As defined in Section 4.1.
HAZARDOUS SUBSTANCES: As defined in the
Environmental Indemnity Agreement.
IMPOSITIONS: As defined in Section 6.20.01.
IMPROVEMENTS: Collectively, all buildings and
other improvements now or hereafter located on the
Land.
INDEBTEDNESS: The total of all obligations of a
Person whether current or long-term, which in
accordance with GAAP would be included as
liabilities upon such Person's balance sheet at
the date as of which Indebtedness is to be
determined, and shall also include (a) all capital
lease obligations and (b) all guaranties,
endorsements (other than
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for collection of instruments in the ordinary
course of business) or other arrangements whereby
responsibility is assumed for the obligations of
others, whether by agreement to purchase or
otherwise acquire the obligations of others,
including any agreement, contingent or otherwise,
to furnish funds through the purchase of goods,
supplies or services for the purpose of payment of
the obligations of others.
INDEMNIFIED PARTIES: Collectively, the Meditrust
Entities and their respective successors, assigns,
employees, servants, agents, attorneys, officers,
directors, shareholders, partners and owners.
INSURANCE REQUIREMENTS: All terms of any insurance
policy required by this Agreement, all
requirements of the issuer of any such policy with
respect to the Mortgaged Property and the
activities conducted thereon and the requirements
of any insurance board, association or
organization or underwriters' regulations
pertaining to the Mortgaged Property.
INTEREST RATE: As defined in the Note.
LAND: As defined in Section 1.2.
LATE PAYMENT: As defined in Section 3.7.
LATE PAYMENT CHARGES: As defined in the Section
3.7.
LEASES: Collectively, all leases, subleases,
licenses, agreements, concession agreements,
tenancy at will agreements, room rentals and
rentals of other facilities of the Mortgaged
Property and all other occupancy agreements of
every kind and nature (but excluding Resident
Agreements), whether oral or in writing, now in
existence or subsequently entered into by the
Borrower, encumbering or affecting all or any
portion of the Mortgaged Property.
LEGAL REQUIREMENTS: Collectively, all statutes,
ordinances, by-laws, codes, rules, regulations,
restrictions, orders, judgments, decrees, and
injunctions (including, without limitation, all
applicable building, health code, zoning,
subdivision and other land use and assisted living
licensing statutes, ordinances, by-laws, codes,
rules and regulations), whether now or hereafter
enacted, promulgated or issued by any Governmental
Authority, Accreditation Body or Third Party Payor
affecting the Lender, any member of the Borrowing
Group or the Mortgaged Property or the ownership,
construction, development, maintenance,
management, repair, use, occupancy, possession or
operation thereof or the operation of any programs
or services in connection with the Mortgaged
Property, including, without limitation, . any of
the foregoing which may (i) require repairs,
modifications or alterations in or to the
Mortgaged Property, (ii) in any way affect
(adversely or otherwise) the use and enjoyment of
the Mortgaged Property or (iii) require the
assessment, monitoring, clean-up, containment,
removal, remediation or other treatment of any
Hazardous Substances on, under or from the
Mortgaged Property. Without limiting the
foregoing, the term Legal Requirements includes
all Environmental Laws and shall also include
Permitted Encumbrances and all Permits and
Contracts issued by or entered into with any
Governmental Authority, Accreditation Body and/or
Third Party Payor.
LENDER: As defined in the preamble of this
Agreement and its successors and assigns.
LENDER'S ADDRESS: 197 First Avenue, Needham
Heights, MA 02194 or such other address as the
Lender shall designate in writing.
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LESSEE: Any lessee, sublessee, licensee,
concessionaire, tenant or other occupant under any
of the Leases, but excluding any resident of the
Facility under any Resident Agreement.
LIEN: With respect to any real or personal
property, any mortgage, easement, restriction,
lien, pledge, collateral assignment,
hypothecation, charge, security interest, title
retention agreement, levy, execution, seizure,
attachment, garnishment or other encumbrance of
any kind in respect of such property, whether or
not inchoate, vested or perfected.
LIMITED PARTIES: As defined in Section 6.10;
provided, however, in no event shall the term
Limited Parties include any Person in its capacity
as a shareholder of a public entity, unless such
shareholder is a member of the Borrowing Group or
an Affiliate of any member of the Borrowing Group.
LOAN: As defined in Section 1.8.
LOAN AMOUNT: As specified in Section 3.1.
LOAN DEFAULT: The occurrence of a default or
breach of condition continuing beyond the
expiration of any applicable notice and/or grace
period, if any, under the terms of any of the Loan
Documents.
LOAN DOCUMENTS : As defined in Section 4.1.
LOAN OBLIGATIONS: As defined in Section 4.2.
LOAN YEAR: A twelve-month period ending on
September 30 of each year; provided, however, the
final Loan Year shall end at the end of the Term.
MANAGED CARE PLANS: All health maintenance
organizations, preferred provider organizations,
individual practice associations, competitive
medical plans and similar arrangements.
MANAGEMENT AGREEMENT: Any agreement, whether
written or oral, now existing or hereafter entered
into, between the Borrower or any Lessee and any
other Person pursuant to which the Borrower or
such Lessee provides any payment, fee or other
consideration to any other Person to operate or
manage the Facility.
MANAGER: Any Person who has entered into a
Management Agreement with the Borrower.
MATERIAL STRUCTURAL WORK. Any (i) structural
alteration, (ii) structural repair, or (iii)
structural renovation to the Mortgaged Property,
which would customarily require or which require
the design and/or involvement of a structural
engineer or architect or which would require the
issuance of a Permit.
MATURITY DATE: As defined under the Note.
MEDICAID: The medical assistance program
established by Title XIX of the Social Security
Act (42 USC Section 1396 et seq.) and any statute
succeeding thereto.
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MEDICARE: The health insurance program for the
aged and disabled established by Title XVIII of
the Social Security Act (42 USC Section 1395 et
seq.) and any statute succeeding thereto.
MEDITRUST: As defined in Section 12.13.
MEDITRUST ENTITIES: Collectively, Meditrust, the
Lender and any other Affiliate of the Lender which
may now or hereafter be a party to any Related
Party Agreement.
MONTHLY TAX DEPOSIT DATE: As defined in Section
6.20.02.
MORTGAGE: As defined in Section 4.1.
MORTGAGED PROPERTY: As defined in the Mortgage.
NET INCOME (OR NET LOSS): The net income (or net
loss, expressed as a negative number) of a Person
for any period, after all taxes actually paid or
accrued and all expenses and other charges
determined in accordance with GAAP.
NET WORTH: An amount determined in accordance with
GAAP equal to the total assets of any Person,
minus the total liabilities of such Person,
provided, however, that for purposes of
calculating the Net Worth of the Guarantor, those
certain Thirty Two Million Dollars ($32,000,000)
of 6.25% convertible, unsecured, subordinated
debentures due in 2006, which were issued by the
Guarantor on February 15, 1996, shall not be
included in total liabilities.
NOTE: As defined in Section 3.2.
OBLIGATIONS: Collectively, the Loan Obligations
and the Related Party Obligations.
OTHER PERMITTED USES: To the extent permitted
under Applicable Legal Requirements and under
Insurance Requirements, and so long as the same do
not detract in any material manner from the
Primary Intended Use and do not occupy any more
than ten percent (l0%) of the usable floor area
of the building comprising the Facility such uses
as Borrower reasonably determines are appropriate
and incidental to the Primary Intended Use.
PBGC: Pension Benefit Guaranty Corporation.
PERMITS: As defined in the Mortgage.
PERMITS ASSIGNMENT: As defined Section 4.1.
PERMITTED ENCUMBRANCES: As defined in Section
5.1.12.
PERSON: Any individual, corporation, general
partnership, limited partnership, stock company or
association, joint venture, company, trust, bank,
trust company, land trust, business trust,
unincorporated association, unincorporated
organization, Governmental Authority or any other
entity of any kind or nature.
PERSONAL PROPERTY: As defined in the Mortgage.
PLANS AND SPECIFICATIONS: As defined in Section
8.2.
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PLEDGE AGREEMENT: As defined in Section 4.1.
PREPAYMENT FEE: As defined in Section 3.6.
REPAYMENT NOTICE: As defined in Section 3.6.
PRIMARY INTENDED USE: The use of the Facility as
an assisted living facility with 72 units and 81
licensed beds or such additional number of beds as
may hereafter be permitted under this Agreement,
and such ancillary uses as are permitted by
applicable law and may be necessary in connection
therewith or incidental thereto.
PRIME RATE: The variable rate of interest per
annum from time to time announced by
Fleet, as its prime rate of interest and in the
event that Fleet no longer announces a prime rate
of interest, then the Prime Rate shall be deemed
to be the variable rate of interest per annum
which is the prime rate of interest or base rate
of interest from time to time announced by any
other major bank or other financial institution
reasonably selected by the Lender.
PRINCIPAL PLACE OF BUSINESS: As specified in
Section 5.1.20.
PROPOSED PROPERTY: As defined in Section 14.2.
PROVIDER AGREEMENTS: All participation, provider
and reimbursement agreements or arrangements now
or hereafter in effect for the benefit of the
Borrower or any Lessee in connection with the
operation of the Facility relating to any right of
payment or other claim arising out of or in
connection with the Borrower's or such Lessee's
participation in any Third Party Payor Program.
PURCHASER: Any Person to whom title to the
Mortgaged Property is transferred by reason of the
Lender's exercise of rights granted under any of
the Loan Documents, including, without limitation,
the exercise of the power of sale under the
Mortgage, any other foreclosure of the Mortgage or
any other proceeding brought to enforce the rights
of the holder of the Mortgage, by deed in 1-ieu of
foreclosure or by any other method.
REAL PROPERTY: As defined under the Mortgage.
RECEIVABLES: Collectively, (i) all rights to
payment for goods sold or leased or services
rendered by Borrower or any other party, whether
now in existence or arising from time to time
hereafter and whether or not yet earned by
performance, including, without limitation,
obligations evidenced by an account, note,
contract, security agreement, chattel paper, or
other evidence of indebtedness, including Accounts
and Proceeds, and (ii) a license to use such
Instruments, Documents, Accounts, Proceeds,
General Intangible and Chattel Paper as are
reasonably required for purposes of exercising the
rights set forth in (i) above.
RELATED PARTIES : Collectively, each Person that
may now or hereafter be a party to any Related
Party Agreement other than the Meditrust Entities.
RELATED PARTY AGREEMENT: Any agreement, document
or instrument now or hereafter evidencing or
securing any Related Party Obligation.
89
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RELATED PARTY DEFAULT: The occurrence of a default
or breach of condition continuing beyond the
expiration of any applicable notice and grace
periods, if any, under the terms of any Related
Party Agreement.
RELATED PARTY OBLIGATIONS: Collectively, all
indebtedness, covenants, liabilities, obligations,
agreements and undertakings due to, or made for
the benefit of, the Lender or any of the other
Meditrust Entities by the Borrower or any other
member of the Borrowing Group or any of their
respective Affiliates in connection with any of
the properties described in Exhibit F to the
Agreement Regarding Related Transactions, as the
same may be modified and amended from time to
time; whether such indebtedness, covenants,
liabilities, obligations, agreements and/or
undertakings are direct or indirect, absolute or
contingent, liquidated or unliquidated, due or to
become due, joint, several or joint and several,
primary or secondary, now existing or hereafter
arising.
RENT INSURANCE PROCEEDS: As defined in Section
8.8.
RENTS: As defined in the Mortgage.
RENOVATION ESCROW AGREEMENT: As defined in Section
4.1:
RESIDENT AGREEMENT: All contracts, agreements and
consents executed by or on behalf of any resident
or other Person seeking services at the Facility,
including, without limitation, assignments of
benefits and guarantees.
RETAINAGE: As defined in Section 8.2.
SECURED PROPERTY: As defined in Section 14.1.
SUBSIDIARY OR SUBSIDIARIES: With respect to any
Person, any corporation or other entity of which
such Person, directly, or indirectly, through
another entity or otherwise, owns, or has the
right to control or direct the voting of, fifty
percent (50%) or more of the outstanding capital
stock or other ownership interest having general
voting power (under ordinary circumstances).
SUBSTITUTION DATE: As defined in Section 14.1.
SUBSTITUTION DOCUMENTS: As defined in Section 14.1
SUBSTITUTION NOTICE: As defined in Section 14.1
SUBSTITUTION RIGHT: As defined in Section 14.1
TAKING: A taking or voluntary conveyance of the
Mortgaged Property, or any interest therein or
right accruing thereto, or use thereof, as the
result of, or in settlement of, any Condemnation
or other eminent domain proceeding affecting the
Mortgaged Property whether or not the same shall
have actually been commenced.
TERM: The period from the Closing Date through the
Maturity Date or any Extended Maturity Date, as
the case may be.
THIRD PARTY PAYOR PROGRAMS: Collectively, all
third party payor programs in which the Borrower
presently or in the future may participate,
including, without
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limitation, Medicare, Medicaid, Blue Cross and/or
Blue Shield, Managed Care Plans, other private
insurance programs and employee assistance
programs.
THIRD PARTY PAYORS: Collectively, Medicare,
Medicaid, Blue Cross and/or Blue Shield, private
insurers and any other Person which presently or
in the future maintains Third Party Payor
Programs.
TITLE COMPANY: As defined in Section 14.2
TITLE POLICY: As defined in Section 13.7.
UCC: Uniform Commercial Code as adopted in the
State of Texas.
UNAVIODABLE DELAYS : Delays due to strikes,
lockouts, inability to procure materials, power
failure, acts of God, Governmental restrictions,
enemy action, civil commotion, fire, unavoidable
casualty or other causes beyond the control of the
party responsible for performing an obligation
hereunder, provided that lack of funds shall not
be deemed a cause beyond the control of any party
hereto.
UNSUITABLE FOR ITS PRIMARY INTENDED USE: By reason
of Casualty or Taking, in the good faith judgment
of Lender, the Facility cannot be operated on a
commercially practicable basis for the Primary
Intended Use, taking into account, among other
relevant factors, the number of usable units or
beds affected by such Casualty or Taking.
UPGRADE RENOVATIONS: Repair and refurbishing other
than normal janitorial, cleaning and maintenance
activities.
WORK: As defined in Section 82.
WORK CERTIFICATES: As defined in Section 8.2.
91
<PAGE>
PROMISSORY NOTE
$4,288,000.00
Boston, Massachusetts
September 30, 1997
FOR VALUE RECEIVED, ESC I, L.P., a Washington
limited partnership, having an address at c/o
Emeritus Corporation, 313.1 Elliott Avenue, Suite
500, Seattle, Washington 98121-2162, (the
"Maker"), promises to pay to the order of
MEDITRUST MORTGAGE INYESTMENTS, INC., a Delaware
corporation ("Lender") (the Lender together with
each successor, owner, endorsee, bearer and holder
of this Note being hereinafter referred to as the
"Holder") at its principal place of business
located at 197 First Avenue, Needham Heights ,
Massachusetts, 02194, or at such other place as
the Holder of this Note may from time to time
designate in writing, in lawful money of the
United States of America, in immediately available
Federal funds or the equivalent, the principal sum
of Four Million Two Hundred Eighty-Eight Thousand
and 00/100 DOLLARS ($4,288,000.00) or so much
thereof as shall have been advanced to the Maker,
with interest on so much thereof as shall from
time to time be outstanding at the "Interest Rate"
(as hereinafter defined), except as otherwise
expressly provided herein or in that certain Loan
Agreement of even date herewith by and among the
Lender, the Maker and Emeritus Corporation, a
Washington corporation (the "Loan Agreement").
Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to
such terms in the Loan Agreement.
1. PAYMENT. The Maker covenants and agrees to make
the following payments to the
Holder:
(a) commencing October 1,1997 and on the
first day of each calendar month thereafter
through and including September 1,1998, the Maker
shall pay to the Holder equal monthly payments of
interest only in arrears on the outstanding
principal balance, calculated at the Interest
Rate, in the amount of Thirty Three Thousand One
Hundred Sixty and 53/100 ($33,160.53);
(b) commencing on October 1,1998 and the
first day of each calendar month thereafter
through and including April 1, 2009, the Maker
shall pay to the Holder equal monthly installments
of principal and interest in arrears in the amount
of Thirty-Four Thousand Nine Hundred Seventy-Six
and 27/100 DOLLARS ($34,976.27) based upon a
thirty-two (32) year amortization schedule with
interest accruing on the outstanding principal
balance at the Interest Rate (the "Monthly
Payment"); and
(c) subject to paragraph 2 below, on April
30, 2009 (hereinafter referred to as the
"Maturity Date"), the Maker shall pay to the
Holder the entire principal balance then remaining
unpaid, together with accrued and unpaid interest
thereon and any costs, charges and other amounts
due under this Note and all of the other Loan
Documents.
2. EXTENSIONS.
(a) Anything contained herein to the contrary
notwithstanding, as long as there exists no Loan
Default at the time of exercise and on the
Maturity Date or the then current Extended
Maturity Date (as hereinafter defined), as the
case may be, Maker is hereby. granted the option
to extend the Maturity Date or the then Extended
Maturity Date, as the case may be, for four (4)
additional periods (collectively, the "Extended
Terms" and the last day of each Extended Term, as
applicable, is herein called the "Extended
Maturity Date") as follows: four (4) successive
five (5) year periods for a maximum Extended
Maturity Date, if all such
1
<PAGE>
options are exercised, on April 30, 2029. Maker's
extension option rights shall be exercised by
Maker by giving written notice to Holder of each
such extension at least one hundred eighty (180)
days, but not more than three hundred sixty (360)
days, prior to the Maturity Date or the then
current Extended Maturity Date, as the case may
be. Maker shall have no right to rescind any such
notice once given. Maker may not exercise its
option for more than one Extended Term at a time.
During each effective Extended Term, all of the
terms and conditions of this Note and Loan
Agreement shall continue in full force and effect,
except that the Monthly Payment for each such
Extended Term shall be adjusted as set forth in
Section 2(c) below and the Maturity Date shall be
the applicable Extended Maturity Date.
(b) Notwithstanding anything to the
contrary set forth herein, Maker's rights to
exercise the options granted in this Section 2 are
subject to the further condition that concurrently
with the exercise of any extension option
hereunder, Maker and all of the other Emeritus
Parties shall have the right to exercise and shall
have, in fact, duly exercised their option to
extend the terms of all of the Group Four
Acquisition Facility Leases as defined in and in
accordance with the provisions of the Agreement
Regarding Related Transactions and the provisions
of Section 1.3 of each of the Group Four
Acquisition Facility Leases.
(c) On each Monthly Payment
Adjustment Date, the Monthly Payment shall be
adjusted to equal the greater of (i) the then
current Monthly Payment or (ii) the monthly
payment that would be due on a loan payable in
equal monthly installments of principal and
interest determined by using: (i) for principal,
the balance of principal, all accrued and unpaid
interest and all other fees and charges,
including, without limitation, all Additional.
Interest due under this Note and the other Loan
Documents as of the applicable Monthly Payment
Adjustment Date, (ii) for interest, the Monthly
Payment Adjustment Rate, in effect on such Monthly
Payment Adjustment Date and (iii) a period of
amortization (i.e., amortization schedule) of (i)
twenty (20) years for the first Extension Term, if
any; (ii) fifteen (15) years for the second
Extension Term, if any; (iii) ten (10) years for
the third Extension Term, if any; and (iv) five
(5) years for the fourth Extension Term, if any.
(d) As used in this Section 2, the following terms
shall have the following meanings:
INDEX: The rate of interest of actively
traded marketable United States Treasury
Securities bearing a fixed rate of interest
adjusted for a constant maturity of ten (10) years
as calculated by the Federal Reserve Board.
MONTHLY PAYMENT ADJUSTMENT DATE: The first
day of any of the Extended Terms
MONTHLY PAYMENT ADJUSTMENT RATE: 320 basis
points over the Index.
Except to the extent expressly set forth
above, the Maker shall have no right to extend or
renew the loan evidenced by this Note and the
other. Loan Documents.3.
INTEREST RATE. As used herein, prior to any
adjustment pursuant to paragraph 2 above, the term
"Interest Rate" shall be defined as the rate of
interest per annum equal to Nine and 28I100
percent (9.28%). Interest hereunder shall be
calculated on the basis of a 360-day year, but
charged for the actual days elapsed during each
calendar year (or portion thereof that the
indebtedness evidenced by this Note remains
outstanding.
2
<PAGE>
4. LOAN AGREEMENT. This Note is issued pursuant
to, is entitled to the benefits of, and is subject
to the provisions of the Loan Agreement including,
without limitation, the
provisions relating to Additional Interest and the
Prepayment Fee: set forth therein. This Note is
secured by the Collateral and the Loan Documents.
The principal of this Note is subject to
prepayment in whole or in part in the manner and
to the extent specified in the Loan Agreement.
5, LOAN DEFAULTS. In the event that any Loan
Default shall occur and be continuing, the entire
unpaid principal amount of this Note and all of
the unpaid interest accrued thereon may become or
be declared due and payable in the manner and with
the effect provided in the Loan Agreement.
6. WAIVERS. The Maker and all endorsers hereby
waive presentment, demand, notice, protest and all
other demands and notices in connection with the
delivery, acceptance, performance and enforcement
of this Note and assent to the extensions of the
time of payment or forbearance or other indulgence
without notice.
7. GOVERNING LAW. THIS NOTE AND THE OBLIGATIONS OF
THE MAKER HEREUNDER SHALL BE GOVERNED BY AND
INTERPRETED AND DETERMINED IN ACCORDANCE WITH THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(EXCLUDING THE LAWS.APPLICABLE TO CONFLICTS OR
CHOICE OF LAW).
8. CAPTIONS. The captions and headings set forth
in this Note are included for convenience and
reference only and the words contained therein
shall in no way be held or deemed to define,
limit, describe, explain, modify, amplify or add
to the interpretation, construction or meaning of,
or the scope or intent of, this Note or any part
hereof.
IN WITNESS WHEREOF, the Maker has caused this
Note to be signed in its corporate name as an
instrument under seal by its duly authorized
officer on the date and in the year first above
written.
WITNESS: MAKER:
ESC I, L.P., a
Washington limited
partnership
By: ESC G.P.I., Inc.,
a Washington corporation,
Its Sole General Partner
/s/ Jennifer Valenta By: /s/ Kelly J. Price
---------------------- -------------------------
Name: Jennifer Valenta Name: Kelly J. Price
Title: Vice President of Finance
3
<PAGE>
FACILITY LEASE AGREEMENT
MEDITRUST ACQUISITION CORPORATION I
(A Massachusetts corporation)
as
Lessor
AND
EMERITUS PROPERTIES I, INC.
(A Washington corporation)
as
Lessee
September 5,1997
For Premises Located In
City of Newark, New Castle County, Delaware
<PAGE>
FACILITY LEASE AGREEMENT
This FACILITY LEASE AGREEMENT ("Lease") is
dated as of the 10th day of September, 1997 and is
between MEDITRUST ACQUISITION CORPORATION I
("Lessor"), a Massachusetts corporation having its
principal office at 197 First Avenue, Needham
Heights, Massachusetts 02194, and EMERITUS
PROPERTIES I, INC. ("Lessee"), a Washington
corporation, having its principal office at c/o
Emeritus Corporation, 3131 Elliott Avenue, Suite
500, Seattle, Washington 98121 -2162.
ARTICLE 1
LEASED PROPERTY; TERM; CONSTRUCTION;
EXTENSIONS
1.1 LEASED PROPERTY. Upon and subject to the
terms and conditions hereinafter set forth, Lessor
leases to Lessee and Lessee rents and leases from
Lessor all of Lessor's rights and interests in and
to the following real and personal property
(collectively, the "Leased Property"):
(a) the real property described in
EXHIBIT A attached hereto (the "Land");
(b) all buildings, structures, Fixtures
(as hereinafter defined) and other
improvements of every kind including,
but not limited to, alleyways and
connecting tunnels, sidewalks, utility
pipes, conduits and lines, and parking
areas and roadways appurtenant to such
buildings and structures presently or
hereafter situated upon the Land
(collectively, the "Leased
Improvements");
(c) all easements, rights and
appurtenances of every nature and
description now or hereafter relating to
or benefitting any or all of the Land
and the Leased Improvements;
(d) all equipment, machinery, building
fixtures, and other items of property
(whether realty, personalty or mixed),
including all components thereof, now or
hereafter located in, on or used in
connection with, and permanently affixed
to or incorporated into the Leased
Improvements, including, without
limitation, all furnaces, boilers,
heaters, electrical equipment, heating,
plumbing, lighting, ventilating,
refrigerating, incineration, air and
water pollution control, waste disposal,
air-cooling and air-conditioning systems
and apparatus, sprinkler systems and
fire and theft protection equipment, and
built-in oxygen and vacuum systems, all
of which, to the greatest extent
permitted by law, are hereby deemed by
the parties hereto
<PAGE>
to constitute real estate, together with
all replacements, modifications,
alterations and additions thereto, but
specifically excluding all items
included within the category of Tangible
Personal Property (as hereinafter
defined) which are not permanently
affixed to or incorporated in the Leased
Property (collectively, the "Fixtures");
and
(e) LESSOR'S PERSONAL PROPERTY
The Leased Property is leased in its
present condition, AS IS, without representation
or warranty of any kind, express or implied, by
Lessor and subject to: (i) the rights of parties
in possession; (ii) the existing state of title
including all covenants, conditions, Liens (as
hereinafter defined) and other matters of record
(including, without limitation, the matters set
forth in EXHIBIT B); (iii) all applicable laws and
(iv) all matters, whether or not of a similar
nature, which would be disclosed by an inspection
of the Leased Property or by an accurate survey
thereof.
1.2 TERM. The term of this Lease shall
consist of the "Initial Term", which shall
commence on September 5,1997 (the "Commencement
Date") and end on March 31, 2010 (the
"Expiration Date"); provided, however, that this
Lease may be sooner terminated as hereinafter
provided. In addition, Lessee shall have the
option(s) to extend the Term (as hereinafter
defined) as provided for in Section 1.3.
1.3 EXTENDED TERMS. Provided that this Lease
has not been previously terminated, and as long as
there exists no Lease Default (as hereinafter
defined) at the time of exercise and on the last
day of the Initial Term or the then current
Extended Term (as hereinafter defined), as the
case may be, Lessee is hereby granted the option
to extend the Initial Term of this Lease for four
(4) additional periods (collectively, the
"Extended Terms") as follows: four (4) successive
five (5) year periods for a maximum Term, if all
such options are exercised, which ends on March
31, 2030. Lessee's extension option rights shall
be exercised by Lessee by giving written notice to
Lessor of each such extension at least one hundred
eighty (180) days, but not more than three hundred
sixty (360) days, prior to the termination of the
Initial Term or the then current Extended Term, as
the case may be. Lessee shall have no right to
rescind any such notice once given. Lessee may not
exercise its option for more than one Extended
Term at a time. During each effective Extended
Term, all of the terms and conditions of this
Lease shall continue in full force and effect,
except that the Base Rent (as hereinafter defined)
for each such Extended Term shall be adjusted as
set forth in Section 3.1 (a).
2
<PAGE>
Notwithstanding anything to the contrary set
forth herein, Lessee's rights to exercise the
options granted in this Section 1.3 are subject to
the further condition that concurrently with the
exercise of any extension option hereunder, Lessee
shall have exercised its option to extend the
terms of all of the Related Leases in accordance
with the provisions of the Agreement Regarding
Related Transactions and the provisions of Section
1.3 of each of the Related Leases.
ARTICLE 2
DEFINITIONS AND RULES OF CONSTRUCTION
2.1 DEFINITIONS. For all purposes of this
Lease and the other Lease Documents (as
hereinafter defined), except as otherwise
expressly provided or unless the context otherwise
requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article
and include the plural as well as the singular and
(ii) all references in this Lease or any of the
other Lease Documents to designated "Articles",
"Sections" and other subdivisions are to the
designated Articles, Sections and other
subdivisions of this Lease or the other applicable
Lease Document.
ACCOUNTS: As defined in the UCC.
ACCREDITATION BODY: Any person, including any
Person having or claiming jurisdiction over the
accreditation, certification, evaluation or
operation of the Facility.
ADDED VALUE PERCENTAGE: The proportion of the
Fair Market Added Value of Capital Additions paid
for or financed by Lessee to the Fair Market Value
of the entire Leased Property, expressed as a
percentage.
ADDITIONAL CHARGES: As defined in Article 3.
ADDITIONAL LAND: As defined in Section 9.3.
ADDITIONAL RENT: As defined in Article 3.
ADDITIONAL RENT COMMENCEMENT DATE: As defined
in Article 3.
AFFILIATE: With respect to any Person (i) any
other Person which, directly or indirectly,
controls or is controlled by or is under common
control with such Person, (ii) any other Person
that owns, beneficially, directly or indirectly,
five percent (5%) or more of the outstanding
capital stock, shares or equity interests of such
Person or (iii) any officer, director, employee,
general partner or trustee of such Person,
3
<PAGE>
or any other Person controlling, controlled by, or
under common control with, such Person (excluding
trustees and Persons serving in a fiduciary or
similar capacity who are not otherwise an
Affiliate of such Person). For the purposes of
this definition, "control" (including the
correlative meanings of the terms "controlled by"
and "under common control with"), as used with
respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or
cause the direction of the management and policies
of such Person, through the ownership of voting
securities, partnership interests or other equity
interests provided, however, that, (a) for
purposes of determining a Related Party Default,
the percentage of outstanding capital stock,
shares or equity interests referenced in (ii)
above shall be fifty percent (50%) and (b) any
Person who is an Affiliate by virtue of the
ownership thereof by Daniel R. Baty or his status
therein as an officer or director shall not be
deemed an Affiliate for purposes of determining a
Related Party Default.
AFFILIATED PARTY SUBORDINATION AGREEMENT:
That certain Affiliated Party Subordination
Agreement of even date by and among Lessee, the
Guarantor, various Affiliates of Lessee and
various Affiliates of Lessor.
AGREEMENT REGARDING RELATED TRANSACTIONS:
The Fifth Amended and Restated Agreement Regarding
Related Transactions (Development) dated September
5,1996, as may be amended from time to time,
between Lessee, Lessor and any Related Party that
is party to any Related Lease or Related Party
Agreement. Lessor and Lessee anticipate that the
Agreement Regarding Related Transactions will be
amended from time to time to include Affiliates of
Lessor and Lessee as parties thereto in connection
with future transactions and acknowledge and agree
that for all purposes under this Lease Agreement
such amendments shall be deemed to be included in
this definition.
ANNUAL FACILITY UPGRADE EXPENDITURE: An
aggregate annual amount equal to the product of
TWO HUNDRED DOLLARS ($200) (as increased as of the
first day of each Lease Year in which the Annual
Facility Upgrade Expenditure is to be made by an
amount equal to the product of the CPI Increase
multiplied by TWO HUNDRED DOLLARS ($200)) times
the number of units in the Facility, such amount
to be spent on Upgrade Renovations. The term
"CPI Increase" means a fraction, the numerator of
which is the Price Index in effect as of the first
day of the Lease Year in which the Annual Facility
Upgrade Expenditure is to be made and the
denominator of which is the Price Index in effect
as of the date hereof. The term "Price Index"
means the Consumer Price Index for Urban Wage
Earners and Clerical Workers, All Items Series A
(1982-84=100), published by the Bureau of Labor
Statistics, U.S. Department of Labor. If the
Bureau of Labor Statistics
4
<PAGE>
should cease to publish such Price Index in its
present form and calculated on the present basis,
then the most similar index published by the same
Bureau shall be used for the same purpose. If
there is no such similar index, a substitute index
which is then generally recognized as being
similar to such Price Index, such substitute index
to be reasonably selected by Lessor.
APPURTENANT AGREEMENTS: Collectively, all
instruments, documents and other agreements that
now or hereafter create any utility, access or
other rights or appurtenances benefiting or
relating to the Leased Property.
AWARD: All compensation, sums or anything of
value awarded, paid or received on a total or
partial Condemnation.
BASE GROSS REVENUES: The annualized Gross
Revenues of the Facility for the second twelve
month period following the Conversion Date,
initially as shown by Lessee's certified
consolidated Financial Statements and as later
verified by Lessee's Consolidated Financial
statements.
BASE RENT: Pre-Conversion Base Rent and/or
Post-Conversion Base Rent, as the context permits.
BUSINESS DAY: Any day which is not a Saturday
or Sunday or a public holiday under the laws of
the United States of America, the Commonwealth of
Massachusetts, the State or the state in which
Lessor's depository bank is located.
CAPITAL ADDITIONS: Collectively, all new
buildings and additional structures annexed to any
portion of any of the Leased Improvements and
material expansions of any of the Leased
Improvements which are constructed on any portion
of the Land during the Term, including, without
limitation, the construction of a new wing or new
story, the renovation of any of the Leased
Improvements on the Leased Property and any
expansion, construction, renovation or conversion
in connection therewith (a) in order to provide a
functionally new facility that is needed or used
to provide services not previously offered or (b)
in order to (i) increase the bed capacity of a
Facility, (ii) change the purpose for which such
beds are utilized and/or (iii) change the
utilization of any material portion of any of the
Leased Improvements, provided that for the
purposes of Article 9 hereof, the Project shall
not be treated as a Capital Addition.
CAPITAL ADDITION COST: The cost of any
Capital Addition made by Lessee whether paid for
by Lessee or Lessor. Such cost shall include all
costs and expenses of every nature whatsoever
incurred directly or indirectly in connection with
the development, permitting, construction
5
<PAGE>
and financing of a Capital Addition as reasonably
determined by, or to the reasonable satisfaction
of, Lessor.
CASH COLLATERAL: As defined in the Deposit
Pledge Agreement.
CASH FLOW: The Consolidated Net Income (or
Consolidated Net Loss) before federal and state
income taxes for any period plus (i) the amount of
the provision for depreciation and amortization
actually deducted on the books of the applicable
Person for the purposes of computing such
Consolidated Net Income (or Consolidated Net Loss)
for the period involved, us (ii) Rent and interest
on all other Indebtedness which is fully
subordinated to the Lease Obligations, plus (iii)
any indebtedness which is fully subordinated to
the Lease Obligations pursuant to the Affiliated
Party Subordination Agreement or the Management
Subordination Agreement.
CASUALTY: As defined in Section 13.1.
CHATTEL PAPER: As defined in the UCC.
CLOSING: As defined in Section 18.3.6.
CODE: The Internal Revenue Code of 1986, as
amended.
COLLATERAL: All of the property in which
security interests are granted to Lessor and the
other Meditrust Entities pursuant to the Lease
Documents and the Related Party Agreements to
secure the Lease Obligations, including, without
limitation, the Cash Collateral.
COMPETITIVE ACTIVITY: As defined in Section
11.5.
COMPLETION DATE: As defined in the Leasehold
Improvement Agreement.
COMPLETION OF THE PROJECT: As defined in the
Leasehold Improvement Agreement.
CONDEMNATION: With respect to the Leased
Property or any interest therein or right accruing
thereto or use thereof (i) the exercise of any
governmental authority, whether by legal
proceedings or otherwise, by a Condemnor or (ii) a
voluntary sale or transfer by Lessor to any
Condemnor, either under threat of Condemnation or
Taking or while legal proceedings for Condemnation
or Taking are pending.
CONDEMNOR: Any public or quasi-public
authority, or private corporation or individual,
having the power of condemnation.
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CONSOLIDATED: The consolidated accounts of
the relevant Person and its Subsidiaries
consolidated in accordance with GAAP.
CONSOLIDATED FINANCIALS: For any fiscal year
or other accounting period for any Person and its
consolidated Subsidiaries, statements of earnings
and retained earnings and of changes in financial
position for such period and for the period from
the beginning of the respective fiscal year to the
end of such period and the related balance sheet
as at the end of such period, together with the
notes thereto, all in reasonable detail and
setting forth in comparative form the
corresponding figures for the corresponding period
in the preceding fiscal year, and prepared in
accordance with GAAP, and disclosing all
liabilities of such Person and its consolidated
subsidiaries, including, without limitation,
contingent liabilities.
CONSULTANTS: Collectively, the architects,
engineers, inspectors, surveyors and other
consultants that are engaged from time to time by
Lessor to perform services for Lessor in
connection with this Lease.
CONTRACTS: All agreements (including, without
limitation, Provider Agreements, to the extent
applicable, and any Residency Agreement),
contracts (including without limitation,
construction contracts, subcontracts, and
architects' contracts), contract rights,
warranties and representations, franchises, and
records and books of account benefiting, relating
to or affecting the Leased Property or the
ownership, construction, development, maintenance,
management, repair, use, occupancy, possession, or
operation thereof, or the operation of any
programs or services in conjunction with the
Facility and all renewals, replacement and
substitutions therefor, now or hereafter issued to
any member of the Leasing Group by, or entered
into by any member of the Leasing Group with, any
Governmental Authority, Accreditation Body or
Third Party Payor or maintained or used by any
member of the Leasing Group or entered into by any
member of the Leasing Group with any third Person.
CONVERSION DATE: The earlier to occur of (a)
the Completion Date, (b) the Completion of the
Project and (c) the occupancy of the Facility by a
resident.
CURRENT ASSETS: All assets of any Person
which would, in accordance with GAAP, be
classified as current assets.
CURRENT LIABILITIES: All liabilities of any
Person which would, in accordance with GAAP, be
classified as current liabilities.
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DATE OF TAKING : The date the Condemnor has
the right to possession of the property being
condemned.
DEBT COVERAGE RATIO: The ratio of (i) Cash
Flow for each applicable period to (ii) the total
of all Rent (excluding Additional Rent due under
this Lease) paid or payable during such period or
accrued for such period.
DECLARATION: As defined in Article 23.
DEED: As defined in Section 18.3.
DEPOSIT PLEDGE AGREEMENT: The pledge and
security agreement so captioned and dated as of
even date herewith between Lessee and Lessor.
DOCUMENTS: As defined in the UCC.
ENCUMBRANCE: As defined in Section 20.3.
ENVIRONMENTAL INDEMNITY AGREEMENT: The
Environmental Indemnity Agreement of even date
herewith by and among Lessee the Guarantor and
Lessor.
ENVIRONMENTAL LAWS: As defined in the
Environmental Indemnity Agreement.
ERISA: The Employment Retirement Income
Security Act of I 974, as amended.
EVENT OF DEFAULT: As defined in Article 16.
EXCESS GROSS REVENUES: Gross Revenues less
Base Gross Revenues.
EXPIRATION DATE: As defined in Section 1.2.
EXTENDED TERMS: As defined in Section 1.4.
FACILITY: The 100 unit 104 bed, fully
licensed assisted living facility to be
constructed on the Land and to be known as White
Chapel Assisted Living on the Land (together with
related parking and other amenities).
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FAILURE TO OPERATE: As defined in Article 16.
FAILURE TO PERFORM: As defined Article 16.
FAIR MARKET ADDED VALUE: The Fair Market
Value of the Leased Property (including all
Capital Additions) minus the Fair Market Value of
the Leased Property determined as if no Capital
Additions paid for by Lessee had been constructed.
FAIR MARKET VALUE OF THE CAPITAL ADDITION:
The amount by which the Fair Market Value of the
Leased Property upon the completion of a
particular Capital Addition exceeds the Fair
Market Value of the Leased Property just prior to
the construction of the particular Capital
Addition.
FAIR MARKET VALUE OF THE LEASED PROPERTY: The
fair market value of the Leased Property,
including all Capital Additions, and including the
Land and all other portions of the Leased
Property, and (a) assuming the same is
unencumbered by this Lease, (b) determined in
accordance with the appraisal procedures set forth
in Section 18.2 or in such other manner as shall
be mutually acceptable to Lessor and Lessee and
(c) not taking into account any reduction in value
resulting from any Lien to which the Leased
Property is subject and which Lien Lessee or
Lessor is otherwise required to remove at or prior
to closing of the transaction. However, the
positive or negative effect on the value of the
Leased Property attributable to the interest rate,
amortization schedule, maturity date, prepayment
provisions and other terms and conditions of any
Lien on the Leased Property which is not so
required or agreed to be removed shall be taken
into account in determining the Fair Market Value
of the Leased Property. The Fair Market Value
shall be determined as the overall value based on
due consideration of the "income" approach, the
"comparable sales" approach, and the "replacement
cost" approach.
FEE MORTGAGE: As defined in Section 20.3.
FEE MORTGAGEE: As defined in Section 20.3.
FINANCING PARTY: Any Person who is or may be
participating with Lessor in any way in connection
with the financing of any Capital Addition.
FINANCING STATEMENTS: Uniform Commercial Code
financing statements evidencing the security
interests granted to Lessor in connection with the
Lease Documents.
FISCAL QUARTER: Each of the three (3) month
periods commencing on January 1st, April 1st, July
1st and October 1st.
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FISCAL YEAR: The twelve (12) month period
from January 1st to December 31st.
FIXTURES: As defined in Article 1.
GAAP: Generally accepted accounting
principles, consistently applied throughout the
relevant period.
GENERAL INTANGIBLES: As defined in the UCC.
GOVERNMENTAL AUTHORITIES: Collectively, all
agencies, authorities, bodies, boards,
commissions, courts, instrumentalities,
legislatures, and offices of any nature whatsoever
of any government, quasi-government unit or
political subdivision, whether with a federal,
state, county, district, municipal, city or
otherwise and whether now or hereinafter in
existence.
GROSS REVENUES: Collectively, all revenues
generated by reason of the operation of the Leased
Property (including any Capital Additions),
directly or indirectly received or to be received
by Lessee or any Affiliate of Lessee, including,
without limitation, all resident revenues received
or receivable for the use of, or otherwise by
reason of, all rooms, units and other facilities
provided, meals served, services performed, space
or facilities subleased or goods sold on or from
the Leased Property and further including, without
limitation, except as otherwise specifically
provided below, any consideration received under
any subletting, licensing, or other arrangements
with any Person relating to the possession or use
of the Leased Property and all revenues from all
ancillary services provided at or relating to the
Leased Property; provided, however, that Gross
Revenues shall not include non-operating revenues
such as interest income or gain from the sale of
assets not sold in the ordinary course of
business; and provided, further, that there shall
be excluded or deducted (as the case may be) from
such revenues:
(i) all applicable contractual allowances
(relating to any period during the Term of this
Lease and thereafter until the Rent hereunder is
paid in full), if any, for billings not paid by or
received from the appropriate Governmental
Agencies or Third Party Payors,
(ii) all applicable allowances according
to GAAP for uncollectible accounts,
(iii) all proper resident billing credits
and adjustments according to GAAP, if any,
relating to health care accounting,
(iv) federal, state or local sales, use,
gross receipts and excise taxes and any tax
based upon or measured by said Gross Revenues
which is added to or made a part of the amount
billed to the
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resident or other recipient of such services or
goods, whether included in the billing or stated
separately,
(v) provider discounts for hospital or
other medical facility utilization contracts, if
any,
(vi) the cost, if any, of any federal,
state or local governmental program imposed
specially to provide or finance indigent
resident care (other than Medicare, Medicaid and
the like),
(vii) deposits refundable to residents of
the Facility, and
(viii) payments received on behalf of,
and paid to, Persons who are not Affiliates of
Lessee.
To the extent that the Leased Property is
subleased or occupied by an Affiliate of Lessee,
Gross Revenues calculated for all purposes of this
Lease (including, without limitation, the
determination of the Additional Rent payable under
this Lease) shall include the Gross Revenues of
such Sublessee with respect to the premises
demised under the applicable Sublease (i.e., the
Gross Revenues generated from the operations
conducted on such subleased portion of the Leased
Property) and the rent received or receivable from
such Sublessee pursuant to such Subleases shall be
excluded from Gross Revenues for all such
purposes. As to any Sublease between Lessee and a
non-Affiliate of Lessee, only the rental actually
received by Lessee from such non-Affiliate shall
be included in Gross Revenues.
GROUP TWO DEVELOPMENT FACILITIES: As defined
in the Agreement Regarding Related Transactions.
GUARANTOR: Emeritus Corporation, a Washington
corporation, and its successors and
assigns.
GUARANTY OF LEASE OBLIGATIONS: The Guaranty
of Lease Obligations of even date executed by
Guarantor in favor of Lessor, relating to the
Lease Obligations.
HAZARDOUS SUBSTANCES: As defined in the
Environmental Indemnity Agreement.
IMPOSITIONS: Collectively, all taxes
(including, without limitation, all capital stock
and franchise taxes of Lessor, all ad valorem,
property, sales and use, single business, gross
receipts, transaction
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privilege, rent or similar taxes), assessments
(including, without limitation, all assessments
for public improvements or benefits, whether or
not commenced or completed prior to the date
hereof and whether or not to be completed within
the Term), ground rents, water and sewer rents,
water charges or other rents and charges, excises,
tax levies, fees (including, without limitation,
license, permit, inspection, authorization and
similar fees), transfer taxes and recordation
taxes imposed as a result of this Lease or any
extensions hereof, and all other governmental
charges, in each case whether general or special,
ordinary or extraordinary, or foreseen or
unforeseen, of every character in respect of
either or both of the Leased Property and the Rent
(including all interest and penalties thereon due
to any failure in payment by Lessee), which at any
time prior to, during or in respect of the Term
hereof and thereafter until the Leased Property is
surrendered to Lessor as required by the terms of
this Lease, may be assessed or imposed on or in
respect of or be a Lien upon (a) Lessor or
Lessor's interest in the Leased Property, (b) the
Leased Property or any rent therefrom or any
estate, right, title or interest therein, or (c)
any occupancy, operation, use or possession of,
sales from, or activity conducted on, or in
connection with, the Leased Property or the
leasing or use of the Leased Property.
Notwithstanding the foregoing, nothing contained
in this Lease shall be construed to require Lessee
to pay (1) any tax based on net income (whether
denominated as a franchise or capital stock or
other tax) imposed on Lessor or any other Person,
except Lessee or its successors, (2) any net
revenue tax of Lessor or any other Person, except
Lessee and its successors, (3) any tax imposed
with respect to the sale, exchange or other
disposition by Lessor of the Leased Property or
the proceeds thereof, or (4) except as expressly
provided elsewhere in this Lease, any principal or
interest on any Encumbrance on the Leased
Property; provided, however, the provisos set
forth in clauses (1) and (2) of this sentence
shall not be applicable to the extent that any
real or personal property tax, assessment, tax
levy or charge which Lessee is obligated to pay
pursuant to the first sentence of this definition
and which is in effect at any time during the Term
hereof is totally or partially repealed, and a
tax, assessment, tax levy or charge set forth in
clause (1) or (2) is levied, assessed or imposed
expressly in lieu thereof. In computing the amount
of any franchise tax or capital stock tax which
may be or become an Imposition, the amount payable
by Lessee shall be equitably apportioned based
upon all properties owned by Lessor that are
located within the particular jurisdiction subject
to any such tax.
INDEBTEDNESS : The total of all obligations
of a Person, whether current or long-term, which
in accordance with GAAP would be included as
liabilities upon such Person's balance sheet at
the date as of which Indebtedness is to be
determined, and shall also include (i) all capital
lease obligations and (ii) all guarantees,
endorsements (other than for collection of
instruments in the ordinary course of business),
or other arrangements whereby responsibility is
assumed for the obligations of
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others, whether by agreement to purchase or
otherwise acquire the obligations of others,
including any agreement contingent or otherwise to
furnish funds through the purchase of goods,
supplies or services for the purpose of payment of
the obligations of others.
INDEMNIFIED PARTIES: As defined in Section
122.2.
INDEX: The rate of interest of actively
traded marketable United States Treasury
Securities bearing a fixed rate of interest
adjusted for a constant maturity of ten ( 10)
years as calculated by the Federal Reserve Board.
INITIAL TERM: As defined in Section 12.
INSTRUMENTS: As defined in the UCC.
INSURANCE REQUIREMENTS: All terms of any
insurance policy required by this Lease, all
requirements of the issuer of any such policy with
respect to the Leased Property and the activities
conducted thereon and the requirements of any
insurance board, association or organization or
underwriters' regulations pertaining to the Leased
Property.
LAND: As defined in Article 1.
LEASE: As defined in the preamble of this
Lease.
LEASE DEFAULT: The occurrence of any default
or breach of condition continuing beyond any
applicable notice and/or grace periods under this
Lease and/or any of the other Lease Documents.
LEASE DOCUMENTS: Collectively, this Lease,
the Guaranty of Lease Obligations, the Agreement
Regarding Related Transactions, the Leasehold
Improvement Agreement, the Security Agreement, the
Deposit Pledge Agreement, the Negative Pledge
Agreement, the Permits Assignment, the Financing
Statements, the Affiliated Party Subordination
Agreement, the Environmental Indemnity Agreement,
and any and all other instruments, documents,
certificates or agreements executed or furnished
by any member of the Leasing Group in connection
with the transactions evidenced by the Lease
and/or any of the foregoing documents.
LEASE OBLIGATIONS: Collectively, all
indebtedness, covenants, liabilities, obligations,
agreements and undertakings (other than Lessor's
obligations) under this Lease and the other Lease
Documents.
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LEASE YEAR: A twelve month period ending on
July 31st of each year; provided, that the first
Lease Year shall begin on the Commencement Date
and shall end on July 31,1998.
LEASED IMPROVEMENTS: As defined in Article I.
LEASED PROPERTY: As defined in Article 1.
LEASEHOLD IMPROVEMENT AGREEMENT: The
Leasehold Improvement Agreement of even date by
and between Lessee and Lessor.
LEASEHOLD IMPROVEMENT FEE: Twenty-Five
Thousand Twenty-Five Dollars ($25,025.00)
LEASING GROUP: Collectively, Lessee, the
Guarantor, any Sublessee which is an Affiliate of
Lessee and any Manager which is an Affiliate of
Lessee.
LEGAL REQUIREMENTS: Collectively, all
statutes, ordinances, by-laws, codes, rules,
regulations, restrictions, orders, judgments,
decrees and injunctions (including, without
limitation, all applicable building, health code,
zoning, subdivision, and other land use and
assisted living licensing statutes, ordinances, by-
laws, codes, rules and regulations), whether now
or hereafter enacted, promulgated or issued by any
Governmental Authority, Accreditation Body or
Third Party Payor affecting Lessor, any member of
the Leasing Group or the Leased Property or the
ownership, construction, development, maintenance,
management, repair, use, occupancy, possession or
operation thereof or the operation of any programs
or services in connection with the Leased
Property, including, without limitation, any of
the foregoing which may (i) require repairs,
modifications or alterations in or to the Leased
Property, (ii) in any way affect (adversely or
otherwise) the use and enjoyment of the Leased
Property or (iii) require the assessment,
monitoring, clean-up, containment, removal,
remediation or other treatment of any Hazardous
Substances on, under or from the Leased Property.
Without limiting the foregoing, the term Legal
Requirements includes all Environmental Laws and
shall also include all Permits and Contracts
issued or entered into by any Governmental
Authority, any Accreditation Body and/or any Third
Party Payor and all Permitted Encumbrances.
LESSEE: As defined in the preamble of this
Lease and its successors and assigns.
LESSEE'S ELECTION NOTICE: As defined in
Section 14.3.
LESSEE'S PURCHASE OPTION NOTICE: As defined
in Section 18.3.
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LESSOR: As defined in the preamble of this
Lease and its successors and assigns.
LESSOR'S PERSONAL PROPERTY: All machinery,
equipment, furniture, furnishings, movable walls
or partitions, computers or trade fixtures, goods,
inventory, supplies, and other personal property
owned by Lessor and used in the operation of the
Leased Property.
LIEN: With respect to any real or personal
property, any mortgage, easement, restriction,
lien, pledge, collateral assignment,
hypothecation, charge, security interest, title
retention agreement, levy, execution, seizure,
attachment, garnishment or other encumbrance of
any kind in respect of such property, whether or
not inchoate, vested or perfected.
LIMITED PARTIES: As defined in Section
11.5.4. provided, however, in no event shall the
term Limited Parties include any Person in its
capacity as a shareholder of a public entity,
unless such shareholder is a member of the Leasing
Group or an Affiliate thereof.
MANAGED CARE PLANS: All health maintenance
organizations, preferred provider organizations,
individual practice associations, competitive
medical plans, and similar arrangements.
MANAGEMENT AGREEMENT: Any agreement, whether
written or oral, between Lessee or any Sublessee
and any other Person pursuant to which Lessee or
such Sublessee provides any payment, fee or other
consideration to any other Person to operate or
manage the Facility.
MANAGEMENT SUBORDINATION AGREEMENT: The
Management Subordination Agreement which may be
executed in the future between Lessee and Lessor.
MANAGER: Any Person who has entered into a
Management Agreement with Lessee or any Sublessee.
MATERIAL STRUCTURAL WORK: Any (i) structural
alteration, (ii) structural repair or (iii)
structural renovation to the Leased Property,
which would customarily require or which require
the design and/or involvement of a structural
engineer or architect or which would require the
issuance of a Permit.
MEDICAID: The medical assistance program
established by Title XIX of the Social Security
Act (42 USC Section 1396 et seq.) and any statute
succeeding thereto.
MEDICARE: The health insurance program for
the aged and disabled established by Title XVIII
of the Social Security Act (42 USC
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Section 1395 et seq.) and any statute succeeding
thereto.
MEDITRUST: As defined in Article 23.
MEDITRUST/EMERITUS TRANSACTION AFFILIATE: An
Affiliate of Lessee, the business and activities
of which are limited to those subject to
Meditrust/Emeritus Transaction Documents (other
than the Affiliated Party Subordination Agreement,
the Agreement Regarding Related Transactions and
comparable agreement now or hereafter in effect
among Affiliates of Lessee and of Lessor) to which
such Affiliate is a party.
MEDITRUST/EMERITUS TRANSACTION DOCUMENTS: As
defined in the Agreement Regarding Related
Transactions.
MEDITRUST ENTITIES: Collectively, Meditrust,
Lessor and any other Affiliate of Lessor which may
now or hereafter be a party to any Related Patty
Agreement.
MEDITRUST INVESTMENT: The sum of (i) the
Original Meditrust Investment plus, (ii) the
aggregate amount of all Subsequent Investments
plus (iii) so much of the Project Funds as Lessor
has expended from time to time less the sum of any
Net Award Amounts and/or Net Proceeds Amounts.
MONTHLY DEPOSIT DATE: As defined in Section
4.6.
NEGATIVE PLEDGE AGREEMENT: The Group Two
Negative Pledge Agreement (Development) dated
April 30,1997 by and between Guarantor, Lessee,
Lessor and any Related Party that is party to any
Related Lease or Related Party Agreement.
NET AWARD AMOUNT: As defined in Section 3.7.
NET INCOME (OR NET LOSS): The net income (or
net loss, expressed as a negative number) of a
Person for any period, after all taxes actually
paid or accrued and all expenses and other charges
determined in accordance with GAAP.
NET PROCEEDS AMOUNT: As defined in Section
3.7.
NET WORTH: An amount determined in accordance
with GAAP equal to the total assets of any Person,
minus the total liabilities of such Person,
provided, however, that for purposes of
calculating the Net Worth of the Guarantor, those
certain Thirty-Two Million Dollars
($32,000,000.00) of 6.25% of convertible,
unsecured, subordinated
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debentures due in 2006, which were issued by the
Guarantor on February 15, 1996, shall not be
included in total liabilities.
OBLIGATIONS: Collectively, the Lease
Obligations and the Related Party Obligations.
OFFICER'S CERTIFICATE: A certificate of
Lessee signed on behalf of Lessee by the Chairman
of the Board of Directors, the President, any Vice
President or the Treasurer of Lessee, or another
officer authorized to so sign by the Board of
Directors or By-Laws of Lessee, or any other
Person whose power and authority to act has been
authorized by delegation in writing by any of the
Persons holding the foregoing offices.
ORIGINAL MEDITRUST INVESTMENT: The sum of One
Million Two Hundred Thirty Three Thousand Six
Hundred Seventy-One Dollars and 25/00 ($
1,233,671.25).
OTHER PERMITTED USES: To the extent permitted
under applicable Legal Requirements and under
Insurance Requirements, and so long as the same do
not detract in any material manner from the
Primary Intended Use and do not occupy more than
ten percent (10%) of the useable floor area of the
building comprising the Facility, such uses as
Lessee reasonably determines are appropriate and
incidental to the Primary Permitted Use.
OVERDUE RATE: On any date, a rate of interest
per annum equal to the greater of: (i) a variable
rate of interest per annum equal to one hundred
twenty percent (120%) of the Prime Rate, or (ii)
eighteen percent (18%) per annum; provided,
however, in no event shall the Overdue Rate be
greater than the maximum rate then permitted under
applicable law to be charged by Lessor.
PBGC: Pension Benefit Guaranty Corporation.
PERMITS: Collectively, all permits, licenses,
approvals, qualifications, rights, variances,
permissive uses, accreditation, certificates,
certifications, consents, agreements, contracts,
contract rights, franchises, interim licenses,
permits and other authorizations of every nature
whatsoever required by, or issued under,
applicable Legal Requirements relating or
affecting the Leased Property or the construction,
development, maintenance, management, use or
operation thereof, or the operation of any
programs or services in conjunction with the
Facility and all renewals, replacements and
substitutions therefor; now or hereafter required
or issued by any Governmental Authority,
Accreditation Body or Third Party Payor to any
member of the Leasing Group, or maintained or used
by any member of the Leasing Group, or entered
into by any member of the Leasing Group with any
third Person with respect to the Leased Property.
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PERMITS ASSIGNMENT: The Collateral Assignment
of Permits, Licenses and Contracts of even date
granted by Lessee to Lessor.
PERMITTED ENCUMBRANCES: As defined in Section
10.1.18.
PERMITTED PRIOR SECURITY INTERESTS: As
defined in Section 6.1.2.
PERSON: Any individual, corporation, general
partnership, limited partnership, joint venture,
stock company or association, company, bank,
trust, trust company, land trust, business trust,
unincorporated organization, unincorporated
association, Governmental Authority or other
entity of any kind or nature.
PLANS AND SPECIFICATIONS : As defined in
Section 13.1.3.
PRE-CONVERSION BASE RENT: As defined in
Section 3.1.
PRE-CONVERSION RENT ADJUSTMENT RATE: 175
basis points over the Prime Rate.
POST-CONVERSION BASE RENT: As defined in
Section 3.1.
PRIMARY INTENDED USE: The use of the Facility
as an assisted living facility with one hundred (
100) fully licensed units, one hundred four ( 104)
beds or such additional number of units or beds as
may hereafter be permitted under this Lease, and
such ancillary uses as are permitted by law and
may be necessary in connection therewith or
incidental thereto. Notwithstanding the foregoing,
Lessee may increase the number of beds to up to
one hundred thirty-four (134) provided that all
necessary federal, state and local approvals,
licenses and permits are obtained and as long as
such increase does not require any changes to the
Facility that deviate from the approved
Construction Improvement Plans dated June 9,1997.
PRIME RATE: The variable rate of interest
per annum from time to time announced by the
Reference Bank as its prime rate of interest and
in the event that the Reference Bank no longer
announces a prime rate of interest, then the Prime
Rate shall be deemed to be the variable rate of
interest per annum which is the prime rate of
interest or base rate of interest from time to
time announced by any other major bank or other
financial institution reasonably selected by
Lessor.
PRINCIPAL PLACE OF BUSINESS: As defined in
Section 10.1.28.
PROCEEDS: As defined in the UCC.
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PROJECT: As defined in the Leasehold
Improvement Agreement.
PROJECT FUNDS: As defined in the Leasehold
Improvement Agreement.
PROVIDER AGREEMENTS: All participation,
provider and reimbursement agreements or
arrangements, if any, now or hereafter in effect
for the benefit of Lessee or any Sublessee in
connection with the operation of the Facility
relating to any right of payment or other claim
arising out of or in connection with Lessee's or
such Sublessee's participation in any Third Party
Payor Program.
PURCHASE OPTION: As defined in Section 18.3.
PURCHASE OPTION DATE: As defined in Section
18.3.
PURCHASE OPTION PURCHASE PRICE: As defined in
Section 18.3.
PURCHASER: As defined in Section 11.5.
RECEIVABLES: Collectively, (i) all rights to
payment for goods sold or leased or services
rendered by Lessee or any other party, whether now
in existence or arising from time to time
hereafter and whether or not yet earned by
performance, including, without limitation,
obligations evidenced by an account, note,
contract, security agreement, chattel paper, or
other evidence of indebtedness, including Accounts
and Proceeds, and (ii) a license to use such
Instruments, Documents, Accounts, Proceeds,
General Intangibles and Chattel Paper as are
reasonably required for purposes of exercising the
rights set forth in (i) above.
REFERENCE BANK: Fleet Bank of Connecticut,
N.A.
RELATED LEASES: The Group Two Development
Facility Leases (as defined in the Agreement
Regarding Related Transactions), together with
such other new leases identified from time to time
in the Agreement Regarding Related Transactions.
RELATED PARTIES: Collectively, each Person
that may now or hereafter be a party to any
Related Party Agreement other than the Meditrust
Entities.
RELATED PARTY AGREEMENT: Any agreement,
document or instrument now or hereafter evidencing
or securing any Related Party Obligation,
including, without limitation, the Related Leases.
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RELATED PARTY DEFAULT: The occurrence of a
default or breach of condition continuing beyond
the expiration of any applicable notice and grace
periods, if any, under the terms of any Related
Party Agreement.
RELATED PARTY OBLIGATIONS: Collectively, all
indebtedness, covenants, liabilities, obligations,
agreements and undertakings due to, or made for
the benefit of, Lessor or any of the other
Meditrust Entities by Lessee or any other member
of the Leasing Group or any of their respective
Affiliates in connection with any of the
properties described in Exhibit E to the Agreement
Regarding Related Transactions, as the same may be
modified and amended from time to time; whether
such indebtedness, covenants, liabilities,
obligations, agreements and/or undertakings are
direct or indirect, absolute or contingent,
liquidated or unliquidated, due or to become due,
joint, several or joint and several, primary or
secondary, now existing or hereafter arising.
RENT: Collectively, the Base Rent, Additional
Rent, the Additional Charges and all other sums
payable under this Lease and the other Lease
Documents.
RENT ADJUSTMENT DATE: The first day of any of
the Extended Terms.
RENT ADJUSTMENT RATE: 325 basis points over
the Index.
RENT INSURANCE PROCEEDS: As defined in
Section 13.8.
RESIDENCY AGREEMENT: All contracts,
agreements and consents executed by or on behalf
of any resident or other Person seeking services
at the Facility, including, without limitation,
assignments of benefits and guarantees.
RETAINAGE: As defined in Section 13.1.3.
SECURITY AGREEMENT: The Security Agreement as
of even date herewith between Lessee and Lessor.
SELLER: Wadman Investments, a Utah Limited
Partnership.
STATE: The state or commonwealth in which
the Leased Property is located.
SUBLEASE: Collectively, all subleases,
licenses, use agreements, concession agreements,
tenancy at will agreements and other occupancy
agreements of every kind and nature (but excluding
any Residency
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Agreement), whether oral or in writing, now in
existence or subsequently entered into by Lessee,
encumbering or affecting the Leased Property.
SUBLESSEE: Any sublessee, licensee,
concessionaire, tenant or other occupant under any
of the Subleases.
SUBSEQUENT INVESTMENTS: The aggregate amount
of all sums expended and liabilities incurred by
Lessor in connection with Capital Additions.
SUBSIDIARY OR SUBSIDIARIES: With respect to
any Person, any corporation or other entity of
which such Person, directly, or indirectly,
through another entity or otherwise, owns, or has
the right to control or direct the voting of,
fifty percent (50%) or more of the outstanding
capital stock or other ownership interest having
general voting power (under ordinary
circumstances).
TAKING: A taking or voluntary conveyance
during the Term of the Leased Property, or any
interest therein or right accruing thereto, or use
thereof, as the result of, or in settlement of,
any Condemnation or other eminent domain
proceeding affecting the Leased Property whether
or not the same shall have actually been
commenced.
TANGIBLE PERSONAL PROPERTY: All machinery,
equipment, furniture, furnishings, movable walls
or partitions, computers or trade fixtures, goods,
inventory, supplies, and other personal property
owned or leased (pursuant to equipment leases) by
Lessee and used in the operation of the Leased
Property.
TERM: Collectively, the Initial Term and each
Extended Term which has become effective pursuant
to Section 1.4, as the context may require, unless
earlier terminated pursuant to the provisions
hereof.
THIRD PARTY PAYOR PROGRAMS: Collectively, all
third party payor programs in which Lessee or any
Sublessee presently or in the future may
participate, including without limitation,
Medicare, Medicaid, Blue Cross and/or Blue Shield,
Managed Care Plans, other private insurance plans
and employee assistance programs.
THIRD PARTY PAYORS: Collectively, Medicare,
Medicaid, Blue Cross and/or Blue Shield, private
insurers and any other Person which presently or
in the future maintains Third Party Payor
Programs.
TIME OF CLOSING: As defined in Section 18.3.
UCC: The Uniform Commercial Code as in effect
from time to time in the State.
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UNITED STATES TREASURY SECURITIES: The
uninsured treasury securities issued by the United
States Federal Reserve Bank.
UNSUITABLE FOR ITS PRIMARY INTENDED USE: As
used anywhere in this Lease, the term "Unsuitable
For Its Primary Intended Use" shall mean that, by
reason of Casualty, or a partial or temporary
Taking by Condemnation, in the good faith judgment
of Lessor, the Facility cannot be operated on a
commercially practicable basis for the Primary
Intended Use, taking into account, among other
relevant factors, the number of usable units or
beds affected by such Casualty or partial or
temporary Taking.
UNAVOIDABLE DELAYS: Delays due to strikes,
lockouts, inability to procure materials, power
failure, acts of God, governmental restrictions,
enemy action, civil commotion, fire, unavoidable
casualty or other causes beyond the control of the
party responsible for performing an obligation
hereunder, provided that lack of funds shall not
be deemed a cause beyond the control of either
party hereto.
UPGRADE RENOVATIONS: Repair and refurbishing
other than normal janitorial, cleaning and
maintenance activities.
WORK: As defined in Section 13. I.1.
WORK CERTIFICATES: As defined in Section
I3.1.3.
WORKING CAPITAL LOAN: As defined in Section
6.I.3.
WORKING CAPITAL STOCK PLEDGE: As defined in
Section 16.1 (h).
2.2 RULES OF CONSTRUCTION. The following
rules of construction shall apply to the Lease and
each of the other Lease Documents: (a) references
to "herein", "hereof' and
"hereunder" shall be deemed to refer to this Lease
or the other applicable Lease Document, and shall
not be limited to the particular text or section
or subsection in which such words appear; (b) the
use of any gender shall include all genders and
the singular number shall include the plural and
vice versa as the context may require; (c)
references to Lessor's attorneys shall be deemed
to include, without limitation, special counsel
and local counsel for Lessor; (d) reference to
attorneys' fees and expenses shall be deemed to
include all costs for administrative, paralegal
and other support staff and to exclude any fees
and expenses of attorneys who are employees of an
Affiliate of Lessor; (e) references to Leased
Property shall be deemed to include references to
all of the Leased Property and references to any
portion thereof; (f) references to the Lease
Obligations shall be
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deemed to include references to all of the Lease
Obligations and references to any portion thereof;
(g) references to the Obligations shall be deemed
to include references to all of the Obligations
and references to any portion thereof; (h) the
term "including", when following any general
statement, will not be construed to limit such
statement to the specific items or matters as
provided immediately following the term
"including" (whether or not non limiting language
such as "without limitation" or "but not limited
to" or words of similar import are also used), but
rather will be deemed to refer to all of the items
or matters that could reasonably fall within the
broadest scope of the general statement; (i) any
requirement that financial statements be
Consolidated in form shall apply only to such
financial statements as relate to a period during
any portion of which the relevant Person has one
or more Subsidiaries; (j) all accounting terms not
specifically defined in the Lease Documents shall
be construed in accordance with GAAP and (k) all
exhibits annexed to any of the Lease Documents as
referenced therein shall be deemed incorporated in
such Lease Document by such annexation and/or
reference.
ARTICLE 3
RENT
3.1 RENT FOR LAND, LEASED IMPROVEMENTS,
RELATED RIGHTS AND FIXTURES. Lessee will pay to
Lessor, in lawful money of the United States of
America, at Lessor's address set forth herein or
at such other place or to such other Person as
Lessor from time to time may designate in writing,
rent for the Leased Property, as follows.
3.1.1 BASE RENT: (A) PRE-CONVERSION BASE
RENT: From and after the Commencement Date
and until the Conversion Date, Lessee shall
pay, commencing on October 1,1997, and on the
first day of each calendar month thereafter
and on the Conversion Date, a base rent (the
"Pre-Conversion Base Rent") in arrears which
is equal to the product of (i) the Original
Meditrust Investment plus so much of the
Project Funds as Lessor has expended from
time to time multiplied by (ii) the Pre-
Conversion Rent Adjustment Rate in effect
from time to time, calculated on a daily
basis.
(b) POST-CONVERSION BASE RENT: From and
after the Conversion Date, Lessee shall pay a
base rent (the "Post-Conversion Base Rent")
per annum which is equal to the product of
(i) the Original Meditrust Investment plus
the aggregate amount of the Project Funds as
Lessor has expended as of the Conversion Date
multiplied by (ii) the Rent Adjustment Rate
which is in effect or calculated on the
Conversion Date, payable in advance in equal,
consecutive monthly installments due on the
first day of each
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calendar month; provided, however, that on
each Rent Adjustment Date, the Base Rent
shall be adjusted to equal the greater of (i)
the then current Post-Conversion Base Rent or
(ii) an amount equal to Original Meditrust
Investment plus the aggregate amount of the
Project Funds as Lessor has expended as of
the Conversion Date plus the Subsequent
Advances multiplied by the Rent Adjustment
Rate then in effect on such subsequent Rent
Adjustment Date and further, provided,
however, that on the Conversion Date, Lessee
shall pay to Lessor (x) the proportionate
share of the Post-Conversion Base Rent due
for the period from (and including) such date
through the end of the calendar month during
which such date occurred.
3.1.2 ADDITIONAL RENT: In addition to the Base
Rent, Lessee shall also pay to Lessor additional
rent (the "Additional Rent") in an amount equal to
five percent (5%) of Excess Gross Revenues.
Additional Rent shall accrue commencing on the
second anniversary of the Conversion Date
("Additional Rent Accrual Date") and shall be
payable during the Term, quarterly in arrears,
commencing on the first day of the first fiscal
quarter occurring following the Additional Rent
Accrual Date and there shall be an annual
reconciliation as provided in Section 3.2 below.
3.2 CALCULATION AND PAYMENT OF ADDITIONAL
RENT; ANNUAL RECONCILIATION.
3.2.1 OFFICER'S CERTIFICATE AND
PRORATION. Each quarterly payment of
Additional Rent shall be delivered to Lessor,
together with an Officer's Certificate
setting forth the calculation thereof, within
thirty (30) days after the end of the
corresponding quarter. Additional Rent due
for any portion of any calendar year shall be
prorated accordingly.
3.2.2 ANNUAL STATEMENT. In addition, on
or before the first day of April of each year
following any calendar year for which
Additional Rent is payable hereunder, Lessee
shall deliver to Lessor an Officer's
Certificate, reasonably acceptable to Lessor
and certified by the chief financial officer
of Lessee, setting forth the Gross Revenues
for the immediately preceding calendar year.
3.2.3 DEFICITS. If the Additional Rent,
as finally determined for any calendar year
(or portion thereof, exceeds the sum of the
quarterly payments of Additional Rent
previously paid by Lessee with respect to
said calendar year, within thirty (30) days
after such determination is required to be
made hereunder, Lessee shall pay such deficit
to Lessor and, if the deficit exceeds five
percent (5%) of the Additional Rent which was
previously paid to Lessor with respect to
said calendar year, then Lessee shall also
pay Lessor interest on such deficit at the
Overdue Rate from
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the date that such payment should have been
made by Lessee to the date that Lessor
receives such payment.
3.2.4 OVERPAYMENTS. If the Additional
Rent, as finally determined for any calendar
year (or portion thereof, is less than the
amount previously paid with respect thereto
by Lessee, Lessee shall notify Lessor either
(a) to pay to Lessee an amount equal to such
difference or (b) to grant Lessee a credit
against Additional Rent next coming due in
the amount of such difference.
3.2.5 FINAL DETERMINATION. The
obligation to pay Additional Rent shall
survive the expiration or earlier termination
of the Term (as to Additional Rent payments
that are due and payable prior to the
expiration or earlier termination of the Term
and during any periods that Lessee remains in
possession of the Leased Property), and a
final reconciliation, taking into account,
among other relevant adjustments, any
contractual allowances which related to Gross
Revenues that accrued prior to the date of
such expiration or earlier termination, but
which have been determined to be not payable
and Lessee's good faith best estimate of the
amount of any unresolved contractual
allowances, shall be made not later than two
(2) years after said expiration or
termination date. Within sixty (60) days
after the expiration or earlier termination
of the Term, Lessee shall advise Lessor of
Lessee's best estimate of the approximate
amount of such adjustments, which estimate
shall not be binding on Lessee or have any
legal effect whatsoever.
3.2.6 BEST EFFORTS TO MAXIMIZE. Lessee
further covenants that the operation of the
Facility shall be conducted in a manner
consistent with the prevailing standards and
practices recognized in the assisted living
industry as those customarily utilized by
reputable business operations. Subject to any
applicable Legal Requirements, the members of
the Leasing Group shall use their best
efforts to maximize the Facility's Gross
Revenues.
3.3 CONFIRMATION AND AUDIT OF ADDITIONAL
RENT.
3.3.1 MAINTAIN ACCOUNTING SYSTEMS.
Lessee shall utilize, or cause to be
utilized, an accounting system for the Leased
Property in accordance with usual and
customary practices in the assisted living
industry and in accordance with GAAP which
will accurately record all Gross Revenues.
Lessee shall retain, for at least three (3)
years after the expiration of each calendar
year (and in any event until the final
reconciliation described in Section
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3.2 above has been made), adequate records
conforming to such accounting system showing
all Gross Revenues for such calendar year.
3.3.2 AUDIT BY LESSOR. Lessor, at its
own expense except as provided hereinbelow,
shall have the right from time to time to
have its accountants or representatives audit
the information set forth in the Officer's
Certificate referred to in Section 3.2 and in
connection with such audits, to examine
Lessee's records with respect thereto
(including supporting data, income tax and
sales tax returns), subject to any
prohibitions or limitations on disclosure of
any such data under applicable law or
regulations.
3.3.3 DEFICIENCIES AND OVERPAYMENTS. If
any such audit discloses a deficiency in the
reporting of Gross Revenues, and either
Lessee agrees with the result of such audit
or the matter is compromised, Lessee shall
forthwith pay to Lessor the amount of the
deficiency in Additional Rent which would
have been payable by it had such deficiency
in reporting Gross Revenues not occurred, as
finally agreed or determined, together with
interest on the Additional Rent which should
have been payable by it, calculated at the
Overdue Rate, from the date when said payment
should have been made by Lessee to the date
that Lessor receives such payment.
Notwithstanding anything to the contrary
herein, with respect to any audit that is
commenced more than two (2) years after the
date Gross Revenues for any calendar year are
reported by Lessee to Lessor, the deficiency,
if any, with respect to Additional Rent shall
bear interest as permitted herein only from
the date such determination of deficiency is
made, unless such deficiency is the result of
gross negligence or willful misconduct on the
part of Lessee (or any Affiliate thereof. If
any audit conducted for Lessor pursuant to
the provisions hereof discloses that (a) the
Gross Revenues actually received by Lessee
for any calendar year exceed those reported
by Lessee by more than five percent (5%),
Lessee shall pay the reasonable cost of such
audit and examination or (b) Lessee has
overpaid Additional Rent, Lessor shall so
notify Lessee and Lessee shall direct Lessor
either (i) to refund the overpayment to
Lessee or (ii) grant a credit against
Additional Rent next coming due in the amount
of such difference.
3.3.4 SURVIVAL. The obligations of
Lessor and Lessee contained in this Section
shall survive the expiration or earlier
termination of this Lease.
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3.4 ADDITIONAL CHARGE. Subject to the rights
to contest as set forth in Article 15, in addition
to the Base Rent and Additional Rent, (a) Lessee
will also pay and discharge as and when due and
payable all Impositions, all amounts, liabilities
and obligations under the Appurtenant Agreements
and all other amounts, liabilities and obligations
which Lessee assumes or agrees to pay under this
Lease, and (b) in the event of any failure on the
part of Lessee to pay any of those items referred
to in clause (a) above, Lessee will also promptly
pay and discharge every fine, penalty, interest
and cost which may be added for non-payment or
late payment of such items (the items referred to
in clauses (a) and (b) above being referred to
herein collectively as the "Additional Charges"),
and Lessor shall have all legal, equitable and
contractual rights, powers and remedies provided
in this Lease, by statute or otherwise, in the
case of non-payment of the Additional Charges, as
well as the Base Rent and Additional Rent. To the
extent that Lessee pays any Additional Charges to
Lessor pursuant to any requirement of this Lease,
Lessee shall be relieved of its obligation to pay
such Additional Charges to any other Person to
which such Additional Charges would otherwise be
due.
3.5 NET LEASE. The Rent shall be paid
absolutely net to Lessor, so that this Lease shall
yield to Lessor the full amount of the
installments of Base Rent, and the payments of
Additional Rent and, if and to the extent payable
to Lessor, Additional Charges throughout the Term.
3.6 NO LESSEE TERMINATION OR OFFSET.
3.6.1 NO TERMINATION. Except as may be
otherwise specifically and expressly provided
in this Lease, Lessee, to the extent not
prohibited by applicable law, shall remain
bound by this Lease in accordance with its
terms and shall neither take any action
without the consent of Lessor to modify,
surrender or terminate the same, nor seek nor
be entitled to any abatement, deduction,
deferment or reduction of Rent, or set-off
against the Rent, nor shall the respective
obligations of Lessor and Lessee be otherwise
affected by reason of (a) any Casualty or any
Taking of the Leased Property, (b) the lawful
or unlawful prohibition of, or restriction
upon, Lessee's use of the Leased Property or
the interference with such use by any Person
(other than Lessor, except to the extent
permitted hereunder) or by reason of eviction
by paramount title; (c) any claim that Lessee
has or might have against Lessor, (d) any
default or breach of any warranty by Lessor
or any of the other Meditrust Entities under
this Lease, any other Lease Document or any
Related Party Agreement, (e) any bankruptcy,
insolvency, reorganization, composition,
readjustment, liquidation, dissolution,
winding up or other proceedings affecting
Lessor or any assignee or transferee of
Lessor or (f) for any other cause whether
similar or
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dissimilar to any of the foregoing, other
than a discharge of Lessee from any of the
Lease Obligations as a matter of law.
3.6.2 WAIVER. Lessee to the fullest
extent not prohibited by applicable law,
hereby specifically waives all rights,
arising from any occurrence whatsoever, which
may now or hereafter be conferred upon it by
law to (a) modify, surrender or terminate
this Lease or quit or surrender the Leased
Property or (b) entitle Lessee to any
abatement, reduction, suspension or deferment
of the Rent or other sums payable by Lessee
hereunder, except as otherwise specifically
and expressly provided in this Lease.
3.6.3 INDEPENDENT COVENANTS. The
obligations of Lessor and Lessee hereunder
shall be separate and independent covenants
and agreements and the Rent and all other
sums payable by Lessee hereunder shall
continue to be payable in all events unless
the obligations to pay the same shall be
terminated pursuant to the express provisions
of this Lease or (except in those instances
where the obligation to pay expressly
survives the termination of this Lease) by
termination of this Lease other than by
reason of an Event of Default.
3.7 ABATEMENT OF RENT LIMITED. There shall be
no abatement of Rent on account of any Casualty,
Taking or other event, except that (a) in the
event of a partial Taking or a temporary Taking as
described in Section 14.3, the Base Rent shall be
abated as follows: (i) in the case of such a
partial Taking, the Meditrust Investment shall be
reduced for the purposes of calculating Base Rent
pursuant to Section 3.1 by subtracting therefrom,
as applicable, the net amount of the Award
received by Lessor, and (ii) in the case of such a
temporary Taking, by reducing the Base Rent for
the period of such a temporary Taking, by the net
amount of the Award received by Lessor and (b) in
the event of a Casualty, the Base Rent shall be
abated as follows: the Meditrust Investment shall
be reduced for the purposes of calculating Base
Rent pursuant to Section 3.1 by subtracting
therefrom, as applicable, the net amount of the
insurance proceeds.
For the purposes of this Section 3.7, the
"net amount of the Award received by Lessor" shall
mean the Award paid to Lessor or Lessor's
mortgagee on account of such Taking, minus all
costs and expenses incurred by Lessor in
connection therewith, and minus any amounts paid
to or for the account of Lessee to reimburse for
the costs and expenses of reconstructing the
Facility following such Taking in order to create
a viable and functional Facility under all of the
circumstances ("Net Award Amount") and the "net
amount of the insurance proceeds" shall mean the
insurance proceeds paid to Lessor or Lessor's
mortgagee on account of such Casualty, minus
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all costs and expenses incurred by Lessor in
connection therewith and minus any amounts paid to
or for the account of Lessee to reimburse for the
costs and expenses of reconstructing the Facility
following such Casualty in order to create a
viable and functional Facility under all of the
circumstances ("Net Proceeds Amount").
3.8 LEASEHOLD IMPROVEMENT FEE: The Lessee
shall pay to the Lessor the Leasehold Improvement
Fee simultaneously with the execution of this
Lease; provided, however, that, at the Lessor's
option, the Leasehold Improvement Fee shall be
held in an escrow account established with a
Person designated by the Lessor pursuant to an
escrow arrangement satisfactory to the Lessor,
with interest thereon benefiting the Lessor. If
the Lessor exercises its option to require that
the Leasehold Improvement Fee be held in such an
escrow account (a) the Leasehold Improvement Fee
shall be disbursed from said escrow account only
upon the joint instructions of the Lessee and the
Lessor (which instructions from the Lessee shall
be immediately given upon the request of the
Lessor) and in no event shall the Leasehold
Improvement Fee be disbursed therefrom, in whole
or in part, unless and until so requested by the
Lessor and (b) the Lessor shall bear the risk of
loss of or misappropriation of the Leasehold
Improvement Fee by such escrow agent.
ARTICLE 4
IMPOSITIONS; TAXES; UTILITIES; INSURANCE PAYMENT
4.1 PAYMENT OF IMPOSITIONS.
4.1.1 LESSEE TO PAY. Subject to the
provisions of Article 15, Lessee will pay or
cause to be paid all Impositions before any
fine, penalty, interest or cost may be added
for non-payment, such payments to be made
directly to the taxing authority where
feasible, and Lessee will promptly furnish
Lessor copies of official receipts or other
satisfactory proof evidencing payment not
later than the last day on which the same may
be paid without penalty or interest. Subject
to the provisions of Article 15 and Section
4.1.2, Lessee's obligation to pay such
Impositions shall be deemed absolutely fixed
upon the date such Impositions become a lien
upon the Leased Property or any part thereof.
4.1.2 INSTALLMENT ELECTIONS. If any such
Imposition may, at the option of the
taxpayer, lawfully be paid in installments
(whether or not interest shall accrue on the
unpaid balance of such Imposition), Lessee
may exercise the option to pay the same (and
any accrued interest on the unpaid balance of
such Imposition) in installments and, in such
event, shall pay such installments during the
Term hereof (subject to Lessee's right to
contest pursuant to the provisions of Section
4.1.5 below) as the
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same respectively become due and before any
fine, penalty, premium, further interest or
cost may be added thereto.
4.1.3 RETURNS AND REPORTS. Lessor, at
its expense, shall, to the extent permitted
by applicable law, prepare and file all tax
returns and reports as may be required by
Governmental Authorities in respect of
Lessor's net income, gross receipts,
franchise taxes and taxes on its capital
stock, and Lessee, at its expense, shall, to
the extent permitted by applicable laws and
regulations, prepare and file all other tax
returns and reports in respect of any
Imposition as may be required by Governmental
Authorities. Lessor and Lessee shall, upon
request of the other, provide such data as is
maintained by the party to whom the request
is made with respect to the Leased Property
as may be necessary to prepare any required
returns and reports. In the event that any
Governmental Authority classifies any
property covered by this Lease as personal
property, Lessee shall file all personal
property tax returns in such jurisdictions
where it may legally so file. Lessor, to the
extent it possesses the same, and Lessee, to
the extent it possesses the same, will
provide the other party, upon request, with
cost and depreciation records necessary for
filing returns for any portion of Leased
Property so classified as personal property.
Where Lessor is legally required to file
personal property tax returns, if Lessee
notifies Lessor of the obligation to do so in
each year at least thirty (30) days prior to
the date any protest must be filed, Lessee
will be provided with copies of assessment
notices so as to enable Lessee to file a
protest.
4.1.4 REFUNDS. If no Lease Default shall
have occurred and be continuing, any refund
due from any taxing authority in respect of
any Imposition paid by Lessee shall be paid
over to or retained by Lessee. If a Lease
Default shall have occurred and be
continuing, at Lessor's option, such funds
shall be paid over to Lessor and/or retained
by Lessor and applied toward Lease
Obligations which relate to the Leased
Property in accordance with the Lease
Documents.
4.1.5 PROTEST. Upon giving notice to
Lessor, at Lessee's option and sole cost and
expense, and subject to compliance with the
provisions of Article 15, Lessee may contest,
protest, appeal, or institute such other
proceedings as Lessee may deem appropriate to
effect a reduction of any Imposition and
Lessor, at Lessee's cost and expense as
aforesaid, shall fully cooperate in a
reasonable manner with Lessee in connection
with such protest, appeal or other action.
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4.2 NOTICE OF IMPOSITIONS. Lessor shall
give prompt notice to Lessee of all Impositions
payable by Lessee hereunder of which Lessor at any
time has knowledge, but Lessor's failure to give
any such notice shall in no way diminish Lessee's
obligations hereunder to pay such Impositions.
4.3 ADJUSTMENT OF IMPOSITIONS. Impositions
imposed in respect of the period during which the
expiration or earlier termination of the Term
occurs shall be adjusted and prorated between
Lessor and Lessee, whether or not such Impositions
are imposed before or after such expiration or
termination, and Lessee's obligation to pay its
prorated share thereof shall survive
such expiration or termination.
4.4 UTILITY CHARGES. Lessee will pay or cause
to be paid all charges for electricity, power,
gas, oil, water, telephone, cable television and
other utilities used in the Leased Property during
the Term and thereafter until Lessee surrenders
the Leased Property in the manner required by this
Lease.
4.5 INSURANCE PREMIUMS. Lessee will pay or
cause to be paid all premiums for the insurance
coverage required to be maintained pursuant to
Article 12 during the Term, and thereafter until
Lessee yields up the Leased Property in the manner
required by this Lease. All such premiums shall be
paid annually in advance and Lessee shall furnish
Lessor with evidence satisfactory to Lessor that
all such premiums have been so paid prior to the
commencement of the Term and thereafter at least
thirty (30) days prior to the due date of each
premium which thereafter becomes due.
Notwithstanding the foregoing, Lessee may pay such
insurance premiums to the insurer in monthly
installments so long as the applicable insurer is
contractually obligated to give Lessor not less
than a sixty (60) days notice of non-payment and
so long as no Lease Default has occurred and is
continuing. In the event of the failure of Lessee
either to comply with the insurance requirements
in Article 12, or to pay the premiums for such
insurance, or to deliver such policies or
certificates thereof to Lessor at the times
required hereunder, Lessor shall be entitled, but
shall have no obligation, to effect such insurance
and pay the premiums therefor, which premiums
shall be a demand obligation of Lessee to Lessor.
4.6 DEPOSITS.
4.6.1 LESSOR'S OPTION. At the option of
Lessor upon the occurrence of an event or
circumstance which, with the giving of notice
and/or the passage of time, would constitute
a Lease Default, which may be exercised at
any time thereafter, Lessee shall, upon
written request of Lessor, on the first day
on the calendar month immediately following
such request, and on the
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first day of each calendar month thereafter
during the Term (each of which dates is
referred to as a "Monthly Deposit Date"), pay
to and deposit with Lessor a sum equal to one-
twelfth (1/12th) of the Impositions to be
levied, charged, filed, assessed or imposed
upon or against the Leased Property within
one (1) year after said Monthly Deposit Date
and a sum equal to one-twelfth ( 1/12th) of
the premiums for the insurance policies
required pursuant to Article 12 which are
payable within one (1) year after said
Monthly Deposit Date. If the amount of the
Impositions to be levied, charged, assessed
or imposed or insurance premiums to be paid
within the ensuing one (1) year period shall
not be fixed upon any Monthly Deposit Date,
such amount for the purpose of computing the
deposit to be made by Lessee hereunder shall
be estimated by Lessor based upon the most
recent available information concerning said
Impositions with an appropriate adjustment to
be promptly made between Lessor and Lessee as
soon as such amount becomes determinable. In
addition, Lessor may, at its option, from
time to time require that any particular
deposit be greater than one-twelfth (1/12th)
of the estimated amount payable within one
(1) year after said Monthly Deposit Date, if
such additional deposit is required in order
to provide to Lessor a sufficient fund from
which to make payment of all Impositions on
or before the next due date of any
installment thereof, or to make payment of
any required insurance premiums not later
than the due date thereof.
4.6.2 USE OF DEPOSITS. The sums
deposited by Lessee under this Section 4.6
shall be held by Lessor and shall be applied
in payment of the Impositions or insurance
premiums, as the case may be, when due. Any
such deposits may be commingled with other
assets of Lessor, and shall be deposited by
Lessor at such bank as Lessor may, from time
to time select, and, provided that Lessor has
invested such deposits in one or more of the
investment vehicles described on SCHEDULE
4.6.2 attached hereto and incorporated by
reference, Lessor shall not be liable to
Lessee or any other Person (a) based on
Lessor's (or such bank's) choice of
investment vehicles, (b) for any consequent
loss of principal or interest or (c) for any
unavailability of funds based on such choice
of investment. Furthermore, Lessor shall bear
no responsibility for the financial condition
of, nor any act or omission by, Lessor's
depository bank. The income from such
investment or interest on such deposit shall
be paid to Lessee on a semi-annual basis as
long as no Lease Default has occurred and is
then continuing, and as long as no fact or
circumstance exists which, with the giving of
notice and/or the passage of time, would
constitute a Lease Default. Lessee shall give
not less than ten (10) days prior written
notice to Lessor in each instance when an
Imposition or insurance premium is due,
specifying the Imposition or premium to be
paid
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and the amount thereof, the place of payment,
and the last day on which the same may be
paid in order to comply with the requirements
of this Lease. If Lessor, in violation of its
obligations under this Lease, does not pay
any Imposition or insurance premium when due,
for which a sufficient deposit exists, Lessee
shall not be in default hereunder by virtue
of the failure of Lessor to pay such
Imposition or such insurance premium and
Lessor shall pay any interest or fine
assessed by virtue of Lessor's failure to pay
such Imposition or insurance premium.
4.6.3 DEFICITS. If for any reason any
deposit held by Lessor under this Section 4.6
shall not be sufficient to pay an Imposition
or insurance premium within the time
specified therefor in this Lease, then,
within ten (10) days after demand by Lessor,
Lessee shall deposit an additional amount
with Lessor, increasing the deposit held by
Lessor so that Lessor holds sufficient funds
to pay such Imposition or premium in full (or
in installments as otherwise provided for
herein), together with any penalty or
interest due thereon. Lessor may change its
estimate of any Imposition or insurance
premium for any period on the basis of a
change in an assessment or tax rate or on the
basis of a prior miscalculation or for any
other good faith reason; in which event,
within ten ( I 0) days after demand by
Lessor, Lessee shall deposit with Lessor the
amount in excess of the sums previously
deposited with Lessor for the applicable
period which would theretofore have been
payable under the revised estimate.
4.6.4 OTHER PROPERTIES. If any
Imposition shall be levied, charged, filed,
assessed, or imposed upon or against the
Leased Property, and if such Imposition shall
also be a levy, charge, assessment, or
imposition upon or for any other real or
personal property that does not constitute a
part of the Leased Property but for which a
lien exists or can exist upon the Leased
Property, then, at Lessor's reasonable
discretion, the computation of the amounts to
be deposited under this Section 4.6 shall be
based upon the entire amount of such
Imposition and Lessee shall not have the
right to apportion any deposit with respect
to such Imposition.
4.6.5 Transfers. In connection with any
assignment of Lessor's interest under this
Lease, the original Lessor named herein and
each successor in interest shall transfer all
amounts deposited pursuant to the provisions
of this Section 4.6 and still in its
possession to such assignee (as the
subsequent holder of Lessor's interest in
this Lease) and upon such transfer, the
original Lessor named herein or the
applicable successor in interest transferring
the deposits shall thereupon be completely
released from all liability with respect to
such deposits so transferred and Lessee
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shall look solely to said assignee, as the
subsequent holder of Lessor's interest under
this Lease, in reference thereto.
4.6.6 SECURITY. All amounts deposited
with Lessor pursuant to the provisions of
this Section 4.6 shall be held by Lessor as
additional security for the payment and
performance of the Obligations and, upon the
occurrence of any Lease Default, Lessor may,
in its sole and absolute discretion, apply
said amounts towards payment or performance
of such Obligations.
4.6.7 RETURN. Upon the expiration or
earlier termination of this Lease, provided
that all of the Lease Obligations relating to
the Leased Property have been fully paid and
performed, any sums then held by Lessor under
this Section 4.6 shall be refunded to Lessee.
4.6.8 RECEIPTS. Lessee shall deliver to
Lessor copies of all notices, demands,
claims, bills and receipts in relation to the
Impositions and insurance premiums upon the
earlier to occur of (a) ten (10) days
following receipt thereof by Lessee and (b)
in the case of an invoice, demand or bill for
the payment of an Imposition, prior to the
date when such Imposition is due and payable.
ARTICLE 5
OWNERSHIP OF LEASED PROPERTY AND PERSONAL
PROPERTY; INSTALLATION, REMOVAL AND REPLACEMENT OF
PERSONAL PROPERTY;
5.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee
acknowledges that the Leased Property is the
property of Lessor and that Lessee has only the
right to the exclusive possession and use of the
Leased Property upon the terms and conditions of
this Lease.
5.2 PERSONAL PROPERTY; REMOVAL AND REPLACEMENT OF
PERSONAL PROPERTY.
5.2.1 LESSEE TO EQUIP FACILITY. If and
to the extent not included in the Leased
Property, Lessee, at its sole cost and
expense, shall install, affix or assemble or
place on the Leased Property, sufficient
items of Tangible Personal Property, to
enable the operation of the Facility in
accordance with the requirements of this
Lease for the Primary Intended Use, and such
Tangible
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Personal Property and replacements thereof,
shall be at all times the property of Lessee.
5.2.2 SUFFICIENT PERSONAL PROPERTY.
Lessee shall maintain, during the entire
Term, the Tangible Personal Property and
Lessor's Personal Property in good order and
repair and shall provide at its expense all
necessary replacements thereof, as may be
necessary in order to operate the Facility in
compliance with all applicable Legal
Requirements and Insurance Requirements and
otherwise in accordance with customary
practice in the industry for the Primary
Intended Use and, if applicable, Other
Permitted Uses. In addition, Lessee shall
furnish all necessary replacements of such
obsolete items of the Tangible Personal
Property and Lessor's Personal Property
during the Term as are necessary to enable
the operation of the Facility in accordance
with the requirements of this Lease for the
Primary Intended Use.
5.2.3 REMOVAL AND REPLACEMENT; LESSOR'S
OPTION TO PURCHASE. Lessee shall not remove
from the Leased Property any one or more
items of Tangible Personal Property or
Lessor's Personal Property (whether now owned
or hereafter acquired) the fair market value
of which exceeds TWENTY-FIVE THOUSAND DOLLARS
($25,000), individually or ONE HUNDRED
THOUSAND DOLLARS ($100,000.00) collectively,
if such Tangible Personal Property or
Lessor's Personal Property is necessary to
enable the operation of the Facility in
accordance with the requirements of this
Lease for the Primary Intended Use. At its
sole cost and expense, Lessee shall restore
the Leased Property to the condition required
by Article 8, including repair of all damage
to the Leased Property caused by the removal
of the Tangible Personal Property or Lessor's
Personal Property, whether effected by Lessee
or Lessor. Upon the expiration or earlier
termination of this Lease, Lessor shall have
the option, which may be exercised by giving
notice thereof within twenty (20) days prior
to such expiration or termination, of (a)
acquiring the Tangible Personal Property
(pursuant to a bill of sale and assignments
of any equipment leases, all in such forms as
are reasonably satisfactory to Lessor) upon
payment of its fair market value or (b)
requiring Lessee to remove the Tangible
Personal Property. If Lessor exercises its
option to purchase the Tangible Personal
Property, the price to be paid by Lessor
shall be (i) reduced by the amount of all
payments due on any equipment leases or any
other Permitted Prior Security Interests
assumed by Lessor and (ii) applied to the
Lease Obligations before any payment to
Lessee. If Lessor requires the removal of the
Tangible Personal Property, then all of the
Tangible Personal Property that is not
removed by Lessee within ten (10) days
following such
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request shall be considered abandoned by
Lessee and may be appropriated, sold,
destroyed or otherwise disposed of by Lessor
without first giving notice thereof to
Lessee, without any payment to Lessee and
without any obligation to account therefor.
ARTICLE 6
SECURITY FOR LEASE OBLIGATIONS
6.1 SECURITY FOR LESSEE'S OBLIGATIONS; PERMITTED
PRIOR SECURITY INTERESTS.
6.1.1 SECURITY. In order to secure the
payment and performance of all of the Obligations,
Lessee agrees to provide or cause there to be
provided the following security:
(a) a first lien and exclusive security
interest in the Collateral, as more
particularly provided for in the Security
Agreement;
(b) the Cash Collateral.
(c) a first lien and exclusive pledge
and assignment of, and security interest in,
all Permits and Contracts, as more
particularly provided for in the Collateral
Assignment of Permits and Contracts; and
(d) in the event that, at any time
during the Term, Lessee holds the fee title
to or a leasehold interest in any real
property and/or personal property which is
used as an integral part of the operation of
the Leased Property (but is not subject to
this Lease), Lessee shall (i) provide Lessor
with prior notice of such acquisition and
(ii) shall take such actions and enter into
such agreements as Lessor shall reasonably
request in order to grant Lessor a first
priority mortgage or other security interest
in such real property and personal property,
subject only to the Permitted Encumbrances
and other Liens reasonably acceptable to
Lessor. Without limiting the foregoing, it is
acknowledged and agreed that all revenues
generated from the operation of such
additional real property shall be included in
the determination of Gross Revenues (subject
to such adjustments as agreed upon
hereunder).
Notwithstanding the foregoing, Lessor
shall subordinate its security interest in
Receivables to a prior security interest to
secure a working capital line as provided in
Section 6.1.3.
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6.1.2 PURCHASE-MONEY SECURITY INTERESTS
AND EQUIPMENT LEASES. Notwithstanding any
other provision hereof regarding the creation
of Liens,
Lessee may (a) grant priority purchase money
security interests in items of Tangible
Personal Property, (b) lease Tangible
Personal Property from equipment lessors as
long as: (i) the aggregate value of such
Tangible Personal Property shall not exceed
TWO HUNDRED THOUSAND DOLLARS ($200,000) or
(ii) (A) the secured party or equipment
lessor enters into an intercreditor agreement
with, and satisfactory to, Lessor, pursuant
to which, without limiting the foregoing, (1)
Lessor shall be afforded the option of curing
defaults and the option of succeeding to the
rights of Lessee and (2) Lessor's security
interest in Tangible Personal Property shall
be subordinated to the security interest
granted to such secured party, (B) all of the
terms, conditions and provisions of the
financing, security interest or lease are
reasonably acceptable to Lessor, (C) Lessee
provides a true and complete copy, as
executed, of each such purchase money
security agreement, financing document and
equipment lease and all amendments thereto
and (D) no such security interest, financing
agreement or lease is cross-defaulted or
cross-collateralized with any other
obligation. Security interests granted by
Lessee in full compliance with the provisions
of this Section 6.1.2 are referred to as
"Permitted Prior Security Interests".
6.1.3 RECEIVABLES FINANCING.
Notwithstanding any other provision hereof
regarding the creation of Liens, Lessee shall
also be permitted to grant a prior security
interest in Receivables (with the Lessor
retaining a junior security interest therein)
to an institutional lender which is providing
a working capital line of credit (a "Working
Capital Loan") for the exclusive use of
Guarantor, Lessee and Affiliates of Lessee as
long as such Lender enters into an
intercreditor agreement with, and
satisfactory to, Lessor pursuant to which,
without limiting the foregoing, (1) Lessor
shall be provided with notice with respect to
defaults under the Working Capital Loan
simultaneously with the delivery of such
notice to Lessee and shall be afforded the
option of curing defaults thereunder, (2)
such lender's use of Instruments, Documents,
General Intangibles and Chattel Paper shall
be limited to a license only for the purpose
of collecting Receivables and (3) the
subordination of Lessor's interest in the
Receivables shall be of no force and effect
and Lessor's first priority security interest
shall be reinstated from and after the
occurrence of an Event of Default if, upon or
following such Event of Default, Lessor
either exercises any of its remedies set
forth in Article 16 or Lessor notifies in
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writing such lender of Lessor's intention to
invoke its right to reinstate its first
priority security interest in the
Receivables.
6.2 GUARANTY. All of the Lease Obligations
shall be unconditionally and irrevocably
guaranteed by the Guarantor pursuant to the
Guaranty of Lease Obligations.
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTY; MANAGEMENT
AGREEMENTS
7.1 CONDITION OF THE LEASED PROPERTY. Lessee
acknowledges that Lessee has caused the Leased
Property to be sold to Lessor and has concurrently
entered into this Lease. Lessee acknowledges
receipt and delivery of possession of the Leased
Property and that Lessee has examined and
otherwise has acquired knowledge of the condition
of the Leased Property prior to the execution and
delivery of this Lease and has found the same to
be in good order and repair and satisfactory for
its purposes hereunder. Lessee is leasing the
Leased Property "AS-IS" in its present condition,
provided, however, that nothing herein contained
in this Section 7.1 shall be deemed to modify the
terms and provisions of the Leasehold Improvement
Agreement. Lessee waives any claim or action
against Lessor in respect of the condition of the
Leased Property. LESSOR MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT
TO THE LEASED PROPERTY, EITHER AS TO ITS FITNESS
FOR ANY PARTICULAR PURPOSE OR USE, ITS DESIGN OR
CONDITION OR OTHERWISE, OR AS TO DEFECTS IN THE
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN,
LATENT OR PATENT; IT BEING AGREED THAT ALL RISKS
RELATING TO THE DESIGN, CONDITION AND/OR USE OF
THE LEASED PROPERTY ARE TO BE BORNE BY LESSEE.
LESSEE HEREBY ASSUMES ALL RISK OF THE PHYSICAL
CONDITION OF THE LEASED PROPERTY, THE SUITABILITY
OF THE LEASED PROPERTY FOR LESSEE'S PURPOSES, AND
THE COMPLIANCE OR NON-COMPLIANCE OF THE LEASED
PROPERTY WITH ALL ,APPLICABLE REQUIREMENTS OF LAW,
INCLUDING BUT NOT LIMITED TO ENVIRONMENTAL LAWS
AND ZONING OR LAND USE LAWS.
Upon the request of Lessor, at any time and
from time to time during the Term, Lessee shall
engage one (1) or more independent professional
consultants, engineers and inspectors, qualified
to do business in the State and acceptable to
Lessor to perform any environmental and/or
structural investigations and/or other inspections
of the Leased Property
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and the Facility as Lessor may reasonably request
in order to detect (a) any structural deficiencies
in the Leased Improvements or the utilities
servicing the Leased Property or (b) the presence
of any condition that (i) may be harmful or
present a health hazard to the residents and other
occupants of the Leased Property or (ii)
constitutes a breach or violation of any of the
Lease Documents. In the event that Lessor
reasonably determines that the results of such
testing or inspections are unsatisfactory, within
thirty (30) days of notice from Lessor, Lessee
shall commence such appropriate remedial actions
as may be reasonably requested by Lessor to
correct such unsatisfactory conditions and,
thereafter, shall diligently and continuously
prosecute such remedial actions to completion
within the time limits prescribed in this Lease or
the other Lease Documents.
7.2 USE OF THE LEASED PROPERTY; COMPLIANCE;
MANAGEMENT.
7.2.1 OBLIGATION TO OPERATE. Following
completion of the Facility, Lessee shall
continuously operate the Leased Property in
accordance with the Primary Intended Use and
the Other Permitted Uses and maintain its
qualifications for licensure and
accreditation as required by all applicable
Legal Requirements.
7.2.2 PERMITTED USES. During the entire
Term, Lessee shall use the Leased Property,
or permit the Leased Property to be used,
only for the Primary Intended Use and, if
applicable, the Other Permitted Uses. Lessee
shall not use the Leased Property or permit
the Leased Property to be used for any other
use without the prior written consent of
Lessor, which consent may be withheld in
Lessor's sole and absolute discretion.
7.2.3 COMPLIANCE WITH INSURANCE
REQUIREMENTS. No use shall be made or
permitted to be made of the Leased Property
and no acts shall be done which will cause
the cancellation of any insurance policy
covering the Leased Property, nor shall
Lessee, any Manager or any other Person sell
or otherwise provide to residents, other
occupants or invitees therein, or permit to
be kept, used or sold in or about the Leased
Property, any article which may be prohibited
by any of the Insurance Requirements.
Furthermore, Lessee shall, at its sole cost
and expense, take whatever other actions that
may be necessary to comply with and to insure
that the Leased Property complies with all
Insurance Requirements.
7.2.4 NO WASTE. Lessee shall not commit
or suffer to be committed any waste on, in or
under the Leased Property, nor shall Lessee
cause or permit any nuisance thereon.
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7.2.5 NO IMPAIRMENT. Lessee shall
neither permit nor knowingly suffer the
Leased Property to be used in such a manner
as (a) might reasonably tend to impair
Lessor's title thereto or (b) may reasonably
make possible a claim or claims of adverse
usage or adverse possession by the public or
of implied dedication of the Leased Property.
7.2.6 NO LIENS. Except as permitted
pursuant to Section 6.1.2, Lessee shall not
permit or suffer any Lien to exist on the
Tangible Personal Property and shall in no
event cause, permit or suffer any Lien to
exist with respect to the Leased Property
other than as set forth in Section 11.5.2.
7.3 COMPLIANCE WITH LEGAL REQUIREMENTS.
Lessee covenants and agrees that the Leased
Property shall not be used for any unlawful
purpose and that Lessee, at its sole cost and
expense, will promptly (a) comply with, and shall
cause every other member of the Leasing Group to
comply with, all applicable Legal Requirements
relating to the use, operation, maintenance,
repair and restoration of the Leased Property,
whether or not compliance therewith shall require
structural change in any of the Leased Property or
interfere with the use and enjoyment of the Leased
Property and (b) procure, maintain and comply with
(in all material respects), and shall cause every
other member of the Leasing Group to procure,
maintain and comply with (in all material
respects), all Contracts and Permits necessary or
desirable in order to operate the Leased Property
for the Primary Intended Use and/or, if
applicable, Other Permitted Uses, and for
compliance with all of the terms and conditions of
this Lease. Unless a Lease Default has occurred or
any event has occurred which, with the passage of
time and/or the giving of notice would constitute
a Lease Default, Lessee may, upon prior written
notice to Lessor, contest any Legal Requirement to
the extent permitted by, and in accordance with,
Article 15 below.
7.4 MANAGEMENT AGREEMENTS. Throughout the
Term, Lessee shall not enter into any Management
Agreement without the prior written approval of
Lessor, in each instance, which approval shall not
be unreasonably withheld. Lessee shall not,
without the prior written approval of Lessor, in
each instance, which approval shall not be
unreasonably withheld, agree to or allow: (a) any
change in the Manager or change in the ownership
or control of the Manager, (b) the termination of
any Management Agreement (other than in connection
with the exercise by Lessee of any of its remedies
under the Management Agreement as a result of any
default by the Manager thereunder), (c) any
assignment by the Manager of its interest under
the Management Agreement or (d) any material
amendment of the Management Agreement. In
addition, Lessee
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shall, at its sole cost and expense, promptly and
fully perform or cause to be performed every
covenant, condition, promise and obligation of the
licensed operator of the Leased Property under any
Management Agreement.
Each Management Agreement shall provide that
Lessor shall be provided notice of any defaults
thereunder and, at Lessor's option, an opportunity
to cure such default. Lessee shall furnish to
Lessor, within three (3) days after receipt
thereof, or after the mailing or service thereof
by Lessee, as the case may be, a copy of each
notice of default which Lessee shall give to, or
receive from any Person, based upon the
occurrence, or alleged occurrence, of any default
in the performance of any covenant, condition,
promise or obligation under any Management
Agreement.
Whenever and as often as Lessee shall fail to
perform, promptly and fully, at its sole cost and
expense, any covenant, condition, promise or
obligation on the part of the licensed operator of
the Leased Property under and pursuant to any
Management Agreement, Lessor, or a lawfully
appointed receiver of the Leased Property, may, at
their respective options (and without any
obligation to do so), after five (5) days' prior
notice to Lessee (except in the case of an
emergency) enter upon the Leased Properly and
perform, or cause to be performed, such work,
labor, services, acts or things, and take such
other steps and do such other acts as they may
deem advisable, to cure such defaulted covenant,
condition, promise or obligation, and any amount
so paid or advanced by Lessor or such receiver and
all costs and expenses reasonably incurred in
connection therewith (including, without
limitation, attorneys' fees and expenses and court
costs), shall be a demand obligation of Lessee to
Lessor or such receiver, and, Lessor shall have
the same rights and remedies for failure to pay
such costs on demand as for Lessee's failure to
pay any other sums due hereunder.
7.5 PARTICIPATION IN THIRD PARTY PAYOR
PROGRAMS. No provision of this Lease shall be
deemed to require Lessee to commence participation
in any Third Party Payor Program or any Managed
Care Plan.
ARTICLE 8
REPAIRS; RESTRICTIONS
8.1 MAINTENANCE AND REPAIR.
8.1.1 LESSEE'S RESPONSIBILITY. Lessee,
at its sole cost and expense, shall keep the
Leased Property and all private
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roadways, sidewalks and curbs appurtenant
thereto which are under Lessee's control in
good order and repair to the extent
consistent with the stage of construction of
the Project (whether or not the need for such
repairs occurs as a result of Lessee's use,
any prior use, the elements or the age of the
Leased Properly or such private roadways,
sidewalks and curbs or any other cause
whatsoever other than Lessor's gross
negligence or willful misconduct) and,
subject to Articles 9,13 and 14, Lessee shall
promptly, with the exercise of all reasonable
efforts, undertake and diligently complete
all necessary and appropriate repairs,
replacements, renovations, restorations,
alterations and modifications thereof of
every kind and nature, whether interior or
exterior, structural or non-structural,
ordinary or extraordinary, foreseen or
unforeseen or arising by reason of a
condition (concealed or otherwise) existing
prior to the commencement of, or during, the
Term and thereafter until Lessee surrenders
the Leased Property in the manner required by
this Lease. In addition, Lessee, at its sole
cost and expense, shall make all repairs,
modifications, replacements, renovations and
alterations of the Leased Property (and such
private roadways, sidewalks and curbs) that
are necessary to comply with all applicable
Legal Requirements and Insurance Requirements
so that the Leased Property can be legally
operated for the Primary Intended Use and, if
applicable, the Other Permitted Uses. All
repairs, replacements, renovations,
alterations, and modifications required by
the terms of this Section 8.1 shall be (a)
performed in a good and workmanlike manner in
compliance with all applicable Legal
Requirements, Insurance Requirements and the
requirements of Article 9 hereof, using new
materials well suited for their intended
purpose and (b) consistent with the operation
of the Facility in a reputable manner. Lessee
will not take or omit to take any action the
taking or omission of which might materially
impair the value or the usefulness of the
Leased Property for the Primary Intended Use
and, if applicable, the Other Permitted Uses.
To the extent that any of the repairs,
replacements, renovations, alterations or
modifications required by the terms of this
Section 8.1 constitute Material Structural
Work, Lessee shall obtain Lessor's prior
written approval (which approval shall not be
unreasonably withheld) of the specific
repairs, replacements, renovations,
alterations and modifications to be performed
by or on behalf of Lessee in connection with
such Material Structural Work.
Notwithstanding the foregoing, in the event
of a bona fide emergency during which Lessee
is unable to contact
the appropriate representatives of Lessor,
Lessee may commence such Material Structural
Work as may be necessary in order to address
such emergency without Lessor's prior
approval, provided, however, that Lessee
shall immediately thereafter advise Lessor of
such emergency and the nature and scope of
the Material Structural
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Work commenced and shall obtain Lessor's
approval of the remaining Material Structural
Work to be completed.
8.1.2 NO LESSOR OBLIGATION. Lessor shall
not, under any circumstances, be required to
build or rebuild any improvements on the
Leased Property (or any private roadways,
sidewalks or curbs appurtenant thereto), or
to make any repairs, replacements,
renovations, alterations, restorations,
modifications, or renewals of any nature or
description to the Leased Property (or any
private roadways, sidewalks or curbs
appurtenant thereto), whether ordinary or
extraordinary, structural or non-structural,
foreseen or unforeseen, or to make any
expenditure whatsoever with respect thereto
in connection with this Lease, or to maintain
the Leased Property (or any private roadways,
sidewalks or curbs appurtenant thereto) in
any way.
8.1.3 LESSEE MAY NOT OBLIGATE LESSOR.
Nothing contained herein nor any action or
inaction by Lessor shall be construed as (a)
constituting the consent or request of
Lessor, express or implied, to any
contractor, subcontractor, laborer,
materialman or vendor to or for the
performance of any labor or services for any
construction, alteration, addition, repair or
demolition of or to the Leased Property or
(b) except as otherwise provided in this
Lease, giving Lessee any right, power or
permission to contract for or permit the
performance of any labor or services or the
finishing of any materials or other property
in such fashion as would permit the making of
any claim against Lessor or the payment
thereof or to make any agreement that may
create, or in any way be the basis for, any
right, title or interest in, or Lien or claim
against, the estate of Lessor in the Leased
Property. Without limiting the generality of
the foregoing and except as otherwise
provided in this Lease, the right title and
interest of Lessor in and to the Leased
Property shall not be subject to liens or
encumbrances for the performance of any labor
or services or the furnishing of any
materials or other property furnished to the
Leased Property at or by the request of
Lessee or any other Person other than Lessor.
Lessee shall notify any contractor,
subcontractor, laborer, materialman or vendor
providing any labor, services or materials to
the Leased Property of this provision.
8.2 ENCROACHMENTS; TITLE RESTRICTIONS. If any
of the Leased Improvements shall, at any time,
encroach upon any property, street or right-of way
adjacent to the Leased Property, or shall violate
the agreements or conditions contained in any
lawful restrictive covenant or other Lien now or
hereafter affecting the Leased Property, or shall
impair the rights of others under any easement,
right-of way or other Lien to
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which the Leased Property is now or hereafter
subject, then promptly upon the request of Lessor,
Lessee shall, at its sole cost and expense,
subject to Lessee's right to contest the existence
of any encroachment, violation or impairment as
set forth in Article 15, (a) obtain valid and
effective waivers or settlements of all claims,
liabilities and damages resulting from each such
encroachment, violation or impairment or (b) make
such alterations to the Leased Improvements, and
take such other actions, as Lessee in the good
faith exercise of its judgment deems reasonably
practicable, to remove such encroachment, or to
end such violation or impairment, including, if
necessary, the alteration of any of the Leased
Improvements. Notwithstanding the foregoing,
Lessee shall, in any event, take all such actions
as may be reasonably necessary in order to be able
to continue the operation of the Leased
Improvements for the Primary Intended Use and, if
applicable, the Other Permitted Uses substantially
in the manner and to the extent that the Leased
Improvements were operated prior to the assertion
of such encroachment, violation or impairment and
nothing contained herein shall limit Lessee's
obligations to operate the Leased Property in
accordance with its Primary Intended Use. Any such
alteration made pursuant to the terms of this
Section 8.2 shall be completed in conformity with
the applicable requirements of Section 8.1 and
Article 9. Lessee's obligations under this Section
8.2 shall be in addition to and shall in no way
discharge or diminish any obligation of any
insurer under any policy of title or other
insurance. If and to the extent any obligation of
an insurer under any policy of title or other
insurance exists and Lessee has incurred costs and
expenses with respect to the subject matter of
such obligation and provided Lessor is reasonably
satisfied with the resolution of such subject
matter, at the request of Lessee, Lessor, at
Lessor's option, shall either assign to Lessee any
right it may have to proceed against such insurer
or remit to Lessee any amount which Lessor
recovers from such insurer, minus any amounts
needed to reimburse Lessor for its reasonable
costs and expenses, for the costs and expenses
incurred by Lessee in reconstructing the Facility
or taking such other action reasonably required in
order to create a viable and functional Facility
under all of the circumstances.
ARTICLE 9
MATERIAL STRUCTURAL WORK AND CAPITAL ADDITION
9.1 LESSOR'S APPROVAL. Without the prior
written consent of Lessor, which consent may be
withheld by Lessor, in its sole and absolute
discretion, Lessee shall make no Capital Addition
or Material Structural Work to the Leased Property
(including, without limitation, any change in the
size or unit capacity of the Facility), except as
may be otherwise expressly required pursuant to
Article 8.
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9.2 GENERAL PROVISIONS AS TO CAPITAL
ADDITIONS AND CERTAIN MATERIAL STRUCTURAL WORK. As
to any Capital Addition or Material Structural
Work (other than such Material Structural Work
that is required to be performed pursuant to the
terms of Section 8.1) for which Lessor has granted
its prior written approval, the following terms
and conditions shall apply unless otherwise
expressly set forth in Lessor's written approval.
9.2.1 NO LIENS. Lessee shall not be
permitted to create any Lien on the Leased
Property in connection with any Capital
Addition or Material Structural Work
(including, without limitation, Liens
relating to the provision of financing for a
Capital Addition) other than Liens expressly
permitted by the terms and provisions of this
Lease Agreement.
9.2.2 LESSEE'S PROPOSAL REGARDING
CAPITAL ADDITIONS AND MATERIAL STRUCTURAL
WORK. If Lessee desires to undertake any
Capital Addition or Material Structural Work,
Lessee shall submit to Lessor in writing a
proposal setting forth in reasonable detail
any proposed Capital Addition or Material
Structural Work and shall provide to Lessor
copies of, or information regarding, the
applicable plans and specifications, Permits,
Contracts and any other materials concerning
the proposed Capital Addition or Material
Structural Work, as the case may be, as
Lessor may reasonably request. Without
limiting the generality of the foregoing,
each such proposal pertaining to any Capital
Addition shall indicate the approximate
projected cost of constructing such Capital
Addition, the use or uses to which it will be
put and a good faith estimate of the change,
if any, in the Gross Revenues that Lessee
anticipates will result from the construction
of such Capital Addition.
9.2.3 LESSOR'S OPTIONS REGARDING CAPITAL
ADDITIONS AND MATERIAL STRUCTURAL WORK.
Lessor shall have the options of (a) denying
permission for the construction of the
applicable Capital Addition or Material
Structural Work, (b) offering to finance the
construction of the Capital Addition pursuant
to Section 9.3 on such terms as may be
specified by Lessor, including the terms of
any amendment to this Lease, including,
without limitation, an increase in Base Rent
based on Lessor's then existing terms and
prevailing conditions to compensate Lessor
for the additional funds advanced by it, (c)
allowing Lessee to separately pay for or
finance the construction of the Capital
Addition, subject to compliance with the
terms and conditions of Section 9.2.1,
Section 9.4, Section 13.1.3, all applicable
Legal Requirements, all other requirements of
this Lease and to such other terms and
conditions as Lessor may in its discretion
reasonably impose or (d) any combination of
the
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foregoing. Unless Lessor notifies Lessee in
writing of a contrary election within thirty
(30) days of Lessee's request or unless
Lessor is required to consent thereto
pursuant to this Section 9.2.3, Lessor shall
be deemed to have denied the request for the
Capital Addition or Material Structural Work.
In the event and to the extent Lessor has
granted permission for the construction of
the applicable Capital Addition or Material
Structural Work and (x) Lessor has not
offered to finance the construction of the
same or (y) Lessee declines to accept the
financing offered by Lessor, Lessee may
separately finance such construction, subject
to the limitation on Liens set forth in
Section 9.2.1, or pay for such construction
itself. In the event Lessee declines to
accept the financing offered by Lessor or if
Lessor has not offered such financing to
Lessee and proposes to obtaining financing
from another Person, Lessee shall inform
Lessor in writing of the terms and conditions
of such financing and shall provide Lessor
with a copy of a commitment letter evidencing
the same and Lessor may, by giving notice
thereof to Lessee within twenty (20) days
following being so informed, elect to provide
financing to Lessee at the effective rate of
interest as such financing. Lessor shall not
unreasonably withhold its permission for the
construction of Material Structural Work
which is necessary to protect the safety or
welfare of residents of the Facility.
9.2.4 LESSOR MAY ELECT TO FINANCE
CAPITAL ADDITIONS. If Lessor elects to offer
financing for the proposed Capital Addition
and Lessee accepts lessor's financing
proposal, the provisions of Section 9.3 shall
apply.
9.3 CAPITAL ADDITIONS FINANCED BY LESSOR.
9.3.1 ADVANCES. All advances of funds
for any such financing shall be made in
accordance with Lessor's then standard
construction loan requirements and
procedures, which may include, without
limitation, the requirements and procedures
applicable to Work under Sections 13.1.3 and
13.1.4.
9.3.2 LESSOR'S GENERAL REQUIREMENTS. If
Lessor agrees to finance the proposed Capital
Addition and Lessee accepts Lessor's proposal
therefor, in addition to all other items
which Lessor or any applicable Financing
Party may reasonably require, Lessee shall
provide to Lessor the following:
(a) prior to any advance of funds,
(i) any information, opinions,
certificates, Permits or documents
reasonably requested by Lessor or any
applicable Financing Party which are
necessary to confirm that Lessee is
reasonably expected to be able to use
the Capital Addition
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upon completion thereof in accordance
with the Primary Intended Use and/or, if
applicable, the Other Permitted Uses and
(ii) evidence satisfactory to Lessor and
any applicable Financing Party that all
Permits required for the construction
and use of the Capital Addition have
been received, are in full force and
effect and are not subject to appeal,
except only for those Permits which
cannot in the normal course be obtained
prior to commencement or completion of
the construction; provided, that Lessor
and any applicable Financing Party are
furnished with reasonable evidence that
the same is reasonably expected to be
available in the normal course of
business without unusual condition;
(b) prior to any advance of funds,
an Officer's Certificate and, if
requested, a certificate from Lessee's
architect, setting forth in reasonable
detail the projected (or actual, if
available) Capital Addition Cost;
(c) bills of sale, instruments of
transfer and other documents required by
Lessor so as to vest title to the
Capital Addition in Lessor free and
clear of all Liens (except to the extent
a Lien is being duly contested in
accordance with the terms and provisions
of this Lease), and amendments to this
Lease and any recorded notice or
memorandum thereof, duly executed and
acknowledged, in form and substance
reasonably satisfactory to Lessor,
providing for any changes required by
Lessor including, without limitation,
changes in the Base Rent and the legal
description of the Land;
(d) upon payment therefor, a deed
conveying to Lessor title to any land
acquired for the purpose of constructing
the Capital Addition ("Additional Land")
free and clear of any Liens except those
approved by Lessor;
(e) upon completion of the Capital
Addition, a final as-built survey
thereof reasonably satisfactory to
Lessor, if required by Lessor;
(f) during and following the
advance of funds and the completion of
the Capital Addition, endorsements to
any outstanding policy of title
insurance covering the Leased Property
satisfactory in form and substance to
Lessor (i) updating the same without any
additional exception except as may be
reasonably permitted by Lessor and (ii)
increasing the coverage thereof by an
amount equal to the Fair Market Value of
the Capital Addition and/or
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increasing the coverage thereof by an
amount equal to the Fair Market Value of
the Additional Land and including the
Additional Land in the premises covered
by such title insurance policy;
(g) simultaneous with the initial
advance of funds, if appropriate, (i) an
owner's policy of title insurance
insuring fee simple title to any
Additional Land conveyed to Lessor
pursuant to subparagraph (d) free and
clear of all Liens except those approved
by Lessor and (ii) an owner's policy of
title insurance reasonably satisfactory
in form and substance to Lessor and a
lender's policy of title insurance
reasonably satisfactory in form and
substance to any applicable Financing
Party;
(h) following the completion of the
Capital Addition, if reasonably deemed
necessary by Lessor, an appraisal of the
Leased Property by an M.A.I. appraiser
acceptable to Lessor, which states that
the Fair Market Value of the Leased
Property upon completion of the Capital
Addition exceeds the Fair Market Value
of the Leased Property prior to the
commencement of such Capital Addition by
an amount not less than one hundred
twenty-five percent (125%) of the
Capital Addition Cost; and
(i) during or following the
advancement of funds, prints of
architectural and engineering drawings
relating to the Capital Addition and
such other materials, including, without
limitation, the modifications to
outstanding policies of title insurance
contemplated by subsection (f) above,
opinions of counsel, appraisals,
surveys, certified copies of duly
adopted resolutions of the board of
directors of Lessee authorizing the
execution and delivery of the lease
amendment and any other documents and
instruments as may be reasonably
required by Lessor and any applicable
Financing Party.
9.3.3 PAYMENT OF COSTS. By virtue of
making a request to finance a Capital
Addition, whether or not such financing is
actually consummated, Lessee shall be deemed
to have agreed to pay, upon demand, all costs
and expenses reasonably incurred by Lessor
and any Person participating with Lessor in
any way in the financing of the Capital
Addition Cost, including, but not limited to
(a) fees and expenses of their respective
attorneys, (b) all photocopying expenses, If
any, (c) the amount of any filing,
registration and recording taxes and fees,
(d) documentary stamp
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taxes and intangible taxes (e) title
insurance charges and appraisal fees.
9.4 GENERAL LIMITATIONS. Without in any way
limiting Lessor's options with respect to proposed
Capital Additions or Material Structural Work: (a)
no Capital Addition or Material Structural Work
shall be completed that could, upon completion,
significantly alter the character or purpose or
detract from the value or operating efficiency of
the Leased Property, or significantly impair the
revenue-producing capability of the Leased
Property, or adversely affect the ability of
Lessee to comply with the terms of this Lease; (b)
no Capital Addition or Material Structural Work
shall be completed which would tie in or connect
any Leased Improvements on the Leased Property
with any other improvements on property adjacent
to the Leased Property (and not part of the Land
covered by this Lease) including, without
limitation, tie-ins of buildings or other
structures or utilities, unless Lessee shall have
obtained the prior written approval of Lessor,
which approval may be withheld in Lessor's sole
and absolute discretion and (c) all proposed
Capital Additions and Material Structural Work
shall be architecturally integrated and consistent
with the Leased Property.
9.5 NON-CAPITAL ADDITIONS. Lessee shall have
the obligation and right to make repairs,
replacements and alterations which are not Capital
Additions as required by the other Sections of
this Lease, but in so doing, Lessee shall always
comply with and satisfy the conditions of Section
9.4. Lessee shall have the right, from time to
time, to make additions, modifications or
improvements to the Leased Property which do not
constitute Capital Additions or Material
Structural Work as it may deem to be desirable or
necessary for its uses and purposes, subject to
the same limits and conditions imposed under
Section 9.4. The cost of any such repair,
replacement, alteration, addition, modification or
improvement shall be paid by Lessee and the
results thereof shall be included under the terms
of this Lease and become a part of the Leased
Property, without payment therefor by Lessor at
any time. Notwithstanding the foregoing, all such
additions, modifications and improvements which
affect the structure of any of the Leased
Improvements, or which involve the expenditure of
more than FIFTY THOUSAND DOLLARS ($50,000.00),
shall be undertaken only upon compliance with the
provisions of Section 13.1.3, all applicable Legal
Requirements and all other applicable requirements
of this Lease; provided, however, that in the
event of a bona fide emergency during which Lessee
is unable to contact the appropriate
representatives of Lessor, Lessee may commence
such additions, modifications and improvements as
may be necessary in order to address such
emergency without Lessor's prior approval, as long
as Lessee immediately
thereafter advises Lessor of such emergency and
the nature and scope of the additions,
modifications and improvements performed and
obtains
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Lessor's approval of the remaining work to be
completed. Any such addition, modification and
improvement which affects the structure of any of
the Leased Improvements which is not a Capital
Addition or Material Structural Work shall be
exempt from the requirements of Section 9.2
hereof.
9.6 COMPENSATION TO LESSEE FOR CAPITAL
ADDITIONS PAID FOR OR FINANCED BY LESSEE. Upon the
expiration or earlier termination of this Lease,
except by reason of the default by Lessee
hereunder, Lessor shall compensate Lessee for all
Capital Additions paid for or financed by Lessee
in any of the following ways, determined in the
sole discretion of Lessor:
(a) By purchasing all Capital Additions paid
for or financed by Lessee from Lessee for cash in
the amount of the Fair Market Added Value
(determined as of the date of such purchase) of
all such Capital Additions paid for or financed by
Lessee; or
(b) By purchasing such Capital Addition from
Lessee by delivering to Lessee Lessor's purchase
money promissory note in the amount of said Fair
Market Added Value, due and payable no later than
eighteen ( 18) months after the date of expiration
or other termination of this Lease, bearing
interest at a rate equal to one hundred ten
percent (110%) of the applicable federal rate
(determined at the time of execution of such note
pursuant to Section 1274 of the Code or any
successor section thereto), compounded
semiannually, or, if no such rate exists, or such
rate is in excess of that permitted under
applicable law, at the Prime Rate, which interest
shall be payable monthly, and which note shall be
secured by a mortgage on the Leased Property,
subject to all Liens on the Leased Property at the
time of such purchase; or
(c) By Lessor assigning to Lessee under
appropriate written instruments the right to
receive an amount equal to the Added Value
Percentage (determined as of the expiration of
earlier termination of this Lease) from all rent
and other consideration receivable by Lessor under
any re-letting or other disposition of the Leased
Property, after deducting all costs and expenses
incurred by Lessor in connection with such re-
letting or other disposition of the leased
Property and all costs and expenses of operating
and maintaining the Leased Property during any
such new lease which are not borne by the tenant
thereunder. The provisions of this Subparagraph
(c) shall remain in effect until the sale or other
final disposition of the Leased Property in which
event Lessor shall pay to Lessee the outstanding
balance of the Fair Market Added Value in
accordance with Subparagraph (a), (b), or (d) of
this Section 9.6, after deducting any amounts
received by Lessee under this Subparagraph (c); or
(d) Such other arrangement regarding such
compensation as shall be mutually acceptable to
Lessor and Lessee.
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ARTICLE 10
WARRANTIES AND REPRESENTATIONS
10.1 REPRESENTATIONS AND WARRANTIES. Lessee
hereby represents and warrants to, and covenants
and agrees with, Lessor that:
10.1.1 EXISTENCE; POWER; QUALIFICATION.
Lessee is a corporation duly organized,
validly existing and in good standing under
the laws of the State of Washington. Lessee
has all requisite corporate power to own and
operate its properties and to carry on its
business as now conducted and is duly
qualified to transact business and is in good
standing in each jurisdiction where such
qualification is necessary or desirable in
order to carry out its business as presently
conducted. As of the date of this Agreement,
Lessee does not have any Subsidiaries and
Lessee is not a member of any partnership or
joint venture. Attached hereto as EXHIBIT C
is a true and correct list of all of the
shareholders of Lessee and their respective
ownership interests in Lessee;
10.1.2 VALID AND BINDING. Lessee is duly
authorized to make and enter into all of the
Lease Documents to which Lessee is a party
and to carry out the transactions
contemplated therein. All of the Lease
Documents to which Lessee is a party have
been duly executed and delivered by Lessee,
and each is a legal, valid and binding
obligation of Lessee, enforceable in
accordance with its terms.
10.1.3 SINGLE PURPOSE. Lessee is, and
during the entire time that this Lease
remains in force and effect shall be, engaged
in no business, trade or activity other than
the operation and development of the Leased
Property for the Primary Intended Use and
such other activities in which Lessee may be
permitted to engage by the provisions of
Meditrust/Emeritus Transaction Documents. The
fiscal year of Lessee and the Guarantor is
the Fiscal Year.
10.1.4 NO VIOLATION. The execution,
delivery and performance of the Lease
Documents by the members of the Leasing Group
and the consummation by the members of the
Leasing Group of the transactions thereby
contemplated shall not result in any breach
of, or constitute a default under, or result
in the acceleration of, or constitute an
event which, with the giving of notice or the
passage of time, or both, could result in
default or acceleration of any obligation of
any such member of the Leasing
Group under any of the Permits or Contracts
or any other contract,
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mortgage, lien, lease, agreement, instrument,
franchise, arbitration award, judgment,
decree, bank loan or credit agreement, trust
indenture or other instrument to which any
member of the Leasing Group is a party or by
which any member of the Leasing Group may be
bound or affected and do not violate or
contravene any Legal Requirement.
10.1.5 CONSENTS AND APPROVALS. Except as
already or reasonably expected to be obtained
in the ordinary course of business prior to
or upon the Completion of the Project, as the
case may be, no consent or approval or other
authorization of, or exemption by, or
declaration or fling with, any Person and no
waiver of any right by any Person is required
to authorize or permit, or is otherwise
required as a condition of the execution,
delivery and performance of its obligations
under the Lease Documents by any member of
the Leasing Group or as a condition to the
validity (assuming the due authorization,
execution and delivery by Lessor of the Lease
Documents to which it is a party) and the
first priority of any Liens granted under the
Lease Documents, except the filing of the
Financing Statements.
10.1.6 NO LIENS OR INSOLVENCY
PROCEEDINGS. Each member of the Leasing Group
in existence as of the date hereof is
financially solvent and there are no actions,
suits, investigations or proceedings
including, without limitation, outstanding
federal or state tax liens, garnishments or
insolvency or bankruptcy proceedings, pending
or, to the best of Lessee's knowledge and
belief, threatened:
(a) against or affecting any member
of the Leasing Group, which if adversely
resolved to such member of the Leasing
Group, would materially adversely affect
the ability of any of the foregoing to
perform their respective obligations
under the Lease Documents;
(b) against or affecting the Leased
Property or the ownership, construction,
development, maintenance, management,
repair, use, occupancy, possession or
operation thereof; or
(c) which may involve or affect the
validity, priority or enforceability of
any of the Lease Documents, at law or in
equity, or before or by any arbitrator
or Governmental Authority.
10.1.7 INTENTIONALLY DELETED.
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10.1.8 COMMERCIAL ACTS. Lessee's
performance of and compliance with the
obligations and conditions set forth herein
and in the other Lease Documents will
constitute commercial acts done and performed
for commercial purposes.
10.1.9 ADEQUATE CAPITAL. NOT INSOLVENT.
After giving effect to the consummation of
the transactions contemplated by the Lease
Documents, each member of the Leasing Group:
(a) will be able to pay its debts
as they become due;
(b) will have sufficient funds or
available capital to carry on its
business as now conducted or as
contemplated to be conducted (in
accordance with the terms of the Lease
Documents); and
(c) will not be rendered insolvent
as determined by applicable law.
10.1.10 NOT DELINQUENT. Except as
permitted under Section 11.3.8, no member of
the Leasing Group which exists as of the date
hereof is delinquent or claimed to be
delinquent under any obligation for the
payment of borrowed money.
10.1.11 NO AFFILIATE DEBT. Lessee has
not created, incurred, guaranteed, endorsed,
assumed or suffered to exist any liability
(whether direct or contingent) for borrowed
money from the Guarantor (or any of its
Affiliates) or any Affiliate of Lessee which
has not been fully subordinated to the Lease
Obligations.
10.1.12 TAXES CURRENT. Each member of
the Leasing Group which exists as of the date
hereof has filed all federal, state and local
tax returns which are required to be filed as
to which extensions are not currently in
effect and has paid all taxes, assessments,
impositions, fees and other governmental
charges (including interest and penalties)
which have become due pursuant to such
returns or pursuant to any assessment or
notice of tax claim or deficiency received by
each such member of the Leasing Group. No tax
liability has been asserted by the Internal
Revenue Service against any member of the
Leasing Group or any other federal, state or
local taxing authority for taxes,
assessments, impositions, fees or other
governmental charges (including interest or
penalties thereon) in excess of those already
paid.
10.1.13 FINANCIALS COMPLETE AND
ACCURATE. The financial statements of each
member of the Leasing Group given to Lessor
in connection with the execution and delivery
of the Lease Documents were true, complete
and accurate, in all material respects, and
fairly presented the financial condition of
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each such member of the Leasing Group as of
the date thereof and for the periods covered
thereby, having been prepared in accordance
with GAAP and such financial statements
disclosed all liabilities, including, without
limitation, contingent liabilities, of each
such member of the Leasing Group as of the
date thereof. There has been no material
adverse change since such date with respect
to the Net Worth of any such member of the
Leasing Group or with respect to any other
matters contained in such financial
statements, nor have any additional material
liabilities, including, without limitation,
contingent liabilities, of any such member of
the Leasing Group arisen or been incurred or
asserted since such date except as otherwise
disclosed to Lessor. The projections
heretofore delivered to Lessor continue to be
reasonable (with respect to the material
assumptions upon which such projections are
based) and Lessee reasonably anticipates
based on information currently available to
it after due inquiry the results projected
therein will be achieved, there having been
(a) no material adverse change in the
business, assets or condition, financial or
otherwise of any such member of the Leasing
Group or the Leased Property and (b) no
material depletion of the cash or decrease in
working capital of any such member of the
Leasing Group.
10.1.14 PENDING ACTIONS, NOTICES AND REPORTS.
(a) There is no action or investigation
pending or, to the best knowledge and belief
of Lessee, threatened, anticipated or
contemplated (nor, to the knowledge of
Lessee, is there any reasonable basis
therefor) against or affecting the Leased
Property or any member of the Leasing Group
(or any Affiliate thereof before any
Governmental Authority, Accreditation Body or
Third Party Payor which could prevent or
hinder the consummation of the transactions
contemplated hereby or call into question the
validity of any of the Lease Documents or any
action taken or to be taken in connection
with the transactions contemplated thereunder
or which in any single case or in the
aggregate might result in any material
adverse change in the business, prospects,
condition, affairs of any member of the
Leasing Group or the Leased Property
(including, without limitation, any action to
revoke, withdraw or suspend any Permit
necessary or desirable for the operation of
the Leased Property in accordance with its
Primary Intended Use and any action to
transfer or relocate any such Permit to a
location other than the Leased Property) or
any material impairment of the right or
ability of any member of the Leasing Group to
carry on its operations as proposed, upon
Completion of the Project, to be conducted
with respect to the Leased Property or with
respect to its obligations under the Lease
Documents or which may materially adversely
impact reimbursement to any member of the
Leasing
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Group for services rendered to beneficiaries
of Third Party Payor Programs.
(b) Neither the Facility nor any member
of the Leasing Group has received any notice
of any claim, requirement or demand of any
Governmental Authority, Accreditation Body,
Third Party Payor or any insurance body
having or claiming any licensing, certifying,
supervising, evaluating or accrediting
authority over the Leased Property to rework
or redesign the Leased Property, its
professional staff or its professional
services, procedures or practices in any
material respect or to provide additional
furniture, fixtures, equipment or inventory
or to otherwise take action so as to make the
Leased Property conform to or comply with any
Legal Requirement;
(c) The most recent utilization reviews,
if any, relating to the Leased Property by
all applicable Third Party Payors,
Accreditation Bodies and Governmental
Authorities and all applicable reviews or
scrutiny by any managed care or utilization
review companies, if any, have not had a
material adverse impact on the utilization of
units or programs at any of the Leased
Property. No claims or assertions have been
made in any utilization review that any of
the practices or procedures used at the
Leased Property are improper or inappropriate
other than such claims or assertions which
singly and in the aggregate will not have a
material adverse impact on the Leased
Property; and
(d) Lessee has delivered or caused to be
delivered to Lessor true and correct copies
of all licenses, inspection surveys and
accreditation reviews, if any, relating to
the Leased Property, issued by any
Governmental Authority or Accreditation Body
during the most recent licensing period,
together with all plans of correction
relating thereto.
10.1.15 COMPLIANCE WITH LEGAL AND OTHER
REQUIREMENTS.
(a) To the extent consistent with
the stage of construction of the Project,
Lessee and the Leased Property and the
ownership, construction, development,
maintenance, management, repair, use,
occupancy, possession and operation thereof
comply with all applicable Legal Requirements
and there is no claim of any violation
thereof known to Lessee. Without limiting the
foregoing, Lessee has obtained all Permits
that are necessary or desirable to operate
the Leased Property in accordance with its
Primary Intended Use or reasonably expects to
obtain such Permits prior to, or upon, the
Completion of the Project.
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(b) Except as previously delivered to
Lessor pursuant to Section 10.1.14(d) hereof,
there are no outstanding notices of
deficiencies, notices of proposed action or
orders of any kind relating to the Leased
Property, if any, issued by any Governmental
Authority, Accreditation Body or Third Party
Payor requiring conformity to any of the
applicable Legal Requirements.
(c) To the extent such accreditation is
applicable, the Facility is accredited by all
applicable Accreditation Bodies and there are
no deficiencies in either the Leased Property
or any services provided at the Facility that
would prevent the extension of the
accreditation of the Facility by any
applicable Accreditation Body after any next
regularly scheduled inspections.
10.1.16 NO ACTION BY GOVERNMENTAL
AUTHORITY OR ACCREDITATION BODY. There is no
action pending or, to the best knowledge and
belief of Lessee, recommended, by any
Governmental Authority, Accreditation Body to
revoke, repeal, cancel, modify, withdraw or
suspend any Permit or Contract or to take any
other action of any other type which could
have a material adverse effect on the Leased
Property.
10.1.17 PROPERTY MATTERS.
(a) The Leased Property is free and
clear of agreements, covenants and Liens,
except those agreements, covenants and Liens
to which this Lease is expressly subject,
whether presently existing, as are listed on
EXHIBIT B or were listed on the UCC lien
search results delivered to Lessor at or
prior to the execution and delivery of this
Lease (and were not required to be terminated
as a condition of the execution and delivery
of this Lease), or which may hereafter be
created in accordance with the terms hereof
(collectively referred to herein as the
"Permitted Encumbrances"); and Lessee shall
warrant and defend Lessor's title to the
Leased Property against any and all claims
and demands of every kind and nature
whatsoever;
(b) There is no Condemnation or similar
proceeding pending with respect to or
affecting the Leased Property, and Lessee is
not aware, to the best of Lessee's knowledge
and belief, that any such proceeding is
contemplated;
(c) No part of the Collateral or the
Leased Property has been damaged by any fire
or other casualty;
(d) None of the Permitted Encumbrances
has or is likely to have a material adverse
impact upon, nor interfere with or impede,
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in any material respect, the operation of the
Leased Property in accordance with the
Primary Intended Use;
(e) Upon the Conversion Date, all
buildings, facilities and other improvements
necessary, both legally and practically, for
the proper and efficient operation of the
Facility will be located upon the Leased
Property and all real property and personal
property currently utilized by Lessee will be
included within the definition of the Leased
Property or the Collateral;
(f) Upon the Conversion Date the Leased
Property shall abut on and have direct
vehicular access to a public road or access
to a public road via permanent, irrevocable,
appurtenant easements;
(g) The Leased Property constitutes a
parcel(s) for real estate tax purposes
separate from any real property that does not
constitute a portion of the Leased Property
and no portion of any real property that does
not constitute a portion of the Leased
Property is part of the same tax parcel as
any part of the Leased Property;
(h) All utilities necessary for the use
and operation of the Facility are available
to the lot lines of the Leased Property:
(i) in sufficient supply and
capacity;
(ii) through validly created and
existing easements of record appurtenant
to or encumbering the Leased Property
(which easements shall not impede or
restrict the operation of the Facility);
and
(iii) without need for any Permits
and/or Contracts to be issued by or
entered into with any Governmental
Authority, except as already obtained or
executed, as the case may be, or as
otherwise shown to the satisfaction of
Lessor to be readily obtainable.
10.1.18 THIRD PARTY PAYOR Agreements.
Neither Lessee with respect to the Facility
nor the Facility is, or upon completion of
construction, will be qualified as a provider
of services under, or does, or upon
completion of construction will, participate
in, any Third Party Payor Programs and
neither Lessee with respect to the Facility
nor the Facility is, or upon completion of
construction will be, accredited by an
Accreditation Body.
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10.1.19 RATE LIMITATIONS. The State
currently imposes no restrictions or
limitations on rates which may be charged to
private pay residents receiving services at
the Facility.
10.1.20 FREE CARE. There are no
Contracts, Permits or applicable Legal
Requirements which require that, a percentage
of units in any program at the Facility be
reserved for Medicaid or Medicare eligible
residents or that the Facility provide a
certain amount of welfare, free or charity
care or discounted or government assisted
resident care.
10.1.21 No Proposed Changes. Lessee has
no actual knowledge of any applicable Legal
Requirements which have been enacted,
promulgated or issued within the eighteen (
18) months preceding the date of this Lease
or any proposed applicable Legal Requirements
currently pending in the State which may
materially adversely affect rates at the
Facility (or any program operated by a member
of the Leasing Group in conjunction with the
Facility) or may result in the likelihood of
increased competition at the Facility or the
imposition of Medicaid, Medicare, charity,
free care, welfare or other discounted or
government assisted residents at the Facility
or require that Lessee or the Facility obtain
a certificate of need, Section 11.22 approval
or the equivalent, which Lessee or the
Facility does not currently possess.
10.1.22 ERISA. No employee pension
benefit plan maintained by any member of the
Leasing Group has any accumulated funding
deficiency within the meaning of the ERISA,
nor does any member of the Leasing Group have
any material liability to the PBGC
established under ERISA (or any successor
thereto) in connection with any employee
pension benefit plan (or other class of
benefit which the PBGC has elected to
insure), and there have been no "reportable
events" (not waived) or "prohibited
transactions" with respect to any such plan,
as those terms are defined in Section 4043 of
ERISA and Section 4975 of the Internal
Revenue Code of 1986, as now or hereafter
amended, respectively.
10.1.23 No Broker. No member of the
Leasing Group nor any of their respective
Affiliates has dealt with any broker or agent
in connection with the transactions
contemplated by the Lease Documents.
10.1.24 NO IMPROPER PAYMENTS. No member
of the Leasing Group nor any of their
respective Affiliates has:
(a) made any contributions,
payments or gifts of its funds or
property to or for the private use of
any government official, employee, agent
or other Person
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where either the payment or the purpose
of such contribution, payment or gifts
is illegal under the laws of the United
States, any state thereof or any other
jurisdiction (foreign or domestic);
(b) knowingly established or
maintained any unrecorded fund or asset
for any purpose or knowingly made any
false or artificial entries on any of
its books or records for any reason;
(c) made any payments to any Person
with the intention or understanding that
any part of such payment was to be used
for any other purpose other than that
described in the documents supporting
the payment; or
(d) made any contribution, or
reimbursed any political gift or
contribution made by any other Person,
to candidates for public office, whether
federal, state or local, where such
contribution would be in violation of
applicable law.
10.1.25 Nothing Omitted. Neither this
Lease, nor any of the other Lease Documents,
nor any certificate, agreement, statement or
other document, including, without
limitation, any financial statements
concerning the financial condition of any
member of the Leasing Group, furnished to or
to be furnished to Lessor or its attorneys in
connection with the transactions contemplated
by the Lease Documents, contains or will
contain any untrue statement of a material
fact or omits or will omit to state a
material fact necessary in order to prevent
all statements contained herein and therein
from being misleading. There is no fact
within the special knowledge of Lessee which
has not been disclosed herein or in writing
to Lessor that materially adversely affects,
or in the future, insofar as Lessee can
reasonably foresee based on the information
currently available to it after due inquiry,
may materially adversely affect the business,
properties, assets or condition, financial or
otherwise, of any member of the Leasing Group
or the Leased Property.
10.1.26 No Margin Security. Lessee is
not engaged in the business of extending
credit for the purpose of purchasing or
carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the
proceeds of the Meditrust Investment will be
used to purchase or carry any margin security
or to extend credit to others for the purpose
of purchasing or carrying any margin security
or in any other manner which would involve a
violation of any of the regulations of the
Board of Governors of the Federal Reserve
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System. Lessee is not an "investment company"
within the meaning of the Investment Company
Act of 1940, as amended.
10.1.27 No Default. No event or state of
facts which constitutes, or which, with
notice or lapse of time, or both, could
constitute, a Lease Default has occurred and
is continuing.
10.1.28 PRINCIPAL PLACE OF BUSINESS. The
principal place of business and chief
executive office of Lessee is located at 3131
Elliot Avenue, Suite 500, Seattle, Washington
98121-2162 (the "Principal Place of
Business").
10.1.29 Intentionally Deleted10.1.30
INTELLECTUAL PROPERTY. Lessee is duly
licensed or authorized to use all (if any)
copyrights, rights of reproduction,
trademarks, trade-names, trademark
applications, service marks, patent
applications, patents and patent license
rights, (all whether registered or
unregistered, U.S. or foreign), inventions,
franchises, discoveries, ideas, research,
engineering, methods, practices, processes,
systems, formulae, designs, drawings,
products, projects, improvements,
developments, know-how and trade secrets
which are used in or necessary for the
development and/or operation of the Facility
in accordance with its Primary Intended Use,
without conflict with or infringement of any,
and subject to no restriction, lien,
encumbrance, right, title or interest in
others.
10.1.31 MANAGEMENT AGREEMENTS. There is
no Management Agreement in force and effect
as of the date hereof.
10.2 CONTINUING EFFECT OF
REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in
this Lease and the other Lease Documents
shall constitute continuing representations
and warranties which shall remain true,
correct and complete throughout the Term.
Notwithstanding the provisions of the
foregoing sentence but without derogation
from any other terms and provisions of this
Lease, including, without limitation, those
terms and provisions containing covenants to
be performed or conditions to be satisfied on
the part of Lessee the representations and
warranties contained in Sections 10.1.6,
10.1.8, 10.1.10, 10.1.14, 10.1.15,
10.1.17(b), 10.1.17(c), 10.1.17(i), 10.1.18,
10.1.19, 10.1.20, 10.1.21, 10.1.22, 10.1.27,
10.1.29, in the second sentence of Section
10.1.12, in the second and third sentences of
Section 10.1.13 and in the second sentence of
Section 10.1.25 shall not constitute
continuing representations and warranties
throughout the Term provided, however, that
nothing contained in the first sentence of
Section
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10.1.25 shall be construed as imposing any
obligation on Lessee to update after the
Commencement Date the information furnished
to Lessor prior to the execution and delivery
of this Lease but without derogation of any
other obligation Lessee has under this Lease
to provide information to Lessor.
ARTICLE 11
FINANCIAL AND OTHER COVENANTS
11.1 STATUS CERTIFICATES. At any time, and
from time to time, upon request from the other,
Lessee and Lessor shall furnish to the other,
within ten (10) Business Days' after receipt of
such request, an Officer's Certificate certifying
that this Lease is unmodified and in full force
and effect (or that this Lease is in full force
and effect as modified and setting forth the
modifications) and the dates to which the Rent has
been paid. Any Officer's Certificate furnished
pursuant to this Section at the request of Lessor
shall be addressed to any prospective purchaser or
mortgagee of the Leased Property as Lessor may
request and may be relied upon by Lessor and any
such prospective purchaser or mortgagee of the
Leased Property.
11.2 FINANCIAL STATEMENTS;
REPORTS; NOTICE AND INFORMATION.
11.2.1 OBLIGATION TO FURNISH. Lessee
will furnish and shall cause to be furnished
to Lessor the following statements,
information and other materials:
(a) ANNUAL STATEMENTS. Within
ninety (90) days after the end of each
of their respective fiscal years, (i) a
copy of the Consolidated Financials for
each of (x) Lessee, (y) the Guarantor
and (z) any Sublessee which is an
Affiliate of Lessee for the preceding
fiscal year, certified and, in the case
of Guarantor, audited by, and with the
unqualified opinion of, independent
certified public accountants acceptable
to Lessor and certified as true and
correct by Lessee, the Guarantor ox the
applicable Sublessee, as the case may be
(and, without limiting anything else
contained herein, the Consolidated
Financials for Lessee and for each such
Sublessee shall include a detailed
balance sheet for Leased Property as of
the last day of such fiscal year and a
statement of earnings from the Leased
Property for such fiscal year showing,
among other things, all rents and other
income therefrom and all expenses paid
or incurred in connection with the
operation of the Leased Property); (ii)
separate statements, certified as true
and correct by Lessee, the Guarantor,
any Manager
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which is an Affiliate of Lessee and each
such Sublessee which is an Affiliate of
Lessee, stating whether, to the best of
the signer's knowledge and belief after
making due inquiry, Lessee, the
Guarantor, such Manager or any such
Sublessee, as the case may be, is in
default in the performance or observance
of any of the terms of this Lease or any
of the other Lease Documents and, if so,
specifying all such defaults, the nature
thereof and the steps being taken to
immediately remedy the same; (iii) a
copy of all letters from the independent
certified accountants engaged to perform
the annual audits referred to above,
directed to the management of the
Guarantor regarding the existence of any
reportable conditions or material
weaknesses; (iv) a statement certified
as true and connect by Lessee setting
forth all Subleases as of the last day
of such fiscal year, the respective
areas demised thereunder, the names of
the Sublessees thereunder, the
respective expiration dates of the
Subleases, the respective rentals
provided for therein, and such other
information pertaining to the Subleases
as may be reasonably requested by
Lessor; and (v) evidence satisfactory to
Lessor that Lessee has fulfilled its
obligation to make the Annual Facility
Upgrade Expenditure, provided, however,
that no such evidence shall be required
to be submitted until the fourth Lease
Year. (b) MONTHLY STATEMENTS
OF LESSEE. Commencing on the Conversion
Date, within thirty (30) days after the
end of each calendar month during the
pendency of this Lease, (i) a statement
certified as true and correct by Lessee
setting forth the Gross Revenues of the
Leased Property for the immediately
preceding month, (ii) an unaudited,
detailed month and year to date income
and expense statement for the Leased
Property which shall include a
comparison to corresponding budget
figures, occupancy statistics (including
the actual number of residents, the
number of units available and total
resident days for such month) and
resident mix breakdowns (for each
resident day during such month
classifying residents by the type of
care required and source of payment) and
(iii) an express written calculation
showing the compliance or non-
compliance, as the case may be, with the
specific financial covenants set forth
in Section 11.3 for the applicable
period, including, with respect to the
calculation of Lessee's Debt Coverage
Ratio, a schedule substantially in the
form attached hereto as EXHIBIT D.
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(c) QUARTERLY STATEMENTS.
Commencing on the Conversion Date,
within thirty (30) days after the end of
each respective fiscal quarter,
unaudited Consolidated Financials for
each of (i) Lessee and (ii) each
Sublessee which is an Affiliate of
Lessee certified as true and correct by
Lessee or such applicable Sublessee, as
the case May be and within thirty (30)
days after each calendar quarter, Lessee
shall also provide Lessor with a
calculation of the Additional Rent
payable for such quarter.
(d) QUARTERLY STATEMENTS OF THE
GUARANTOR. Commencing on the Conversion
Date, within forty-five (45) days after
the end of each fiscal quarter,
unaudited Consolidated Financials for
the Guarantor certified as true and
correct by the Guarantor.
(e) PERMITS AND CONTRACTS. Within
ten (10) days after the issuance or the
execution thereof, as the case may be,
true and complete copies of (i) all
Permits which constitute operating
licenses for the Facility issued by any
Governmental Authority having
jurisdiction over assisted living
matters and (ii) Contracts (involving
payments in the aggregate in excess of $
100,000 per annum), including, without
limitation, all Provider Agreements.
(f) CONTRACT NOTICES. Promptly but
in no event more than ten (10) days
after the receipt thereof, true and
complete copies of any notices,
consents, terminations or statements of
any kind or nature relating to any of
the Contracts (involving payments in the
aggregate in excess of ONE HUNDRED
THOUSAND DOLLARS ($100,000) per annum)
other than those issued in the ordinary
course of business. (g)
PERMIT OR CONTRACT DEFAULTS. Promptly
but in no event more than ten ( 10) days
after the receipt thereof, true and
complete copies of all surveys, follow-
up surveys, licensing surveys, complaint
surveys, examinations, compliance
certificates, inspection reports,
statements (other than those statements
that are issued in the ordinary course
of business), if any, terminations and
notices of any kind (other than those
notices that are furnished in the
ordinary course of business) issued or
provided to Lessee, the Manager or any
Sublessee by any Governmental Authority,
Accreditation Body or any Third Party
Payor, including, without limitation,
any notices
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pertaining to any delinquency in, or
proposed revision of, Lessee's, the
Manager's or any Sublessee's obligations
under the terms and conditions of any
Permits or Contracts now or hereafter
issued by or entered into with any
Governmental Authority, Accreditation
Body or Third Party Payor and the
response(s) thereto made by or on behalf
of Lessee, the Manager or any Sublessee.
(h) OFFICIAL REPORTS. Upon
completion or filing thereof, complete
copies of all applications (other than
those that are furnished in the ordinary
course of business), notices (other than
those that are furnished in the ordinary
course of business), statements, annual
reports, cost reports and other reports
or filings of any kind (other than those
that are furnished in the ordinary
course of business) provided by Lessee,
the Manager or any Sublessee to any
Governmental Authority, Accreditation
Body or any Third Party Payor with
respect to the Leased Property.
(i) OTHER INFORMATION. With
reasonable promptness, such other
information as Lessor may from time to
time reasonably request respecting (i)
the financial condition and affairs of
each member of the Leasing Group and the
Leased Property and (ii) the licensing
and operation of the Leased Property;
including, without limitation, financial
statements, certificates and consents
from accountants and all other financial
and licensing/operational information as
may be required or requested by any
Governmental Authority.
(j) DEFAULT CONDITIONS. As soon as
possible, and in any event within five
(5) days after the occurrence of any
Lease Default, or any event or
circumstance which, with the giving of
notice or the passage of time, or both,
would constitute a Lease Default, a
written statement of Lessee setting
forth the details of such Lease Default,
event or circumstance and the action
which Lessee proposes to take with
respect thereto.
(k) OFFICIAL ACTION. Promptly but
in no event more than ten ( 10) days
after the commencement thereof, notice
of all actions, suits and proceedings
before any Governmental Authority or
Accreditation Body which could have a
material adverse effect on any member of
the Leasing Group or the Leased
Property.
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(l) AUDIT REPORTS. Promptly
but in no event more than ten (10) days
after receipt, a copy of all audits or
reports submitted to Lessee by any
independent public accountant in
connection with any annual, special or
interim audits of the books of Lessee
and, if requested by Lessor, any letter
of comments directed by such accountant
to the management of Lessee.
(m) ADVERSE DEVELOPMENTS.
Promptly but in no event more than ten
(10) days after Lessee acquires
knowledge thereof, written notice of
(i) the potential
termination of any Permit or
Provider Agreement necessary for
the operation of the Leased
Property; (ii) any loss,
damage or destruction to or of the
Leased Property in excess of TWENTY-
FIVE THOUSAND DOLLARS ($25,000)
(regardless of whether the same is
covered by insurance);
(iii) any material controversy
involving Lessee or any Sublessee
which is an Affiliate of Lessee and
(x) Facility administrator or
Facility employee of similar
stature or (y) any labor
organization or (z) the Manager or
any employee of the Manager which
has, or is reasonably likely to
have, a materially adverse effect
on the financial condition and/or
operations of the Facility;
(iv) any controversy that calls
into question the eligibility of
the Facility for the participation
in any Medicaid, Medicare or other
Third Party Payor Program in which
the Facility is participating;
(v) any refusal of
reimbursement by any Third Party
Payor which, singularly or together
with all other such refusals by any
Third Party Payors, could
reasonably be expected to have a
material adverse effect on the
financial condition of Lessee or
any Sublessee which is an Affiliate
of Lessee; and
(vi) any fact within
the special knowledge of any member
of the Leasing Group, or any other
development in the business or
affairs of any member of the
Leasing Group, which could
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reasonably be expected to be
materially adverse to the business,
properties, assets or condition,
financial or otherwise, of any
member of the Leasing Group or the
Leased Property.
(n) RESPONSES TO INSPECTION
REPORTS. Within thirty (30) days after
receipt of an inspection report relating
to the Leased Property from Lessor, a
written response describing in detail
prepared plans to address concerns
raised by the inspection report.
(o) PUBLIC INFORMATION. Upon the
completion or filing, mailing or other
delivery thereof, complete copies of all
financial statements, reports, notices
and proxy statements, if any, sent by
any member of the Leasing Group (which
is a publicly held corporation) to its
shareholders and of all reports, if any,
f led by any member of the Leasing Group
(which is a publicly held corporation)
with any securities exchange or with the
Securities Exchange Commission.
(p) ANNUAL BUDGET. Commencing on
the Conversion Date, prior to the end of
each Fiscal Year, Lessee, any Sublessee
which is an Affiliate of Lessee and/or
any Manager which is an Affiliate of
Lessee shall submit to Lessor a
preliminary annual financial budget for
the Facility for the next Fiscal Year, a
preliminary capital expenditures budget
for the Facility for the next Fiscal
Year and a report detailing the capital
expenditures made in the then current
Fiscal Year and on or before the end of
the first month of each Fiscal Year,
Lessee, any such Sublessee and/or any
such Manager shall submit to Lessor
revised finalized versions of such
budgets and report.
(q) WORKING CAPITAL LOAN. Promptly
after receipt thereof, copies of any
notices with respect to default from a
lender of a Working Capital Loan.
11.2.2 RESPONSIBLE OFFICER. Any
certificate, instrument, notice, or other
document to be provided to Lessor hereunder
by any member of the Leasing Group shall be
signed by an executive officer of such member
(in the event that any of the foregoing is
not an individual), having a position of Vice
President or higher and with respect to
financial matters, any such certificate,
instrument, notice or other document shall be
signed by the chief financial officer of such
member. 11.2.3 NO MATERIAL
OMISSION. No certificate, instrument, notice
or other document, including without
limitation,
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any financial statements furnished or to be
furnished to Lessor pursuant to the terms
hereof or of any of the other Lease Documents
shall contain any untrue statement of a
material fact or shall omit to state any
material fact necessary in order to prevent
all statements contained therein from being
misleading.
11.2.4 CONFIDENTIALITY. Lessor shall
afford any information received pursuant to
the provisions of the Lease Documents the
same degree of confidentiality that Lessor
affords similar information proprietary to
Lessor; provided, however, that Lessor shall
have the unconditional right to (a) disclose
any such information as Lessor deems
necessary or appropriate in connection with
any sale, transfer, conveyance, participation
or assignment of the Leased Property or any
of the Lease Documents or any interest
therein and (b) use such information in any
litigation or arbitration proceeding between
Lessor and any member of the Leasing Group.
Without limiting the foregoing, Lessor may
also utilize any information furnished to it
hereunder as and to the extent (i) counsel to
Lessor determines that such utilization is
necessary pursuant to 15 USC. 77a-77aa or 15
USC. 78a-78jj and the rules and regulations
promulgated thereunder, (ii) Lessor is
required or requested by any Governmental
Authority to disclose any such information
and/or (iii) Lessor is requested to disclose
any such information by any of the Meditrust
Entities' lenders or potential lenders.
Lessor shall not be liable in any way for any
subsequent disclosure of such information by
any Person to which Lessor has provided such
information in accordance with the terms
hereof. Nevertheless, in connection with any
such disclosure, Lessor shall inform the
recipient of any such information of the
confidential nature thereof. Lessor shall
observe any prohibitions or limitations on
the disclosure of any such information under
applicable confidentiality law or
regulations, to the extent that the same are
applicable to such information.
11.3 FINANCIAL COVENANTS. Lessee covenants
and agrees that, throughout the Term and as long
as Lessee is in possession of the Leased Property:
11.3.1 DEBT COVERAGE RATIO OF LESSEE.
From and after the second anniversary of the
Conversion Date until the fourth anniversary
thereof, the Facility and all other Group Two
Development Facilities shall maintain for
each Fiscal Quarter an aggregate Debt
Coverage Ratio equal to or greater than 1.1
to 1 and from and after the fourth
anniversary thereof and for the remainder of
the Term, the Facility and all other Group
Two Development Facilities shall maintain for
each Fiscal Quarter an aggregate Debt
Coverage Ratio equal to or greater than 1.2
to 1.
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11.3.2 Intentionally Deleted.
11.3.3 Intentionally Deleted.
11.3.4 Intentionally Deleted.
11.3.5 CURRENT RATIO - GUARANTOR. From and
after December 31,1999 and for the remainder
of the Term, the Guarantor shall maintain a
ratio of Consolidated Current Assets to
Consolidated Current Liabilities equal to or
greater than 1 to 1 as of the end of each
fiscal year.
11.3.6 Intentionally Deleted.
11.3.7 NET WORTH - GUARANTOR. The
Guarantor shall maintain, at all times, a Net
Worth of not less than FORTY MILLION DOLLARS
($40,000,000). 11.3.8 NO
INDEBTEDNESS. Lessee shall not create, incur,
assume or suffer to exist any liability for
borrowed money except (i) Indebtedness to
Lessor under the Lease Documents and, (ii)
Impositions allowed pursuant to the
provisions of the Lease, (iii) unsecured
normal trade debt incurred upon customary
terms in the ordinary course of business,
(iv) Indebtedness created in connection with
any financing of any Capital Addition,
provided, that each such financing has been
approved by Lessor in accordance with the
terms of Article 9 hereof, (v) Indebtedness
to any Affiliate, provided, that, such
Indebtedness is fully subordinated to this
Lease pursuant to the Affiliated Party
Subordination Agreement, (vi) other
Indebtedness of Lessee in the aggregate
amount not to exceed TWO HUNDRED THOUSAND
DOLLARS ($200,000) incurred, for the
exclusive use of the Leased Property, on
account of purchase money indebtedness or
finance lease arrangements, each of which
shall not exceed the fair market value of the
assets or properly acquired or leased and
shall not extend to any assets or property
other than those purchased or leased and
purchase money security interests in
equipment and equipment leases which comply
with the provisions of Section 6.1.2 and
(vii) Indebtedness specifically permitted by
the Meditrust/Emeritus Transaction Documents.
11.3.9 NO GUARANTIES. Lessee shall not
assume, guarantee, endorse, contingently
agree to purchase or otherwise become
directly or contingently liable (including,
without limitation, liable by way of
agreement, contingent or otherwise, to
purchase, to provide funds for payment, to
supply funds to or otherwise to invest in any
debtor or otherwise to assure any creditor
against loss) in connection with any
Indebtedness of any other Person, except by
the endorsement of negotiable instruments
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for deposit or collection or similar
transactions in the ordinary course of
business and except for a guaranty of the
Indebtedness of the Guarantor in connection
with a Working Capital Loan which expressly
limits recourse under such guaranty to the
Receivables.
11.4 AFFIRMATIVE COVENANTS. Lessee covenants and
agrees that throughout the Term and any periods
thereafter that Lessee remains in possession of
the Leased Property:
11.4.1 MAINTENANCE OF EXISTENCE.
If Lessee is a corporation, trust or
partnership, during the entire time that this
Lease remains in full force and effect,
Lessee shall keep in effect its existence and
rights as a corporation, trust or partnership
under the laws of the state of its
incorporation or formation and its right to
own property and transact business in the
State. 11.4.2 MATERIALS. Except as
provided in Section 6.1.2, Lessee shall not
suffer the use in connection with any
renovations or other construction relating to
the Leased Property of any materials,
fixtures or equipment intended to become part
of the Leased Property which are purchased
upon lease or conditional bill of sale or to
which Lessee does not have absolute and
unencumbered title, and Lessee covenants to
cause to be paid punctually all sums becoming
due for labor, materials, fixtures or
equipment used or purchased in connection
with any such renovations or construction,
subject to Lessee's right to contest to the
extent provided for in Article 15.
11.4.3 COMPLIANCE WITH LEGAL
REQUIREMENTS AND APPLICABLE AGREEMENTS.
Lessee and the Leased Property and all uses
thereof shall comply with (i) all applicable
Legal Requirements (except to the extent
being duly contested in accordance with the
terms hereof, (ii) all Permits and Contracts,
(iii) all Insurance Requirements, (iv) the
Lease Documents, (v) the Permitted
Encumbrances and (vi) the Appurtenant
Agreement.
11.4.4 BOOKS AND RECORDS. Lessee shall
cause to be kept and maintained, and shall
permit Lessor and its representatives to
inspect at all reasonable times and upon
reasonable notice, accurate books of accounts
in which complete entries will be made in
accordance with GAAP reflecting all financial
transactions of Lessee (showing, without
limitation, all materials ordered and
received and all disbursements, accounts
payable and accounts receivable in connection
with the operation of the Leased Property).
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11.4.5 PARTICIPATION IN THIRD PARTY
PAYOR PROGRAMS. If Lessee or a Sublessee
which is an Affiliate of Lessee elects to
participate in Third Party Payor Programs,
Lessee or such Sublessee shall remain
eligible to participate in such Third Party
Payor Programs in accordance with all
requirements thereof (including, without
limitation, all applicable Provider
Agreements), if and to the extent remaining
eligible shall be necessary for the prudent
operation of the Facility in the good faith
exercise of commercially reasonable business
judgment.
11.4.6 CONDUCT OF ITS BUSINESS.
Lessee will maintain, and cause any Sublessee
and any Manager to maintain, experienced and
competent professional management with
respect to its business and with respect to
the Leased Property. Lessee, any Sublessee
and any Manager shall conduct, in the
ordinary course, the operation of the
Facility, and Lessee and any Sublessee which
is an Affiliate of Lessee shall not enter
into any other business or venture during the
Term or such time as Lessee or any such
Sublessee is in possession of the Leased
Property other than activities in which
Lessee or such Sublessee are permitted to
engage by the provisions of the
Meditrust/Emeritus Transaction Documents.
11.4.7 ADDRESS. Lessee shall provide
Lessor thirty (30) days' prior written notice
of any change of its Principal Place of
Business from its current Principal Place of
Business. Lessee shall maintain the
Collateral, including without limitation, all
books and records relating to its business,
solely at its Principal Place of Business and
at the Leased Property. Lessee shall not (a)
remove the Collateral, including, without
limitation, any books or records relating to
Lessee's business from either the Leased
Property or Lessee's Principal Place of
Business or (b) relocate its Principal Place
of Business until after receipt of a
certificate from Lessor, signed by an officer
thereof, stating that Lessor has, to its
satisfaction, obtained all documentation that
it deems necessary or desirable to obtain,
maintain, perfect and confirm the first
priority security interests granted in the
Lease Documents.
11.4.8 SUBORDINATION OF AFFILIATE
TRANSACTIONS. Without limiting the provisions
of any other Section of this Lease or the
Affiliated Party Subordination Agreement, any
payments to be made by Lessee to (a) any
member of the Leasing Group (or any of its
Affiliates) or (b) any Affiliate of Lessee,
in connection with any transaction between
Lessee and such Person, including, without
limitation, the purchase, sale or exchange of
any property, the rendering of any service to
or with any such Person (including, without
limitation, all allocations of any so-called
corporate or central office costs, expenses
and
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charges of any kind or nature) or the making
of any loan or other extension of credit or
the making of any equity investment, shall be
subordinate to the complete payment and
performance of the Lease Obligations;
provided, however, that all such subordinated
payments may be paid at any time unless: (x)
after giving effect to such payment, Lessee
shall be unable to comply with any of its
obligations under any of the Lease Documents
or (y) a Lease Default has occurred and is
continuing and has not been expressly waived
in writing by Lessor or an event or state of
facts exists, which, with the giving of
notice or the passage of time, or both, would
constitute a Lease Default. 11.4.9
INSPECTION. At reasonable times and upon
reasonable notice, Lessee shall permit Lessor
and its authorized representatives
(including, without limitation, the
Consultants) to inspect the Leased Property
as provided in Section 7.1 above, provided,
however, that, in the event results of any
such testing or inspection reflect the same
satisfactory results as the results of a
similar testing or inspection initiated by
Lessor within the prior twelve (12) months
period, the costs and expense of such testing
or inspection shall be the responsibility of
Lessor.
11.4.10 ANNUAL FACILITY UPGRADE
EXPENDITURE. Lessee shall spend an amount
equal to the Annual Facility Upgrade
Expenditure on Upgrade Renovations to the
Facility each Lease Year commencing with the
fourth Lease Year. Lessee will furnish and
shall cause to be furnished to Lessor
evidence satisfactory to Lessor that Lessee
has fulfilled its obligation to make the
Annual Facility Upgrade Expenditure within
ninety (90) days after the end of Lessee's
fiscal year, provided, however, that no such
evidence shall be required to be submitted
and no such expenditure shall be required to
be made until the fourth Lease Year.
11.5 ADDITIONAL NEGATIVE COVENANTS. Lessee
covenants and agrees that, throughout the Term and
such time as Lessee remains in possession of the
Leased Property:
11.5.1 RESTRICTIONS RELATING
TO LESSEE. Except as may otherwise be
expressly provided in Section 19.4 or in any
of the other Lease Documents, Lessee shall
not, without the prior written consent of
Lessor, in each instance, which consent may
be withheld in the sole and absolute
discretion of Lessor:
(a) convey, assign,
hypothecate, transfer, dispose of or
encumber, or permit the conveyance,
assignment, transfer, hypothecation,
disposal or encumbrance of all or
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any part of any legal or beneficial
interest in this Lease, .its other
assets or the Leased Property except as
expressly permitted by the terms of this
Lease Agreement; provided, however, that
this restriction shall not apply to (i)
the Permitted Encumbrances that may be
created after the date hereof pursuant
to the Lease Documents; (ii) Liens
created in accordance with Section 6.1.2
against Tangible Personal Property
securing Indebtedness permitted under
Section 11.3.8(v); (iii) the sale,
conveyance, assignment, hypothecation,
lease or other transfer of any material
asset or assets (whether now owned or
hereafter acquired), the fair market
value of which equals or is less than
TWENTY-FIVE THOUSAND DOLLARS ($25,000),
individually, or ONE HUNDRED THOUSAND
DOLLARS ($100,000) collectively; (iv)
without limitation as to amount, the
disposition in the ordinary course of
business of any obsolete, worn out or
defective fixtures, furnishings or
equipment used in the operation of the
Leased Property provided that the same
are replaced with fixtures, furnishings
or equipment of equal or greater utility
or value or Lessee provides Lessor with
an explanation (reasonably satisfactory
to Lessor) as to why such fixtures,
furnishings or equipment is no longer
required in connection with the
operation of the Leased Property; (v)
without limitation as to amount, any
sale of inventory by Lessee in the
ordinary course of business; and (vi)
subject to the terms of the Negative
Pledge Agreement and the Affiliated
Party Subordination Agreement,
distributions to the shareholders of
Lessee; (b) permit the use of
the Facility for any purpose other than
the Primary Intended Use and the Other
Permitted Uses; or
(c) liquidate, dissolve or merge or
consolidate with any other Person
except, subject to Lessor's prior
written consent, which consent shall not
be unreasonably withheld, a
Meditrust/Emeritus Transaction
Affiliate.
11.5.2 NO LIENS. Lessee will not
directly or indirectly create or allow to
remain and will promptly discharge at its
expense any Lien, title retention agreement
or claim upon or against the Leased Property
(including Lessee's interest therein) or
Lessee's interest in this Lease or any of the
other Lease Documents, or in respect of the
Rent, excluding (a) this Lease and any
permitted Subleases, (b) the Permitted
Encumbrances, (c) Liens which are consented
to in writing by Lessor, (d) Liens for those
taxes of Lessor which Lessee is not required
to pay
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hereunder, (e) Liens of mechanics, laborers,
materialmen, suppliers or vendors for sums
either not yet due or being contested in
strict compliance with the terms and
conditions of Article 15, (f) any Liens which
are the responsibility of Lessor pursuant to
the provisions of Article 20, (g) Liens or
Impositions which are either not yet due and
payable or which are in the process of being
contested in strict compliance with the terms
and conditions of Article 15 (h) the Liens
incurred pursuant to the provisions of
Section 6.1.2 and (i) involuntary Liens
caused by the actions or omissions of Lessor.
11.5.3 LIMITS ON AFFILIATE
TRANSACTIONS. Lessee shall not enter into any
transaction with any Affiliate, including,
without limitation, the purchase, sale or
exchange of any property, the rendering of
any service to or with any Affiliate and the
making of any loan or other extension of
credit, except in the ordinary course of, and
pursuant to the reasonable requirements of,
Lessee's business and upon fair and
reasonable terms no less favorable to the
Lessee than would be obtained in a comparable
arms'-length transaction with any Person that
is not an Affiliate. 11.5.4 NON-
COMPETITION. Lessee acknowledges that upon
and after any termination of this Lease, any
competition by any member of the Leasing
Group with any subsequent owner or subsequent
lessee of the Leased Property (the
"Purchaser") would cause irreparable harm to
Lessor and any such Purchaser. To induce
Lessor to enter into this Lease, Lessee
agrees that, from and after the date hereof
and thereafter until (a) in the case of the
expiration of the Initial Term or a
termination of this Lease, the fifth (5th)
anniversary of the termination hereof or of
the expiration of the Initial Term, as
applicable, and (b) in the case of an
expiration of any of the Extended Terms, the
second (2nd) anniversary of the expiration of
the applicable Extended Term, no member of
the Leasing Group nor any Person holding or
controlling, directly or indirectly, any
interest in any member of the Leasing Group
(collectively, the "Limited Parties") shall
be involved in any capacity in or lend any of
their names to or engage in any capacity in
any assisted living facility, center, unit or
program (or in any Person engaged in any such
activity or any related activity competitive
therewith) other than (a) those set forth on
Schedule 11.5.4 annexed hereto, (b) those
activities in which a Meditrust/Emeritus
Transaction Affiliate is permitted to engage
by the provisions of the Meditrust/Emeritus
Transaction Documents which relate to any
such facility, center, unit or program and
(c) the acquisition of an ownership interest
in any such facility, center, unit or program
which is part of a single transaction in
which an
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ownership interest in at least four (4) other
facilities, centers, units or programs
(provided, however, that if such acquisition
occurs within the last twelve month period of
the Initial Term or any of the Extended
Terms, Lessee shall have the benefit of this
clause (c) only if at the time such
acquisition occurs Lessee has already (x)
exercised in that twelve month period its
right under Section 1. 3 hereof to extend the
Term for another Extended Term or (y) given a
Purchase Option Notice and has waived any
right to rescind the same based upon the
determination of the Fair Market Value of the
Leased Property), whether such competitive
activity shall be as an officer, director,
owner, employee, agent, advisor, independent
contractor, developer, lender, sponsor,
venture capitalist, administrator, manager,
investor, partner, joint venturer, consultant
or other participant in any capacity
whatsoever with respect to an assisted living
facility, center, unit or program located
within a five (5) mile radius of the Leased
Property. Lessee hereby
acknowledges and agrees that none of the time
span, scope or area covered by the foregoing
restrictive covenants is or are unreasonable
and that it is the specific intent of Lessee
that each and all of the restrictive
covenants set forth hereinabove shall be
valid and enforceable as specifically set
forth herein. Lessee further agrees that
these restrictions are special, unique,
extraordinary and reasonably necessary for
the protection of Lessor and any Purchaser
and that the violation of any such covenant
by any of the Limited Parties would cause
irreparable damage to Lessor and any
Purchaser for which a legal remedy alone
would not be sufficient to fully protect such
parties. Therefore, in addition to
and without limiting any other remedies
available at law or hereunder, in the event
that any of the Limited Parties breaches any
of the restrictive covenants hereunder or
shall threaten breach of any of such
covenants, then Lessor and any Purchaser
shall be entitled to obtain equitable
remedies, including specific performance and
injunctive relief, to prevent or otherwise
restrain a breach of this Section 11.5.4
(without the necessity of posting a bond) and
to recover any and all costs and expenses
(including, without limitation, reasonable
attorneys' fees and expenses and court costs)
incurred in enforcing the provisions of this
Section 11.5.4. The existence of any claim or
cause of action of any of the Limited Parties
or any member of the Leasing Group against
Lessor or any Purchaser, whether predicated
on this Lease or otherwise, shall not
constitute a defense to the enforcement by
Lessor or any Purchaser of the foregoing
restrictive covenants and the Limited Parties
shall not defend on the basis that there is
an adequate remedy at law.
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Without limiting any other provision of
this Lease, the parties hereto acknowledge
that the foregoing restrictive covenants are
severable and separate. If at any time any of
the foregoing restrictive covenants shall be
deemed invalid or unenforceable by a court
having jurisdiction over this Lease, by
reason of being vague or unreasonable as to
duration, or geographic scope or scope of
activities restricted, or for any other
reason, such covenants shall be considered
divisible as to such portion and such
covenants shall be immediately amended and
reformed to include only such covenants as
are deemed reasonable and enforceable by the
court having jurisdiction over this Lease to
the full duration, geographic scope and scope
of restrictive activities deemed reasonable
and thus enforceable by said court; and the
parties agree that such covenants as so
amended and reformed, shall be valid and
binding as through the invalid or
unenforceable portion has not been included
therein.
The provisions of this Section 11.5.4 shall
survive the termination of the Lease and any
satisfaction of the Lease Obligations in
connection therewith or subsequent thereto. The
parties hereto acknowledge and agree that any
Purchaser may enforce the provisions of this
Section 11.5.4 as a third party beneficiary.
11.5.5 Intentionally deleted. 11.5.6
Intentionally deleted.
11.5.7 Intentionally deleted.
11.5.8 ERISA. Lessee shall not establish or
permit any Sublessee to establish any new pension
or defined benefit plan or modify any such
existing plan for employees subject to ERISA,
which plan provides any benefits based on past
service without the advance consent of Lessor
(which consent shall not be unreasonably withheld)
to the amount of the aggregate past service
liability thereby created.
11.5.9 FORGIVENESS OF INDEBTEDNESS. Lessee
will not waive, or permit any Sublessee or Manager
which is an Affiliate to waive any debt or claim,
except in the ordinary course of its business.
11.5.10 VALUE OF ASSETS. Except as disclosed
in the financial statements provided to Lessor as
of the date hereof, Lessee will not write up (by
creating an appraisal surplus or otherwise) the
value of any assets of Lessee above their cost to
Lessee, less the depreciation regularly allowable
thereon.
11.5.11 CHANGES IN FISCAL YEAR AND
ACCOUNTING PROCEDURES. Upon notice to Lessor,
Lessee may (a) change its fiscal
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year or capital structure or (b) change, alter,
amend or in any manner modify in accordance with
GAAP any of its current accounting procedures
related to the method of revenue recognition,
billing procedures or determinations of doubtful
accounts or bad debt expenses or permit any of its
Subsidiaries to so change its fiscal year,
provided that, in the event of such change,
modification or alteration, Lessee and Lessor
shall make such adjustments to the calculation of
Additional Rent and the financial covenants
contained herein as Lessor shall reasonably
require to make the same consistent in result with
the calculation thereof immediately prior to such
change, modification or alteration.
ARTICLE 12INSURANCE AND INDEMNITY
12.1 GENERAL INSURANCE
REQUIREMENTS. During the Term of this Lease and
thereafter until Lessee surrenders the Leased
Property in the manner required by this Lease,
Lessee shall at its sole cost and expense keep the
Leased Property, the Tangible Personal Property
located thereon and the business operations
conducted on the Leased Property insured as set
forth below.
12.1.1 TYPES AND AMOUNTS OF INSURANCE.
Lessee's insurance shall include the
following:
(a) property loss and physical
damage insurance on an all-risk basis
(with only such exceptions as Lessor may
in its reasonable discretion approve)
covering the Leased Property (exclusive
of Land) for its full replacement cost,
which cost shall be reset once a year at
Lessor's option, with an agreed-amount
endorsement and a deductible not in
excess of TWENTY FIVE THOUSAND DOLLARS
($25,000). Such insurance shall include,
without limitation, the following
coverages: (i) increased cost of
construction, (ii) cost of demolition,
(iii) the value of the undamaged portion
of the Facility and (iv) contingent
liability from the operation of building
laws, less exclusions provided in the
normal "All Risk" insurance policy.
During any period of construction, such
insurance shall be on a builder's-risk,
completed value, non-reporting form
(including all risk and extended
coverage, collapse, cost of demolition,
increased cost of construction and value
of undamaged portion of the improvements
protection) with permission to occupy;
(b) flood insurance (if the Leased
Property or any portion thereof is
situated in an area which is considered
a flood risk area by the U.S. Department
of Housing and
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Urban Development or any future
governmental authority charged with such
flood risk analysis in the future) in
limits reasonably acceptable to Lessor
and subject to the availability of such
flood insurance;
(c) boiler and machinery insurance
(including related electrical apparatus
and components) under a standard
comprehensive form, providing coverage
against loss or damage caused by
explosion of steam boilers, pressure
vessels or similar vessels, now or
hereafter installed on the Leased
Property, in limits acceptable to Lessor
;
(d) earthquake insurance (if
reasonably deemed necessary by Lessor)
in limits and with deductibles
acceptable to Lessor;
(e) environmental impairment
liability insurance (if available on
commercially reasonable terms and deemed
reasonably necessary by Lessor) in
limits and with deductibles acceptable
to Lessor;
(f)From and after the Conversion
Date: business interruption insurance in
an amount equal to the annual Base Rent
due hereunder plus the aggregate sum of
the Impositions relating to the Leased
Property due and payable during one
year;
(g) comprehensive general public
liability insurance including coverages
commonly found in the Broad Form
Commercial Liability Endorsements with
amounts not less than FIVE MILLION
DOLLARS ($5,000,000) per occurrence with
respect to bodily injury and death and
THREE MILLION DOLLARS ($3,000,000) for
property damage and with all limits
based solely upon occurrences at the
Leased Property without any other
impairment;
(h) From and after the Conversion
Date: professional liability insurance
in an amount not less than TEN MILLION
DOLLARS ($10,000,000) for each medical
incident;
(i) physical damage insurance on an
all-risk basis (with only such
exceptions as Lessor in its reasonable
discretion shall approve) covering the
Tangible Personal Property for the full
replacement cost thereof and with a
deductible not in excess of one percent
( 1%) of the full replacement cost
thereof;
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(j) From and after the Conversion
Date and prior thereto with respect to
Persons employed on the Leased Property
or any portion thereof prior to the
Conversion Date, "Workers' Compensation
and Employers' Liability Insurance
providing protection against all claims
arising out of injuries to all employees
of Lessee or of any Sublessee (employed
on the Leased Property or any portion
thereof in amounts equal for Workers'
Compensation, to the statutory benefits
payable to employees in the State and
for Employers' Liability, to limits of
not less than ONE HUNDRED THOUSAND
DOLLARS ($100,000) for injury by
accident, ONE HUNDRED THOUSAND DOLLARS
($100,000) per employee for disease and
FIVE HUNDRED THOUSAND DOLLARS ($500,000)
disease policy limit;
(k) subsidence insurance (if deemed
necessary by Lessor) in limits
acceptable to Lessor; and
(l) such other insurance as Lessor
from time to time may reasonably require
and also, as may from time to time be
required by applicable Legal
Requirements and/or by any Fee
Mortgagee.
12.1.2 INSURANCE COMPANY
REQUIREMENTS. All such insurance required by
this Lease or the other Lease Documents shall
be issued and underwritten by insurance
companies licensed to do insurance business
by, and in good standing under the laws of,
the State and which companies have and
maintain a rating of A:X or better by A.M.
Best Co.
12.1.3 POLICY REQUIREMENTS. Every
policy of insurance from time to time
required under this Lease or any of the other
Lease Documents (other than worker's
compensation) shall name Lessor as owner,
loss payee, secured party (to the extent
applicable) and additional named insured as
its interests may appear. If an insurance
policy covers properties other than the
Leased Property, then Lessor shall be so
named with respect only to the Leased
Property. Each such policy, where applicable
or appropriate, shall:
(a) include an agreed amount
endorsement and loss payee, additional
named insured and secured party
endorsements, in forms acceptable to
Lessor in its reasonable discretion;
(b) include mortgagee, secured
party, loss payable and additional named
insured endorsements reasonably
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acceptable to each Fee Mortgagee;
(c) provide that the coverages may
not be cancelled or materially modified
except upon thirty (30) days' prior
written notice to Lessor and any Fee
Mortgagee;
(d) be payable to Lessor and any
Fee Mortgagee notwithstanding any
defense or claim that the insurer may
have to the payment of the same against
any other Person holding any other
interest in the Leased Property;
(e) be endorsed with standard
noncontributory clauses in favor of and
in form reasonably acceptable to Lessor
and any Fee Mortgagee;
(f) expressly waive any right of
subrogation on the part of the insurer
against Lessor, any Fee Mortgagee or the
Leasing Group; and
(g) otherwise be in such forms as
shall be reasonably acceptable to
Lessor.
12.1.4 NOTICES: CERTIFICATES AND
POLICIES. Lessee shall promptly provide to
Lessor copies of any and all notices
(including notice of non-renewal), claims and
demands which Lessee receives from insurers
of the Leased Property. At least ten (10)
days prior to the expiration of any insurance
policy required hereunder, Lessee shall
deliver to Lessor certificates and evidence
of insurance relating to all renewals and
replacements thereof, together with evidence,
satisfactory to Lessor, of payment of the
premiums thereon. Lessee shall deliver to
Lessor original counterparts or copies
certified by the insurance company to be true
and complete copies, of all insurance
policies required hereunder not later than
ten (10) days after receipt thereof by
Lessee. Lessee shall use its best efforts to
obtain such counterparts or copies within
ninety (90) days after the effective date of
each such policy.
12.1.5 LESSOR'S RIGHT TO PLACE
INSURANCE. If Lessee shall fail to obtain any
insurance policy required hereunder by
Lessor, or shall fail to deliver the
certificate and evidence of insurance
relating to any such policy to Lessor, or if
any insurance policy required hereunder (or
any part thereof shall expire or be cancelled
or become void or voidable by reason of any
breach of any condition thereof, or if Lessor
reasonably determines that such insurance
coverage is unsatisfactory by reason of the
failure or impairment of the capital of any
insurance company which wrote
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any such policy, upon demand by Lessor,
Lessee shall promptly but in any event in not
more than ten ( 10) days thereafter obtain
new or additional insurance coverage on the
Leased Property, or for those risks required
to be insured by the provisions hereof,
satisfactory to Lessor, and, in the event
Lessee fails to perform its obligations under
this Section and at its option, Lessor may
obtain such insurance and pay the premium or
premiums therefor; in which event, any amount
so paid or advanced by Lessor and all costs
and expenses incurred in connection therewith
(including, without limitation, reasonable
attorneys' fees and expenses and court
costs), shall be a demand obligation of
Lessee to Lessor, payable as an Additional
Charge.
12.1.6 PAYMENT of Proceed s. All
insurance policies required hereunder (except
for general public liability, professional
liability and workers' compensation and
employers liability insurance) shall provide
that in the event of loss, injury or damage,
subject to the rights of any Fee Mortgagee,
all proceeds shall be paid to Lessor alone
(rather than jointly to Lessee and Lessor).
Lessor is hereby authorized to adjust and
compromise any such loss with the consent of
Lessee or, following any Lease Default,
whether or not cured, without the consent of
Lessee, and to collect and receive such
proceeds in the name of Lessor and Lessee,
and Lessee appoints Lessor (or any agent
designated by Lessor) as Lessee's attorney-in-
fact with full power of substitution, to
endorse Lessee's name upon any check in
payment thereof. Subject to the provisions of
Article 13, such insurance proceeds shall be
applied first toward reimbursement of all
costs and expenses reasonably incurred by
Lessor in collecting said insurance proceeds,
then toward payment of the Lease Obligations
or any portion thereof, which have not been
paid when due and payable or within any
applicable cure period, in such order as
Lessor determines, and then in whole or in
part toward restoration, repair or
reconstruction of the Leased Property for
which such insurance proceeds shall have been
paid.
12.1.7 IRREVOCABLE POWER OF ATTORNEY.
The power of attorney conferred on Lessor
pursuant to the provisions of Section 12.1,
being coupled with an interest, shall be
irrevocable for as long as this Lease is in
effect or any Lease Obligations are
outstanding, shall not be affected by any
disability or incapacity which Lessee may
suffer and shall survive the same. Such power
of attorney, is provided solely to protect
the interests of Lessor and shall not impose
any duty on Lessor to exercise any such
power, and neither Lessor nor such attorney-
in-fact shall be liable for any act,
omission, error in judgment or mistake of
law, except as the same may result from its
gross negligence or wilful misconduct.
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12.1.8 BLANKET POLICIES.
Notwithstanding anything to the contrary
contained herein, Lessee's obligations to
carry the insurance provided for herein may
be brought within the coverage of a so-called
blanket policy or policies of insurance
carried and maintained by Lessee and its
Affiliates; provided, however, that the
coverage afforded to Lessor shall not be
reduced or diminished or otherwise be
different from that which would exist under a
separate policy meeting all other
requirements of this Lease by reason of the
use of such blanket policy of insurance, and
provided, further that the requirements of
Section 12.1 are otherwise satisfied.
12.1.9 NO SEPARATE INSURANCE. Lessee
shall not, on Lessee's own initiative or
pursuant to the request or requirement of any
other Person, take out separate insurance
concurrent in form or contributing in the
event of loss with the insurance required
hereunder to be furnished by Lessee, or
increase the amounts of any then existing
insurance by securing an additional policy or
additional policies, unless (a) all parties
having an insurable interest in the subject
matter of the insurance, including Lessor,
are included therein as additional insureds
and (b) losses are payable under said
insurance in the same manner as losses are
required to be payable under this Lease.
Lessee shall immediately notify Lessor of the
taking out of any such separate insurance or
of the increasing of any of the amounts of
the then existing insurance by securing an
additional insurance policy or policies.
12.1.10 ASSIGNMENT OF UNEARNED
PREMIUMS. Lessee hereby assigns to Lessor all
rights of Lessee in and to any unearned
premiums on any insurance policy required
hereunder to be furnished by Lessee which may
become payable or are refundable after the
occurrence of an Event of Default hereunder,
which premium, upon receipt thereof, Lessor
shall at Lessor's option apply toward the
Lease Obligations or hold as security
therefor. In the event that this Lease is
terminated for any reason (other than the
purchase of the Leased Property by Lessee),
the insurance policies required to be
maintained hereunder, including all right,
title and interest of Lessee thereunder,
shall become the absolute property of Lessor
subject to any limitation on assignment
provided for therein.
12.2 INDEMNITY.
12.2.1 INDEMNIFICATION. Except with
respect to the gross negligence or wilful
misconduct of Lessor or any of the other
Indemnified Parties, as to which no indemnity
is provided, Lessee hereby agrees to defend
with counsel reasonably acceptable to
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Lessor, against all claims and causes of
action and to indemnify and hold harmless
Lessor and each of the other Indemnified
Parties from and against all damages, losses,
liabilities, obligations, penalties, costs
and expenses (including, without limitation,
reasonable attorneys' fees, court costs and
other expenses of litigation) suffered by, or
claimed or asserted against, Lessor or any of
the other Indemnified Parties, directly or
indirectly, by any Person other than a member
of the Leasing Group who prevails in such
claim or action based on, arising out of or
resulting from (a) the use and occupancy of
the Leased Property or any business conducted
therein, (b) any act, fault, omission to act
or misconduct by (i) any member of the
Leasing Group, (ii) any Affiliate of Lessee
or (iii) any employee, agent, licensee,
business invitee, guest, customer, contractor
or sublessee of any of the foregoing parties,
relating to, directly or indirectly, the
Leased Property, (c) any accident, injury or
damage whatsoever caused to any Person,
including, without limitation, any claim of
malpractice, or to the property of any Person
in or about the Leased Property or outside of
the Leased Property where such accident,
injury or damage results or is claimed to
have resulted from any act, fault, omission
to act or misconduct by any member of the
Leasing Group or any Affiliate of Lessee or
any employee, agent, licensee, contractor or
sublessee of any of the foregoing parties,
(d) any Lease Default, (e) any claim brought
or threatened against Lessor by any member of
the Leasing Group or by any other Person on
account of (i) Lessor's relationship with any
member of the Leasing Group pertaining in any
way to the Leased Property and/or the
transaction evidenced by the Lease Documents
and/or (ii) Lessor's negotiation of, entering
into and/or performing any of its obligations
and/or exercising any of its right and
remedies under any of the Lease Documents,
(f) any attempt by any member of the Leasing
Group or any Affiliate of Lessee to transfer
or relocate any of the Permits to any
location other than the Leased Property,
and/or (g) the enforcement of this indemnity.
Any amounts which become payable by Lessee
under this Section 12.2.1 shall be a demand
obligation of Lessee to Lessor, payable as an
Additional Charge. The indemnity provided for
in this Section 12.2.1 shall survive any
termination of this Lease.
12.2.2 INDEMNIFIED PARTIES. As used
in this Lease the term "Indemnified Parties"
shall mean the Meditrust Entities, any Fee
Mortgagee and their respective successors,
assigns, employees, servants, agents,
attorneys, officers, directors, shareholders,
partners and owners.
12.2.3 LIMITATION ON LESSOR LIABILITY.
Neither Lessor nor any Affiliate of Lessor
shall be liable to any member of the Leasing
Group or any Affiliate of any member of the
Leasing
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Group, or to any other Person whatsoever for
any damage, injury, loss, compensation, or
claim (including, but not limited to, any
claim for the interruption of or loss to any
business conducted on the Leased Property)
based on, arising out of or resulting from
any cause whatsoever, including, but not
limited to, the following: (a) repairs to the
Leased Property, (b) interruption in use of
the Leased Property; (c) any accident or
damage resulting from the use or operation of
the Leased Property or any business conducted
thereon; (d) the termination of this Lease by
reason of Casualty or Condemnation, (e) any
fire, theft or other casualty or crime, (f)
the actions, omissions or misconduct of any
other Person, (g) damage to any property, or
(h) any damage from the flow or leaking of
water, rain or snow. All Tangible Personal
Property and the personal property of any
other Person on the Leased Property shall be
at the sole risk of Lessee and Lessor shall
not in any manner be held responsible
therefor (except in the event of loss caused
by the gross negligence or willful misconduct
of Lessor). Notwithstanding the foregoing,
Lessor shall not be released from liability
for any injury, loss, damage or liability
suffered by Lessee to the extent caused
directly by the gross negligence or willful
misconduct of Lessor, its servants, employees
or agents acting within the scope of their
authority on or about the Leased Property or
in regards to the Lease; provided, however,
that in no event shall Lessor, its servants,
employees or agents have any liability based
on any loss for any indirect or consequential
damages.
12.2.4 RISK OF LOSS. During the Term of
this Lease, the risk of loss or of decrease
in the enjoyment and beneficial use of the
Leased Property in consequence of any damage
or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise,
or in consequence of foreclosures, levies or
executions of Liens (other than those created
by Lessor in accordance with the provisions
of Article 20) is assumed by Lessee and, in
the absence of the gross negligence or
willful misconduct as set forth in Section
12.2.3, Lessor shall in no event be
answerable or accountable therefor (except
for the obligation to account for insurance
proceeds and Awards to the extent provided
for in Articles 13 and 14) nor shall any of
the events mentioned in this Section entitle
Lessee to any abatement of Rent (except for
an abatement, if any, as specifically
provided for in Section 3.7).
ARTICLE 13
FIRE AND CASUALTY
13.1 RESTORATION FOLLOWING FIRE OR OTHER
CASUALTY.
13.1.1 FOLLOWING FIRE OR CASUALTY. In
the event
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of any damage or destruction to the Leased
Property by reason of fire or other hazard or
casualty (a "Casualty"), Lessee shall give
immediate written notice thereof to Lessor
and, subject to the terms of this Article 13
and any applicable Legal Requirements, Lessee
shall proceed with reasonable diligence, in
full compliance with all applicable Legal
Requirements, to perform such repairs,
replacement and reconstruction work (referred
to herein as the
"Work") to restore the Leased Property to the
condition it was in immediately prior to such
damage or destruction and to a condition
adequate to operate the Facility for the
Primary Intended Use and, if applicable, the
Other Permitted Uses and in compliance with
applicable Legal Requirements. All Work shall
be performed and completed in accordance with
all applicable Legal Requirements and the
other requirements of this Lease within one
hundred and twenty ( 120) days following the
occurrence of the damage or destruction plus
a reasonable time to compensate for
Unavoidable Delays (including for the
purposes of this Section, delays in obtaining
Permits and in adjusting insurance losses),
but in no event beyond two-hundred and
seventy (270) days following the occurrence
of the Casualty.
13.1.2 PROCEDURES. In the event that any
Casualty results in non-structural damage to
the Leased Property in excess of FIFTY
THOUSAND DOLLARS ($50,000) or in any
structural damage to the Leased Property,
regardless of the extent of such structural
damage, prior to commencing the Work, Lessee
shall comply with the following requirements:
(a) Lessee shall furnish to Lessor
complete plans and specifications for
the Work (collectively and as the same
may be modified and amended from time to
time pursuant to the terms hereof, the
"Plans and Specifications"), for
Lessor's approval, in each instance,
which approval shall not be unreasonably
withheld. The Plans and Specifications
shall bear the signed approval thereof
by an architect, licensed to do business
in the State, reasonably satisfactory to
Lessor (in the event Lessor reasonably
determines that the Work is of a nature
for which the involvement of an
architect is appropriate) and shall be
accompanied by a written estimate from
the architect, bearing the architect's
seal, of the entire cost of completing
the Work, and to the extent feasible,
the Plans and Specifications shall
provide for Work of such nature, quality
and extent, that, upon the completion
thereof, the Leased Property shall be at
least equal in value and general utility
to its value and general utility prior
to the Casualty and shall be adequate to
operate the Leased Property for the
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Primary Intended Use and, if applicable,
the Other Permitted Uses;
(b) Lessee shall furnish to Lessor
certified or photostatic copies of all
Permits and Contracts required by all
applicable Legal Requirements in
connection with the commencement and
conduct of the Work to the extent the
same can be secured in the ordinary
course prior to the commencement of
construction;
(c) Lessee shall furnish to Lessor
a cash deposit or a payment and
performance bond sufficient to pay for
completion of and payment for the Work
in an amount not less than the
architect's estimate of the entire cost
of completing the Work, less the amount
of property insurance proceeds (net of
costs and expenses incurred by Lessor in
collecting the same), if any, then held
by Lessor and which Lessor shall be
required to apply toward restoration of
the Leased Property as provided in
Section 13.2;
(d) Lessee shall furnish to Lessor
such insurance with respect to the Work
(in addition to the insurance required
under Section 12.1 hereof in such
amounts and in such forms as is
reasonably required by Lessee; and
(e) Lessee shall not commence any
of the Work until Lessee shall have
complied with the requirements set forth
in clauses (a) through (d) immediately
above, as applicable, and, thereafter,
Lessee shall perform the Work
diligently, in a good and workmanlike
fashion and in good faith in accordance
with (i) the Plans and Specifications
referred to in clause (a) immediately
above, (ii) the Permits and Contracts
referred to in clause (b) immediately
above and (iii) all applicable Legal
Requirements and other requirements of
this Lease; provided, however, that in
the event of a bona fide emergency
during which Lessee is unable to contact
the appropriate representatives of
Lessor, Lessee may commence such Work as
may be necessary in order to address
such emergency without Lessor's prior
approval, as long as Lessee immediately
thereafter advises Lessor of such
emergency and the nature and scope of
the Work performed and obtains Lessor's
approval of the remaining Work to be
completed.
13.1.3. DISBURSEMENT OF INSURANCE
PROCEEDS. If, as provided in Section 13.2,
Lessor is required to apply any property
insurance proceeds toward repair or
restoration of the
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Leased Property, then as long as the Work is
being diligently performed by Lessee in
accordance with the terms and conditions of
this Lease, Lessor shall disburse such
insurance proceeds from time to time during
the course of the Work in accordance with and
subject to satisfaction of the following
provisions and conditions. Lessor shall not
be required to make disbursements more often
than at thirty (30) day intervals. Lessee
shall submit a written request for each
disbursement at least ten (10) Business Days
in advance and shall comply with the
following requirements in connection with
each disbursement:
(a) Prior to the commencement of
any Work, Lessee shall have received
Lessor's written approval of the Plans
and Specifications (which approval shall
not be unreasonably withheld) and the
Work shall be supervised by an
experienced construction manager with
the consultation of an architect or
engineer qualified and licensed to do
business in the State (in the event
Lessor reasonably determines that the
Work is of a nature for which the
involvement of such architect or
engineer is appropriate). Lessee shall
not make any changes in, and shall not
permit any changes in, the quality of
the materials to be used in the Work,
the Plans and Specifications or the
Work, whether by change order or
otherwise, without the prior written
consent of Lessor, in each instance
(which consent may be withheld in
Lessor's sole and absolute discretion);
provided, however, that such consent
shall not be required for any individual
change which has been approved by the
architect, which does not materially
affect the structure or exterior of the
Facility, and the cost of which does not
exceed TEN THOUSAND DOLLARS ($10,000) or
which changes, in the aggregate, do not
exceed ONE HUNDRED THOUSAND DOLLARS
($100,000) in cost. Notwithstanding the
foregoing, prior to making any change in
Plans and Specifications, copies of all
change orders shall be submitted by
Lessee to Lessor and Lessee shall also
deliver to Lessor evidence satisfactory
to Lessor, in its reasonable discretion,
that all necessary Permits and/or
Contracts required by any Governmental
Authority in connection therewith have
been obtained or entered into, as the
case may be.
(b) Each request for payment shall
be accompanied by (x) a certificate of
the architect or engineer, bearing the
architect's or engineer's seal, and (y)
a certificate of the general contractor,
qualified and licensed to do business in
the State, that is performing the Work
(collectively, the "Work Certificates"),
each dated not more than ten ( 10)
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days prior to the application for
withdrawal of funds, and each stating:
(i) that all of the Work
performed as of the date of the
certificates has been completed in
compliance with the approved Plans
and Specifications, applicable
Contracts and all applicable Legal
Requirements;
(ii) that the sum then
requested to be withdrawn has been
paid by Lessee or is justly due to
contractors, subcontractors,
materialmen, engineers, architects
or other Persons, whose names and
addresses shall be stated therein,
who have rendered or furnished
certain services or materials for
the Work, and the certificate shall
also include a brief description of
such services and materials and the
principal subdivisions or
categories thereof and the
respective amounts so paid or due
to each of said Persons in respect
thereof and stating the progress of
the Work up to the date of said
certificate;
(iii) that the sum then
requested to be withdrawn, plus all
sums previously withdrawn, does not
exceed the cost of the Work insofar
as actually accomplished up to the
date of such certificate;
(iv) that the remainder of the
funds held by Lessor will be
sufficient to pay for the full
completion of the Work in
accordance with the Plans and
Specifications;
(v) that no part of the cost
of the services and materials
described in the applicable Work
Certificate has been or is being
made the basis of the withdrawal of
any funds in any previous or then
pending application; and
(vi) that, except for the
amounts, if any, specified in the
applicable Work Certificate to be
due for services and materials,
there is no outstanding
indebtedness known, after due
inquiry, which is then due and
payable for work, labor, services
or materials in connection with the
Work which, if unpaid, might become
the basis of a vendor's,
mechanic's, laborer's or
materialman's
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statutory or other similar Lien
upon the Leased Property.
(c) Lessee shall deliver to Lessor
satisfactory evidence that the Leased
Property and all materials and all
property described in the Work
Certificates are free and clear of
Liens, except (i) Liens, if any,
securing indebtedness due to Persons
(whose names and addresses and the
several amounts due them shall be stated
therein) specified in an applicable Work
Certificate, which Liens shall be
discharged upon disbursement of the
funds then being requested or duly
contested in accordance with the terms
of this Lease Agreement, (ii) any Fee
Mortgage and (iii) the Permitted
Encumbrances. Lessor shall accept as
satisfactory evidence of the foregoing
lien waivers in customary form from the
general contractor and all
subcontractors performing the Work,
together with an endorsement of its
title insurance policy (relating to the
Leased Property) in form acceptable to
Lessor, dated as of the date of the
making of the then current disbursement,
confirming the foregoing.
(d) If the Work involves alteration
or restoration of the exterior of any
Leased Improvement that changes the
footprint of any Leased Improvement,
Lessee shall deliver to Lessor, upon the
request of Lessor, an "as-built" survey
of the Leased Property dated as of a
date within ten ( 10) days prior to the
making of the first and final advances
(or revised to a date within ten (10)
days prior to each such advance) showing
no encroachments other than such
encroachments, if any, by the Leased
Improvements upon or over the Permitted
Encumbrances as are in existence as of
the date hereof.
(e) Lessee shall deliver to Lessor
(i) an opinion of counsel (satisfactory
to Lessor both as to counsel and as to
the form of opinion) prior to the first
advance opining that all necessary
Permits for the repair, replacement
and/oz
restoration of the Leased Property which
can be obtained in the ordinary course
as of said date have been obtained and
that the Leased Property, if repaired,
replaced or rebuilt in accordance, in
all material respects, with the approved
Plans and Specifications and such
Permits, shall comply with all
applicable Legal Requirements subject to
such limitations as may be imposed on
such opinion under local law and (ii) if
applicable, an architect's certificate
(satisfactory to Lessor both as to the
architect and as to the form of the
certificate) prior to the final advance,
certifying
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that the Leased Property was repaired,
replaced or rebuilt in accordance, in
all material respects, with the approved
Plans and Specifications and complies
with all applicable Legal Requirements,
including, without limitation, all
Permits referenced in the foregoing
clause (i).
(f)There shall be no Lease Default
or any state of facts or circumstance
existing which, with the giving of
notice and/or the passage of time, would
constitute any Lease Default.
Lessor, at its option, may waive any of the
foregoing requirements in whole or in part in any
instance. Upon compliance by Lessee with the
foregoing requirements (except for such
requirements, if any, as Lessor may have expressly
elected to waive), and to the extent of (x) the
insurance proceeds, if any, which Lessor may be
required to apply to restoration of the Leased
Property pursuant to the provisions of this Lease
and (y) all other cash deposits made by Lessee,
Lessor shall make available for payment to the
Persons named in the Work Certificate the
respective amounts stated in said certificate(s)
to be due, subject to a retention often percent
(10%) as to all hard costs of the Work (the
"Retainage"). It is understood that the Retainage
is intended to provide a contingency fund to
assure Lessor that the Work shall be fully
completed in accordance with the Plans and
Specifications and the requirements of Lessor.
Upon the full and final completion of all of the
Work in accordance with the provisions hereof, the
Retainage shall be made available for payment to
those Persons entitled thereto.
Upon completion of the Work, and as a condition
precedent to making any further advance, in
addition to the requirements set forth above,
Lessee shall promptly deliver to Lessor:
(i) if applicable, written
certificates of the architect or
engineer, bearing the architect's or
engineer's seal, and the general
contractor, certifying that the Work has
been fully completed in a good and
workmanlike manner in material
compliance with the Plans and
Specifications and all applicable Legal
Requirements;
(ii) an endorsement of its title
insurance policy (relating to the Leased
Property) in form reasonably acceptable
to Lessor insuring the Leased Property
against all mechanic's and materialman's
liens accompanied by the final lien
waivers from the general contractor and
all subcontractors;
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(iii) a certificate by Lessee
in form and substance reasonably
satisfactory to Lessor, listing all
costs and expenses in connection with
the completion of the Work and the
amount paid by Lessee with respect to
the Work; and
(iv) a temporary certificate of
occupancy (if obtainable) and all other
applicable Permits and Contracts issued
by or entered into with any Governmental
Authority with respect to the Primary
Intended Use not already delivered to
Lessor and, to the extent applicable,
the Other Permitted Uses and by the
appropriate Board of Fire Underwriters
or other similar bodies acting in and
for the locality in which the Leased
Property is situated with respect to the
Facility; provided, at within thirty
(30) days after completion of the Work,
Lessee shall obtain and deliver to
Lessor a permanent certificate of
occupancy for the Leased Property,
subject to seasonal delays.
Upon completion of the Work and delivery
of the documents required pursuant to the
provisions of this Section 13.1, Lessor shall
pay the Retainage to Lessee or to those
Persons entitled thereto and if there shall
be insurance proceeds or cash deposits, other
than the Retainage, held by Lessor in excess
of the amounts disbursed pursuant to the
foregoing provisions, then provided that no
Lease Default has occurred and is continuing,
nor any state of facts or circumstances
which, with the giving of notice and/or the
passage of time would constitute a Lease
Default, Lessor shall pay over such proceeds
or cash deposits to Lessee.
No inspections or any approvals of the
Work during or after construction shall
constitute a warranty or representation by
Lessor, or any of its agents or Consultants,
as to the technical sufficiency, adequacy or
safety of any structure or any of its
component parts, including, without
limitation, any fixtures, equipment or
furnishings, or as to the subsoil conditions
or any other physical condition or feature
pertaining to the Leased Property. All acts,
including any failure to act, relating to
Lessor are performed solely for the benefit
of Lessor to assure the payment and
performance of the Lease Obligations and are
not for the benefit of Lessee or the benefit
of any other Person.
13.2 DISPOSITION OF INSURANCE PROCEEDS.
13.2.1 PROCEEDS TO BE RELEASED TO PAY
FOR WORK. In the event of any Casualty,
except as provided for in Section 13.2.2,
Lessor shall release proceeds of property
insurance
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held by it to pay for the Work in accordance
with the provisions and procedures set forth
in this Article 13, only if:
(a) all of the terms, conditions
and provisions of Sections 13.1 and
13.2.1 are satisfied;
(b) Lessee demonstrates to Lessor's
satisfaction that Lessee has the
financial ability to satisfy the Lease
Obligations during such repair or
restoration; and
(c) no Sublease material to the
operation of the Facility immediately
prior to such damage or taking shall
have been cancelled or terminated, nor
contain any still exercisable right to
cancel or terminate, due to such
Casualty if and to the extent that the
income from such Sublease is necessary
in order to avoid the violation of any
of the financial covenants set forth in
this Lease or otherwise to avoid the
creation of an Event of Default.
If a Fee Mortgagee prevents Lessor from releasing
proceeds of property insurance notwithstanding the
satisfaction of the foregoing requirements, Lessee
shall have no obligation to restore the Casualty
to which such proceeds pertain.
13.2.2 PROCEEDS NOT TO BE RELEASED. If, as
the result of any Casualty, the Leased Property is
damaged to the extent it is rendered Unsuitable
For Its Primary Intended Use and if either: (a)
Lessee, after exercise of diligent efforts, cannot
within a reasonable time (not in excess of ninety
(90) days) obtain all necessary Permits in order
to be able to perform all required Work and to
again operate the Facility for its Primary
Intended Use and, if applicable, the Other
Permitted Uses within two hundred and seventy
(270) days from the occurrence of the damage or
destruction in substantially the manner as
immediately prior to such damage or destruction or
(b) such Casualty occurs during the last twenty-
four (24) months of the Term and would reasonably
require more than nine (9) months to obtain all
Permits and complete the Work, then Lessee may
either (i) acquire the Leased Property from Lessor
for a purchase price equal to the greater of (x)
the Meditrust Investment or (y) the Fair Market
Value of the Leased Property minus the Fair Market
Added Value, with the Fair Market Value and the
Fair Market Added Value to be determined as of the
day immediately prior to such Casualty and prior
to any other Casualty which has not been fully
repaired, restored or replaced, in which event,
Lessee shall be entitled upon payment of the full
purchase price to receive all property insurance
proceeds (less any costs and expenses incurred by
Lessor in collecting the same), or (ii) terminate
this Lease, in which event (subject to the
provisions of the last sentence of this Section
13.2.2) Lessor shall be entitled to receive and
retain the insurance
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proceeds; provided, however, that Lessee shall
only have such right of termination effective upon
payment to Lessor of all Rent and other sums due
under this Lease and the other Lease Documents
through the date of termination plus an amount,
which when added to the sum of (1) the Fair Market
Value of the Leased Property as affected by all
unrepaired or
unrestored damage due to any Casualty (and giving
due regard for delays, costs and expenses incident
to completing all repair or restoration required
to fully repair or restore the same) plus (2) the
amount of insurance proceeds actually received by
Lessor (net of costs and expenses incurred by
Lessor in collecting the same) equals (3) the
greater of the Meditrust Investment or the Fair
Market Value of the Leased Property minus the Fair
Market Added Value, with the Fair Market Value and
the Fair Market Added Value to be determined as of
the day immediately prior to such Casualty and
prior to any other Casualty which has not been
fully repaired. Any acquisition of the Leased
Property pursuant to the terms of this Section
13.2.2 shall be consummated in accordance with the
provisions of Article 18, mutatis, mutandis. If
such termination becomes effective, Lessor shall
assign to Lessee any outstanding insurance claims
and, at Lessee's expense, shall cooperate in
Lessee's efforts to secure the same. In the event
this Lease is terminated pursuant to the
provisions of this Section 13.2.2 and the
insurance proceeds received by Lessor in
connection therewith (net of costs and expenses
incurred in obtaining such proceeds) exceeds one
hundred fifteen percent (115%) of the Fair Market
Value of the Leased Premises at the time of such
termination, Lessor shall pay to Lessee fifty
percent (50%) of the amount of such excess.
13.3 TANGIBLE PERSONAL PROPERTY. All
insurance proceeds payable by reason of any loss
of or damage to any of the Tangible Personal
Property shall be paid to Lessor as secured party,
subject to the rights of the holders of any
Permitted Prior Security Interests, and,
thereafter, provided that no Lease Default, nor
any fact or circumstance which with the giving of
notice and/or the passage of time could constitute
a Lease Default, has occurred and is continuing,
Lessor shall pay such insurance proceeds to Lessee
to reimburse Lessee for the cost of repairing or
replacing the damaged Tangible Personal Property,
subject to the terms and conditions set forth in
the other provisions of this Article 13, mutatis
mutandis.
13.4 RESTORATION OF CERTAIN IMPROVEMENTS AND
THE TANGIBLE PERSONAL PROPERTY . If Lessee is
required or elects to restore the Facility, Lessee
shall either (a) restore (i) all alterations and
improvements to the Leased Property made by Lessee
and (ii) the Tangible Personal property or (b)
replace such alterations and improvements and the
Tangible Personal Property with improvements or
items of the same or better quality and utility in
the operation of the Leased Property provided,
however, that Lessee shall be obligated to so
restore or replace the Tangible Personal Property
only to the extent desirable for the prudent
operation of the Facility in the good faith
exercise of commercially reasonable business
judgment.
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13.5 NO ABATEMENT OF RENT. In no event shall
any Rent abate as a result of any Casualty except
as expressly provided in Section 3.7.
13.6 TERMINATION OF CERTAIN RIGHTS. Any
termination of this Lease pursuant to this Article
I 3 shall cause any right of Lessee to extend the
Term of this Lease granted to Lessee herein and
any right of Lessee to purchase the Leased
Property contained in this Lease to be terminated
and to be without further force or effect.
13.7 WAIVER. Lessee hereby waives any
statutory rights of termination which may arise by
reason of any damage or destruction to the Leased
Property due to any Casualty which Lessee is
obligated to restore or may restore under any of
the provisions of this Lease.
13.8 APPLICATION OF RENT LOSS AND/OR BUSINESS
INTERRUPTION INSURANCE. Lessor shall direct all
proceeds of rent loss and/or business interruption
insurance (collectively, "Rent Insurance
Proceeds") to be paid to Lessee, provided no fact
or circumstance exists which constitutes, or with
notice, or passage of time, or both, would
constitute, a Lease Default pertaining to the
Facility or the Leased Property. If a Lease
Default or such fact or circumstance exists,
Lessor may rescind such direction and apply all
such insurance proceeds towards the Lease
Obligations pertaining to the Facility or the
Leased Property or hold such proceeds as security
therefor.
13.9 OBLIGATION TO ACCOUNT. Upon Lessee's
written request, which may not be made not more
than once in any three (3) month period, Lessor
shall provide Lessee with a written accounting of
the application of all insurance proceeds received
by Lessor.
ARTICLE 14
CONDEMNATION
14.1 PARTIES' RIGHTS AND OBLIGATIONS. If
during the Term there is any Taking of all or any
part of the Leased Property or any interest in
this Lease, the rights and obligations of the
parties shall be determined by this Article 14.
14.2 TOTAL TAKING. If there is a permanent
Taking of all or substantially all of the Leased
Property, this Lease shall terminate on the Date
of Taking. In the event this Lease is terminated
pursuant to the provisions of this Section 14.2
and the Award received by Lessor in connection
therewith (net of costs and expenses incurred in
obtaining such Award) exceeds one hundred fifteen
percent ( 115%) of the Fair Market Value of the
Leased Premises at the time of such termination,
Lessor shall pay to Lessee fifty percent (50%) of
the amount of such excess.
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14.3 PARTIAL OR TEMPORARY TAKING. If there is
a Permanent Taking of a portion of the Leased
Property, or if there is a temporary Taking of all
or a portion of the Leased Property, this Lease
shall remain in effect so long as the Leased
Property is not thereby rendered permanently
Unsuitable For Its Primary Intended Use or
temporarily Unsuitable For Its Primary Intended
Use for a period not likely to, or which does not,
exceed two hundred and seventy (270) days. If,
however, the Leased Property is thereby so
rendered permanently or temporarily Unsuitable For
Its Primary Intended Use: (a) if only rendered
temporarily Unsuitable For Its Primary Intended
Use, Lessee shall have the right to restore the
Leased Property, at its own expense (subject to
the
right under certain circumstances as provided for
in Section 14.5 to receive the net proceeds of an
Award for reimbursement), to the extent possible,
to substantially the same condition as existed
immediately before the partial or temporary Taking
or (b) Lessee shall have the right to acquire the
Leased Property from Lessor (i) upon payment of
all Rent due through the date that the purchase
price is paid, for a purchase price equal to the
greater of (x) the Meditrust Investment or (y) the
Fair Market Value of the Leased Property minus the
Fair Market Added Value, with the Fair Market
Value of the Leased Property and the Fair Market
Added Value to be determined as of the day
immediately prior to such partial or temporary
Taking and (ii) in accordance with the terms and
conditions set forth in Article 18; in which
event, this Lease shall terminate upon payment of
such purchase price and the consummation of such
acquisition. Notwithstanding the foregoing, Lessor
may overrule Lessee's election under clause (a) or
(b) and instead either (1) terminate this Lease
(with no obligation on the part of Lessee to
acquire the Leased Property as a result thereof as
of the date when Lessee is required to surrender
possession of the portion of the Leased Property
so taken if (X) such portion comprises more than
thirty percent (30%) of the Leased Property or of
the residential building(s) located thereon or (In
possession thereof is to be surrendered within two
years of the expiration of the Term or (2) compel
Lessee to keep the Lease in full force and effect
and to restore the Leased Property as provided in
clause (a) above, but only if the Leased Property
may be operated for at least eighty percent (80%)
of the licensed unit capacity of the Facility in
effect prior to the Taking. Lessee shall exercise
its election under this Section 14.3 by giving
Lessor notice thereof("Lessee's Election Notice")
within sixty (60) days after Lessee receives
notice of the Taking. Lessor shall exercise its
option to overrule Lessee's election under this
Section 14.3 by giving Lessee notice of Lessor's
exercise of its rights under Section 14.3 within
thirty (30) days after Lessor receives Lessee's
Election Notice. If, as the result of any such
partial or temporary Taking, this Lease is not
terminated as provided above, Lessee shall be
entitled to an abatement of Rent, but only to the
extent, if any, provided for in Section 3.7,
effective as of the date upon which the Leased
Property is rendered Unsuitable For Its Primary
Intended Use.
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14.4 RESTORATION. If there is a partial or
temporary Taking of the Leased Property and this
Lease remains in full force and effect pursuant to
Section 14.3, Lessee shall accomplish all
necessary restoration and Lessor shall release the
net proceeds of such Award to reimburse Lessee for
the actual reasonable costs and expenses thereof,
subject to all of the conditions and provisions
set forth in Article 13 as though the Taking was a
Casualty and the Award was insurance proceeds. If
the cost of the restoration exceeds the amount of
the Award (net of costs and expenses incurred in
obtaining the Award), Lessee shall be obligated to
contribute any excess amount needed to restore the
Facility or pay for such costs and expenses. To
the extent that the cost of restoration is less
than the amount of the Award (net of cost and
expenses incurred in obtaining the Award), the
remainder of the Award shall be retained by Lessor
and Rent shall be abated as set forth in Section
3.7.
14.5 AWARD DISTRIBUTION. In the event Lessee
completes the purchase of the Leased Property, as
described in Section 14.3, the entire Award shall,
upon payment of the purchase price and all Rent
and other sums due under this Lease and the other
Lease Documents, belong to Lessee and Lessor
agrees to assign to Lessee all of Lessor's rights
thereto or, to the extent Lessor has received
payment of the Award, the amount of such payment
shall be credited against the purchase price. In
any other event, the entire Award (except for such
portion thereof which the Condemner designates as
allocable to Lessee's loss of business or Tangible
Personal Property) shall belong to and be paid to
Lessor.
14.6 CONTROL OF PROCEEDINGS. Subject to the
rights of any Fee Mortgagee, unless and until
Lessee completes the purchase of the Leased
Property as provided in Section 14.3, all
proceedings involving any Taking and the
prosecution of claims arising out of any Taking
against the Condemnor shall be conducted,
prosecuted and settled by Lessor; provided,
however, that Lessor shall keep Lessee apprised of
the progress of all such proceedings and shall
solicit Lessee's advice with respect thereto and
shall give due consideration to any such advice.
In addition, Lessee shall reimburse Lessor (as an
Additional Charge) for all costs and expenses,
including reasonable attorneys' fees, appraisal
fees, fees of expert witnesses and costs of
litigation or dispute resolution, in relation to
any Taking, whether or not this Lease is
terminated; provided, however, if this Lease is
terminated as a result of a Taking, Lessee's
obligation to so reimburse Lessor shall be
diminished by the amount of the Award, if any,
received by Lessor which is in excess of the
Meditrust Investment.
ARTICLE 15
PERMITTED CONTESTS
15.1 LESSEE'S RIGHT TO CONTEST. To the extent
of the express references made to this Article 15
in other Sections of this Lease, Lessee, any
Sublessee or any Manager on their own or on
Lessor's behalf
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(or in Lessor's name), but at their sole cost and
expense, may contest, by appropriate legal
proceedings conducted in good faith and with due
diligence (until the resolution thereof, the
amount, validity or application, in whole or in
part, of any Imposition, Legal Requirement, the
decision of any Governmental Authority related to
the operation of the Leased Property for its
Primary Intended Use and/or, if applicable, any of
the Other Permitted Uses or any Lien or claim
relating to the Leased Property not otherwise
permitted by this Agreement; provided, that (a)
prior written notice of such contest is given to
Lessor, (b) in the case of an unpaid Imposition,
Lien or claim, the commencement and continuation
of such proceedings shall suspend the collection
thereof from Lessor and/or compliance by any
applicable member of the Leasing Group with the
contested Legal Requirement or other matter may be
legally delayed pending the prosecution of any
such proceeding without the occurrence or creation
of any Lien, charge or liability of any kind
against the Leased Property, (c) neither the
Leased Property nor any rent therefrom would be in
any immediate danger of being sold, forfeited,
attached or lost as a result of such proceeding,
(d) in the case of a Legal Requirement, neither
Lessor nor any member of the Leasing Group would
be in any immediate danger of civil or criminal
liability for failure to comply therewith pending
the outcome of such proceedings, (e) in the event
that any such contest shall involve a sum of money
or potential loss in excess of TWENTY FIVE
THOUSAND DOLLARS (525,000), Lessee shall deliver
to Lessor an Officer's Certificate and option of
counsel, if Lessor deems the delivery of an
opinion to be appropriate, certifying or opining,
as the case may be, as to the validity of the
statements set forth to the effect set forth in
clauses (b), (c) and (d), to the extent
applicable, (f) Lessee shall give such cash
security as may be demanded in good faith by
Lessor to insure ultimate payment of any fine,
penalty, interest or cost and to prevent any sale
or forfeiture of the affected portion of the
Leased Property by reason of such non-payment or
non-compliance, (g) if such contest is finally
resolved against Lessor or any member of the
Leasing Group, Lessee shall promptly pay, as
Additional Charges due hereunder, the amount
required to be paid, together with all interest
and penalties accrued thereon and/or comply (and
cause any Sublessee and any Manager to comply)
with the applicable Legal Requirement, and (h) no
state of facts or circumstance exists which
constitutes, or with the passage of time and/or
the giving of notice, could constitute a Lease
Default; provided, however, but without limiting
any other right Lessee may have under the Lease
Documents to contest the payment of Rent, the
provisions of this Article 15 shall not be
construed to permit Lessee to contest the payment
of Rent or any other sums payable by Lessee to
Lessor under any of the Lease Documents. If such
contest is finally resolved in favor of Lessee,
Lessee shall be entitled to any refund resulting
therefrom.
15.2 LESSOR'S COOPERATION. Lessor, at
Lessee's sole cost and expense, shall execute and
deliver to Lessee such authorizations and
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other documents as may reasonably be required in
any such contest, so long as the same does not
expose Lessor to any civil or criminal liability,
and, if reasonably requested by Lessee or if
Lessor so desires, Lessor shall join as a party
therein.
15.3 LESSEE'S INDEMNITY. Lessee, as more
particularly provided for in Section 12.2, shall
indemnify, defend (with counsel acceptable to
Lessor) and save Lessor harmless against any
liability, cost or expense of any kind, including,
without limitation, attorneys' fees and expenses
that may be imposed upon Lessor in connection with
any such contest and any loss resulting therefrom
and in the enforcement of this indemnification.
ARTICLE 16
DEFAULT
16.1 Events of Default. Each of the following
shall constitute an "Event of Default" hereunder
and shall entitle Lessor to exercise its remedies
hereunder and under any of the other Lease
Documents:
(a) any failure of Lessee to pay any
amount due hereunder or under any of the
other Lease Documents within ten (10) days
following the date when such payment was due;
(b) any failure in the observance or
performance of any other covenant,
term, condition or warranty provided in
this Lease or any of the other Lease
Documents, other than the payment of any
monetary obligation and other than as
specified in subsections (c) through (v)
below (a "Failure to Perform"), continuing
for thirty (30) days after the giving of
notice by Lessor to Lessee specifying the
nature of the Failure to Perform; except as
to matters not susceptible to cure within
thirty (30) days, provided that with respect
to such matters, (i) Lessee commences the
cure thereof within thirty (30) days after
the giving of such notice by Lessor to
Lessee, (ii) Lessee continuously prosecutes
such cure to completion, (iii) such cure is
completed within one hundred twenty ( 120)
days after the giving of such notice by
Lessor to Lessee and (iv) such Failure to
Perform does not impair the value of, or
Lessor's rights with respect to, the Leased
Property or otherwise impair the Collateral
or Lessor's security interest therein;
(c) the occurrence of any default or
breach of condition continuing beyond the
expiration of the applicable notice and grace
periods, if any, under any of the other Lease
Documents, including, without limitation, the
Agreement Regarding Related Transactions;
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(d) if any representation, warranty or
statement contained herein or in any of the
other Lease Documents proves to be untrue in
any material respect as of the date when made
or at any time during the Term if such
representation or warranty is a continuing
representation or warranty pursuant to
Section 10.2;
(e) if any member of the Leasing Group
shall (i) voluntarily be adjudicated a
bankrupt or insolvent, (ii) seek or consent
to the appointment of a receiver or trustee
for itself or for the Leased Property, (iii)
file a petition seeking relief under the
bankruptcy or other similar laws of the
United States, any state or any jurisdiction,
(iv) make a general assignment for the
benefit of creditors, (v) make or offer a
composition of its debts with its creditors
or (vi) be unable to pay its debts as such
debts mature;
(f) if any court shall enter an
order, judgment or decree appointing, without
the consent of any member of the Leasing
Group, a receiver or trustee for such member
or for any of its property and such order,
judgment or decree shall remain in force,
undischarged or unstayed, ninety (90) days
after it is entered;
(g) if a petition is f led against any
member of the Leasing Group which seeks
relief under the bankruptcy or other similar
laws of the United States, any state or any
other jurisdiction, and such petition is not
dismissed within ninety (90) days after it is
filed;
(h) in the event that:
i. all or any portion of the
interest of any partner, shareholder,
member in any member of the Leasing
Group (other than Guarantor) shall be,
on any one or more occasions, directly
or indirectly, sold, assigned,
hypothecated or otherwise transferred
(whether by operation of law or
otherwise), if such member of the
Leasing Group shall be a partnership,
joint venture, syndicate or other group,
without the prior written consent of
Lessor, in each instance, which consent
may be withheld by Lessor in its
reasonable discretion with respect to a
sale, assignment, hypothecation or other
transfer to a Meditrust/Emeritus
Transaction Affiliate and in all other
cases, in its sole and absolute
discretion;
ii. the shares of the issued and
outstanding capital stock of any member
of the Leasing Group (other than
Guarantor) shall be, on any one or more
occasions, directly or indirectly, sold,
assigned, hypothecated or otherwise
transferred (whether by operation of law
or
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otherwise), if such member of the
Leasing Group shall be a corporation,
without the prior written consent of
Lessor, in each instance, which consent
may be withheld by Lessor in its
reasonable discretion with respect to a
sale, assignment, hypothecation or other
transfer to a Meditrust/Emeritus
Transaction Affiliate and in all other
cases, in its sole and absolute
discretion; or
iii. all or any portion of the
beneficial interest in any member of the
Leasing Group (other than Guarantor)
shall be, directly or indirectly, sold
or otherwise transferred (whether by
operation of law or otherwise), if such
member of the Leasing Group shall be a
trust, without the prior written consent
of Lessor, in each instance, which
consent may be withheld by Lessor in its
reasonable discretion with respect to a
sale, assignment, hypothecation or other
transfer to a Meditrust/Emeritus
Transaction Affiliate and in all other
cases, in its sole and absolute
discretion;
Notwithstanding the foregoing, no consent of
Lessor to a pledge by Lessee of its stock to the
lender of a Working Capital Loan satisfying the
requirements of Section 6.1.3 shall be required (a
"Working Capital Stock Pledge").
(i) the death, incapacity, liquidation,
dissolution or termination of existence of
any member of the Leasing Group or the merger
or consolidation of any member of the Leasing
Group with any other Person except as
expressly permitted by the terms of this
Lease Agreement;
(j) except as provided in Section 19.1
hereof, if, without the prior written consent
of Lessor, in each instance, which consent
may be withheld by Lessor in its sole and
absolute discretion, Lessee's interest, or
any interest of a Sublessee which is an
Affiliate of Lessee, in the Leased Property
shall be, directly or indirectly, mortgaged,
encumbered (by any voluntary or involuntary
Lien other than the Permitted Encumbrances),
subleased, sold, assigned, hypothecated ox
otherwise transferred (whether by operation
of law or otherwise);
(k) the occurrence of a default or
breach of condition continuing beyond the
expiration of the applicable notice and grace
periods, if any, in connection with the
payment or performance of any other material
obligation of Lessee or any Sublessee which
is an Affiliate of Lessee, if the applicable
creditor or obligee elects to declare the
obligations of Lessee or the applicable
Sublessee under the applicable agreement due
and payable or to exercise any other right or
remedy available to such creditor or obligee,
or, whether or
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not such creditor or obligee has so elected
or exercised, such creditor's or obligee's
rights and remedies, if exercised, may
involve or result in the taking of possession
of, or the creation of a Lien on, the Leased
Property; provided, however, that in any
event, the election by the applicable
creditor or obligee to declare the
obligations of Lessee under the applicable
agreement due and payable or to exercise any
other right or remedy available to such
creditor or obligee shall be an Event of
Default hereunder only if such obligations,
individually or in the aggregate, are in
excess of TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000);
(1) the occurrence of a Related Party
Default;
(m) the occurrence of any default or
breach of condition which is not cured within
any applicable cure period under a Working
Capital Loan secured by a Working Capital
Stock Pledge (or any documents executed in
connection therewith) or the exercise of any
ownership rights by the lender of a Working
Capital Loan secured by a Working Capital
Stock Pledge;
(n) except as a result of Casualty or a
partial or complete Condemnation (including a
temporary taking), if Lessee or any Sublessee
ceases operation of the Facility for a period
in excess of thirty (30) days (a "Failure to
Operate");
(o) if one or more judgments against
Lessee or any Sublessee which is an Affiliate
of Lessee or attachments against Lessee's
interest or any such Sublessee's interest in
the Leased Property, which in the aggregate
exceed TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000) or which may materially and
adversely interfere with the operation of the
Facility, remain unpaid, unstayed on appeal,
undischarged, unbonded or undismissed for a
period of thirty (30) days;
(p) if any malpractice award or
judgment exceeding any applicable
professional liability insurance coverage by
more than FIVE HUNDRED THOUSAND
DOLLARS.($500,000) shall be rendered against
any member of the Leasing Group and either
(i) enforcement proceedings shall have been
commenced by any creditor upon such award or
judgment or (ii) such award or judgment shall
continue unsatisfied and in effect for a
period of ten (10) consecutive days without
an insurance company satisfactory to Lessor
(in its sole and absolute discretion) having
agreed to fund such award or judgment in a
manner satisfactory to Lessor (in its sole
and absolute discretion) and in either case
such award or judgment shall, in the
reasonable opinion of Lessor, have a
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material adverse affect on the ability of
Lessee or any Sublessee to operate the
Facility;
(q) if any Provider Agreement material
to the operation or financial condition of
the Leased Property shall be terminated prior
to the expiration of the term thereof or,
without the prior written consent of Lessor,
in each instance, which consent may be
withheld in Lessor's reasonable discretion,
shall not be renewed or extended upon the
expiration of the stated term thereof;
(r) if, after Lessee or any Sublessee
has obtained approval for Medicare and/or
Medicaid funding, a final unappealable
determination is made by the applicable
Governmental Authority that Lessee or any
Sublessee shall have failed to comply with
applicable Medicare and/or Medicaid
regulations in the operation of the Facility,
as a result of which failure Lessee or such
Sublessee is declared ineligible to continue
its participation in the Medicare and/or
Medicaid programs and such determination
could reasonably be expected to have a
material adverse effect on the operation or
financial condition of the Leased Property;
(s) if any member of the Leasing Group
receives notice of a final unappealable
determination by applicable Governmental
Authorities of the revocation of any Permit
required for the lawful construction or
operation of the Facility in accordance with
the Primary Intended Use and, if applicable,
the Other Permitted Uses or the loss of any
Permit under any other circumstances under
which any member of the Leasing Group is
required to permanently cease the
construction or operation of the Facility in
accordance with the Primary Intended Use and
the Other Permitted Uses; and
(t) any failure to maintain the
insurance required pursuant to Section I 3 of
this Lease in force and effect at all times
until the Lease Obligations are fully paid
and performed;
(u) the appointment of a temporary
manager (or operator) for the Leased Property
by any Governmental Authority;
(v) the entry of an order by a court
with jurisdiction over the Leased Property to
close the Facility, to transfer one or more
residents the Facility as a result of an
allegation of abuse or neglect or to take any
action to eliminate an emergency situation
then existing at the Facility, if such order
has not been stayed pending appeal within ten
( 10) following such entry; or
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(w) the occurrence of any default or
breach of condition continuing for more than
thirty (30) days under any credit agreement,
loan agreement or other agreement
establishing a major line of credit
(including, without limitation, a major line
of credit or a Working Capital Loan which is
not secured by a Working Capital Stock
Pledge)(or any documents executed in
connection with such lines of credit) on
behalf of Guarantor without regard to whether
the applicable creditor has elected to
declare the indebtedness due and payable
under such line of credit or to exercise any
other right or remedy available to it or the
occurrence of any such default or breach of
condition if the applicable creditor has
elected to declare the indebtedness due and
payable under such line of credit or to
exercise any other right or remedy available
to it. For the purpose of this provision, a
major line of credit shall mean and include
any line of credit established in an amount
equal to or greater than ONE MILLION DOLLARS
($1,000,000) with respect to a line of credit
for which Guarantor is an obligor, endorser,
surety or guarantor.
16.2 REMEDIES.
(a) If any Lease Default shall have
occurred, Lessor may at its option terminate
this Lease by giving Lessee not less than ten
( 10) days' notice of such termination, or
exercise any one or more of its rights and
remedies under this Lease or any of the other
Lease Documents, or as available at law or in
equity and upon the expiration of the time
fixed in such notice, the Term shall
terminate (but only if Lessor shall have
specifically elected by a written notice to
so terminate the Lease) and all rights of
Lessee under this Lease shall cease.
Notwithstanding the foregoing, in the event
of Lessee's failure to pay Rent, if such Rent
remains unpaid beyond ten (10) days from the
due date thereof, Lessor shall not be
obligated to give ten (10) days notice of
such termination or exercise of any of its
other rights and remedies under this Lease,
or the other Lease Documents, or otherwise
available at law or in equity, and Lessor
shall be at liberty to pursue any one or more
of such rights or remedies without further
notice. No taking of possession of the Leased
Property by or on behalf of Lessor, and no
other act done by or on behalf of Lessor,
shall constitute an acceptance of surrender
of the Leased Property by Lessee or reduce
Lessee's obligations under this Lease or the
other Lease Documents, unless otherwise
expressly agreed to in a written document
signed by an authorized officer or agent of
Lessor.
(b) To the extent permitted under
applicable law, Lessee shall pay as
Additional Charges all costs and expenses
(including,
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without limitation, attorneys' fee and
expenses) reasonably incurred by or on behalf
of Lessor as a result of any Lease Default.
(c) If any Lease Default shall have
occurred, whether or not this Lease has been
terminated pursuant to Paragraph (a) of this
Section, Lessee shall, to the extent
permitted under applicable law, if required
by Lessor so to do, upon not less than ten (
10) days' prior notice from Lessor,
immediately surrender to Lessor the Leased
Property pursuant to the provisions of
Paragraph (a) of this Section and quit the
same, and Lessor may enter upon and repossess
the Leased Property by reasonable force,
summary proceedings, ejectment or otherwise,
and may remove Lessee and all other Persons
and any and all of the Tangible Personal
Property from the Leased Property, subject to
the rights of any residents of the Facility
and any Sublessees who are not Affiliates of
any member of the Leasing Group and to any
requirements of applicable law, or Lessor may
claim ownership of the Tangible Personal
Property as set forth in Section 5.2.3 hereof
or Lessor may exercise its rights as secured
party under the Security Agreement. Lessor
shall use reasonable, good faith efforts to
relet the Leased Property or otherwise
mitigate damages suffered by Lessor as a
result of Lessee's breach of this Lease.
(d) In addition to all of the rights and
remedies of Lessor set forth in this Lease
and the other Lease Documents, if Lessee
shall fail to pay any rental or other charge
due hereunder (whether denominated as Base
Rent, Additional Rent, Additional Charges or
otherwise) within ten (10) days after same
shall have become due and payable, then and
in such event Lessee shall also pay to Lessor
(i) a late payment service charge (in order
to partially defray Lessor's administrative
and other overhead expenses) equal to TWO
HUNDRED FIFTY DOLLARS ($250) and (ii) to the
extent permitted by applicable law, interest
on such unpaid sum at the Overdue Rate; it
being understood, however, that nothing
herein shall be deemed to extend the due date
for payment of any sums required to be paid
by Lessee hereunder or to relieve Lessee of
its obligation to pay such sums at the time
or times required by this Lease.
16.3 DAMAGES. None of(a) the termination of
this Lease pursuant to Section 16.2, (b) the
eviction of Lessee or the repossession of the
Leased Property, (c) the inability after
reasonable diligence of Lessor, notwithstanding
reasonable good faith efforts, to relet the Leased
Property, (d) the reletting of the Leased Property
or (e) the failure of Lessor to collect or receive
any rentals due upon any such reletting, shall
relieve Lessee of its liability and obligations
hereunder, all of which shall survive any such
termination, repossession or reletting. In any
such event, Lessee
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shall forthwith pay to Lessor all Rent due and
payable with respect to the Leased Property to and
including the date of such termination,
repossession or eviction. Thereafter, Lessee shall
forthwith pay to Lessor, at Lessor's option,
either:
(i) the sum of: (x) all Rent that is
due and unpaid at later to occur of
termination, repossession or eviction,
together with interest thereon at the Overdue
Rate to the date of payment, plus (y) the
worth (calculated in the manner stated below)
of the amount by which the unpaid Rent for
the balance of the Term after the later to
occur of the termination, repossession or
eviction exceeds the fair market rental value
of the Leased Property for the balance of the
Term, plus (z) any other amount necessary to
compensate Lessor for all damage proximately
caused by Lessee's failure to perform the
Lease Obligations or which in the ordinary
course would be likely to result therefrom
and less the amount of rent that has actually
been received by Lessor following the
termination of this Lease from a Person other
than an Affiliate of Lessor (which for
purposes hereof shall include the net income
received by Lessor or an Affiliate of Lessor
from its own operation of the Leased Property
in the event it elects to resume operation
thereof in lieu of hiring a third party
manager or re-letting the Leased Property);
or
(ii) each payment of Rent as the same
would have become due and payable if Lessee's
right of possession or other rights under
this Lease had not been terminated, or if
Lessee had not been evicted, or if the Leased
Property had not been repossessed which Rent,
to the extent permitted by law, shall bear
interest at the Overdue Rate from the date
when due until the date paid, and Lessor may
enforce, by action or otherwise, any other
term or covenant of this Lease. There shall
be credited against Lessee's obligation under
this Clause (ii) amounts actually collected
by Lessor from another tenant to whom the
Leased Property may have actually been leased
or, if Lessor is operating the Leased
Property for its own account, the actual Cash
Flow of the Leased Property.
In making the determinations described in
subparagraph (i) above, the "worth" of unpaid Rent
shall be determined by a court having jurisdiction
thereof using the lowest rate of capitalization
(highest present worth) reasonably applicable at
the time of such determination and allowed by
applicable law and the Additional Rent shall be
deemed to be the same as the average Additional
Rent of the preceding five (5) full calendar
years, or if shorter, the average Additional Rent
for the calendar years or portions thereof since
the date that Additional Rent commenced
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to accrue or such other amount as either party
shall prove reasonably could have been earned
during the remainder of the Term or any portion
thereof.
16.4 LESSEE WAIVERS. If this Lease is
terminated pursuant to Section 16.2, Lessee
waives, to the extent not prohibited by applicable
law, (a) any right of redemption, re-entry or
repossession, (b) any right to a trial by jury in
the event of summary proceedings to enforce the
remedies set forth in this Article 16, and (c) the
benefit of any laws now or hereafter in force
exempting property from liability for rent or for
debt.
16.5 APPLICATION OF FUNDS. Any payments
otherwise payable to Lessee which are received by
Lessor under any of the provisions of this Lease
during the existence or continuance of any Lease
Default shall be applied to the Lease Obligations
in the order which Lessor may reasonably determine
or as may be required by the laws of the State.
16.6 FAILURE TO CONDUCT BUSINESS. For the
purpose of determining rental loss damages or
Additional Rent, in the event Lessee fails to
conduct business upon the Leased Property, exact
damages or the amount of Additional Rent being
unascertainable, it shall be deemed that the
Additional Rent for such period would be equal to
the average annual Additional Rent during the five
(5) preceding calendar years or such shorter
period of time as may have existed between the
date Additional Rent commenced to accrue and the
date of computation.
16.7 LESSOR'S RIGHT TO CURE. If Lessee shall
fail to make any payment, or to perform any act
required to be made or performed under this Lease
and to cure the same within the relevant time
periods provided in Section 16.1, Lessor, after
five (5) Business Days' prior notice to Lessee
(except in an emergency when such shorter notice
shall be given as is reasonable under the
circumstances), and without waiving or releasing
any obligation or Event of Default, may (but shall
be under no obligation to) at any time thereafter
make such payment or perform such act for the
account and at the expense of Lessee, and may, to
the extent permitted by law, enter upon the Leased
Property for such purpose and take all such action
thereon as, in Lessor's opinion, may be necessary
or appropriate therefor. No such entry shall be
deemed an eviction of Lessee. All sums so paid by
Lessor and all costs and expenses (including,
without limitation, reasonable attorneys' fees and
expenses, in each case, to the extent permitted by
law) so incurred shall be paid by Lessee to Lessor
on demand as an Additional Charge. The obligations
of Lessee and rights of Lessor contained in this
Article shall survive the expiration or earlier
termination of this Lease.
16.8 NO WAIVER BY LESSOR. Lessor shall not by
any act, delay, omission or otherwise (including,
without limitation, the exercise of any right or
remedy hereunder) be deemed to have waived any of
its rights or remedies hereunder or under any of
the other Lease Documents unless
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such waiver is in writing and signed by Lessor,
and then, only to the extent specifically set
forth therein. No waiver at any time of any of the
terms, conditions, covenants, representations or
warranties set forth in any of the Lease Documents
(including, without limitation, any of the time
periods set forth therein for the performance of
the Lease Obligations) shall be construed as a
waiver of any other term, condition, covenant,
representation or warranty of any of the Lease
Documents, nor shall such a waiver in any one
instance or circumstances be construed as a waiver
of the same term, condition, covenant,
representation or warranty in any subsequent
instance or circumstance. No such failure, delay
or waiver shall be construed as creating a
requirement that Lessor must thereafter, as a
result of such failure, delay or waiver, give
notice to Lessee or any Guarantor, or any other
Person that Lessor does not intend to, or may not,
give a further waiver or to refrain from insisting
upon the strict performance of the terms,
conditions, covenants, representations and
warranties set forth in the Lease Documents before
Lessor can exercise any of its rights or remedies
under any of the Lease Documents or before any
Lease Default can occur, or as establishing a
course of dealing for interpreting the conduct of
and agreements between Lessor and Lessee, the
Guarantor or any other Person.
The acceptance by Lessor of any payment that
is less than payment in full of all amounts then
due under any of the Lease Documents at the time
of the making of such payment shall not: (a)
constitute a waiver of the right to exercise any
of Lessor's remedies at that time or at any
subsequent time, (b) constitute an accord and
satisfaction or (c) nullify any prior exercise of
any remedy, without the express written consent of
Lessor. Any failure by Lessor to take any action
under this Lease or any of the other Lease
Documents by reason of a default hereunder or
thereunder, acceptance of a past due installment,
or indulgences granted from time to time shall not
be construed as a novation of this Lease or any of
the other Lease Documents or as a waiver on such
right or of the right of Lessor thereafter to
insist upon strict compliance with the terms of
this Lease or any of the other Lease Documents, or
(d) prevent the exercise of such right of
acceleration or any other right granted hereunder
or under applicable law for purposes of obtaining
the damages set forth in Section 16.3, specific
performance or equitable remedies; and to the
maximum extent not prohibited by applicable law,
Lessee hereby expressly waives the benefit of any
statute or rule of law or equity now provided, or
which may hereafter be provided, which would
produce a result contrary to or in conflict with
the foregoing.
16.9 RIGHT OF FORBEARANCE. Whether or not for
consideration paid or payable to Lessor and,
except as may be otherwise specifically agreed to
by Lessor in writing, no forbearance on the part
of Lessor, no extension of the time for the
payment of the whole or any part of the
Obligations, and no other indulgence given by
Lessor to Lessee or any other Person, shall
operate to release or in any manner affect the
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original liability of Lessee or such other
Persons, or to limit, prejudice or impair any
right of Lessor, including, without limitation,
the right to realize upon any collateral, or any
part thereof, for any of the Obligations evidenced
or secured by the Lease Documents; notice of any
such extension, forbearance or indulgence being
hereby waived by Lessee and all those claiming by,
through or under Lessee.
16.10 CUMULATIVE REMEDIES. The rights and
remedies set forth under this Lease are in
addition to all other rights and remedies afforded
to Lessor under any of the other Lease Documents
or at law or in equity, all of which are hereby
reserved by Lessor, and this Lease is made and
accepted without prejudice to any such rights and
remedies. All of the rights and remedies of Lessor
under each of the Lease Documents shall be
separate and cumulative and may be exercised
concurrently or successively in Lessor's sole and
absolute discretion.
ARTICLE 17
SURRENDER OF LEASED PROPERTY OR LEASE; HOLDING
OVER
17.1 SURRENDER. Lessee shall, upon the
expiration or prior termination of the Term
(unless occasioned by Lessee's purchase of the
Leased Property pursuant to the terms of this
Lease Agreement), vacate and surrender the Leased
Property to Lessor in good repair and condition,
in compliance with all applicable Legal
Requirements, all Insurance Requirements, and in
compliance with the provisions of Article 8,
except for: (a) ordinary wear and tear (subject to
the obligation of Lessee to maintain the Leased
Property in good order and repair during the
entire Term of the Lease), (b) damage caused by
the gross negligence or willful acts of Lessor,
and (c) any damage or destruction resulting from a
Casualty or Taking that Lessee is not required by
the terms of this Lease to repair or restore.
17.2 TRANSFER OF CONTRACTS AND PERMITS. In
connection with the expiration or any earlier
termination of this Lease (unless occasioned by
Lessee's purchase of the Leased Property pursuant
to the terms of this Lease Agreement), upon any
request made from time to time by Lessor, Lessee
shall (a) promptly and diligently use its best
efforts to (i) transfer and assign all Permits and
Contracts necessary or desirable for the operation
of the Leased Property in accordance with its
Primary Intended Use to Lessor or its designee to
the extent the same are assignable under
applicable Legal Requirements and/or (ii) arrange
for the transfer or assignment of such Permits and
Contracts to Lessor or its designee and (b)
cooperate in every respect (and to the fullest
extent possible) and assist Lessor or its designee
in obtaining such Permits and Contracts (whether
by transfer, assignment or otherwise) provided,
however, that unless a termination is the result
of a Lease Default, Casualty or Condemnation,
Lessee's efforts and cooperation shall not
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require Lessee to pay the costs and expenses
incurred by Lessor or Lessor's designated
transferee of the Contracts and Permits. Such
efforts and cooperation on the part of Lessee
shall include, without limitation, the execution,
delivery and filing with appropriate Governmental
Authorities and Third Party Payors of any
applications, petitions, statements, notices,
requests, assignments and other documents or
instruments requested by Lessor. Furthermore,
Lessee shall not take any action or refrain from
taking any action which would defer, delay or
jeopardize the process of Lessor or its designee
obtaining said Permits and Contracts (whether by
transfer, assignment or otherwise). Without
limiting the foregoing, Lessee shall not seek to
transfer or relocate any of said Permits or
Contracts to any location other than the Leased
Property. The provisions of this Section I7.2
shall survive the expiration or earlier
termination of this Lease.Lessee hereby appoints
Lessor as its attorney-in-fact, with full power of
substitution to take such actions, in the event
that Lessee fails to comply with any request made
by Lessor hereunder, as Lessor (in its sole
absolute discretion) may deem necessary or
desirable to effectuate the intent of this Section
17.2. The power of attorney conferred on Lessor by
the provisions of this Section 17.2, being coupled
with an interest, shall be irrevocable until the
Obligations are fully paid and performed and shall
not be affected by any disability or incapacity
which Lessee may suffer and shall survive the
same. Such power of attorney is provided solely to
protect the interests of Lessor and shall not
impose any duty on the Lender to exercise any such
power and neither Lessor nor such attorney-in-fact
shall be liable for any act, omission, error in
judgment or mistake of law, except as the same may
result from its gross negligence or willful
misconduct.
17.3 NO ACCEPTANCE OF SURRENDER. Except at
the expiration of the Term in the ordinary course,
no surrender to Lessor of this Lease or of the
Leased Property or any interest therein shall be
valid or effective unless agreed to and accepted
in writing by Lessor and no act by Lessor or any
representative or agent of Lessor, other than such
a written acceptance by Lessor, shall constitute
an acceptance of any such surrender.
17.4 HOLDING OVER. If, for any reason, Lessee
shall remain in possession of the Leased Property
after the expiration or any earlier termination of
the Term, such possession shall be as a tenant at
sufferance during which time Lessee shall pay as
rental each month, one and one-half times the
aggregate of (i) one-twelfth of the aggregate Base
Rent, and Additional Rent payable at the time of
such expiration or earlier termination of the
Term; (ii) all Additional Charges accruing during
the month and (iii) all other sums, if any,
payable by Lessee pursuant to the
provisions of this Lease with respect to the
Leased Property. During such period of tenancy,
Lessee shall be obligated to perform and observe
all of the terms, covenants and conditions of this
Lease, but shall have no rights hereunder other
than the right, to the extent given by law to
tenants at
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sufferance, to continue its occupancy and use of
the Leased Property. Nothing contained herein
shall constitute the consent, express or implied,
of Lessor to the holding over of Lessee after the
expiration or earlier termination of this Lease.
ARTICLE 18
PURCHASE OF THE LEASED PROPERTY
18.1 PURCHASE OF THE LEASED PROPERTY. In the
event Lessee purchases the Leased Property from
Lessor pursuant to any of the terms of this Lease,
Lessor shall, upon receipt from Lessee of the
applicable purchase price, together with full
payment of any unpaid Rent due and payable with
respect to any period ending on or before the date
of the purchase, deliver to Lessee a deed with
covenants only against acts of Lessor conveying
the entire interest of Lessor in and to the Leased
Property to Lessee subject to all applicable Legal
Requirements, all of the matters described in
clauses (a), (b), (e) and (g) of Section 11.5.2,
Impositions, any Liens created by Lessee, any
Liens created in accordance with the terms of this
Lease (except to the extent specifically excluded
by the terms hereof or consented to by Lessee, the
claims of all Persons claiming by, through or
under Lessee, any other matters assented to by
Lessee and all matters for which Lessee has
responsibility under any of the Lease Documents,
but otherwise not subject to any other Lien
created by Lessor from and after the Commencement
Date (other than an Encumbrance permitted under
Article 20 which Lessee elects to assume). The
applicable purchase price shall be paid in cash to
Lessor, or as Lessor may direct, in federal or
other immediately available funds except as
otherwise mutually agreed by Lessor and Lessee.
All expenses of such conveyance, including,
without limitation, the cost of title examination
or standard or extended coverage title insurance,
attorneys' fees incurred by Lessor in connection
with such conveyance, recording and transfer taxes
and recording fees and similar charges and
specifically excluding any prepayment penalties,
if any, due Lessor's mortgagee, shall be paid by
Lessee.
18.2 Appraisal.
18.2.1 Designation of Appraisers. In the
event that it becomes necessary to determine
the Fair Market Value of the Leased Property
for any purpose of this Lease, the party
required or permitted to give notice of such
required determination shall include in the
notice the name of a Person selected to act
as appraiser on its behalf. Within ten ( 10)
days after receipt of any such notice, Lessor
(or Lessee, as the case may be) shall by
notice to Lessee (or Lessor, as the case may
be) either accept such Person to be the sole
appraiser to determine the Fair Market Value
of the Leased Property or appoint a second
Person as appraiser on its behalf.
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18.2.2 APPRAISAL PROCESS. The appraisers
thus appointed, each of whom must be a member
of the American Institute of Real Estate
Appraisers (or any successor organization
thereto), shall, within forty-five (45) days
after the date of the notice appointing the
first appraiser, proceed to appraise the
Leased Property to determine the Fair Market
Value of the Leased Property as of the
relevant date (giving effect to the impact,
if any, of inflation from the date of their
decision to the relevant date); provided,
however, that if only one appraiser shall
have been so appointed, or if two appraisers
shall have been so appointed but only one
such appraiser shall have made such
determination within fifty (50) days after
the making of Lessee's or Lessor's request,
then the determination of such appraiser
shall be final and binding upon the parties.
If two appraisers shall have been appointed
and shall have made their determinations
within the respective requisite periods set
forth above and if the difference between the
amounts so determined shall not exceed ten
per cent ( 10%) of the lesser of such
amounts, then the Fair Market Value of the
Leased Property shall be an amount equal to
fifty percent (50%) of the sum of the amounts
so determined. If the difference between the
amounts so determined shall exceed ten
percent ( 10%) of the lesser of such amounts,
then such two appraisers shall have twenty
(20) days to appoint a third appraiser, but
if such appraisers fail to do so, then either
party may request the American Arbitration
Association or any successor organization
thereto to appoint an appraiser within twenty
(20) days of such request, and both parties
shall be bound by any appointment so made
within such twenty (20) day period. If no
such appraiser shall have been appointed
within such twenty (20) days or within ninety
(90) days of the original request for a
determination of Fair Market Value of the
Leased Property, whichever is earlier, either
Lessor or Lessee may apply to any court
having jurisdiction to have such appointment
made by such court. Any appraiser appointed
by the original appraisers, by the American
Arbitration Association or by such court
shall be instructed to determine the Fair
Market Value of the Leased Property within
thirty (30) days after appointment of such
Appraiser. The determination of the appraiser
which differs most in terms of dollar amount
from the determinations of the other two
appraisers shall be excluded, and fifty
percent (50%) of the sum of the remaining two
determinations shall be final and binding
upon Lessor and Lessee as the Fair Market
Value of the Leased Property.
18.2.3 SPECIFIC ENFORCEMENT AND
COSTS. This provision for determination by
appraisal shall be specifically enforceable
to the extent such remedy is available under
applicable law, and any determination
hereunder shall be final and binding upon the
parties except as otherwise provided by
applicable law.
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Lessor and Lessee shall each pay the fees and
expenses of the appraiser appointed by it and
each shall pay one-half of the fees and
expenses of the third appraiser and one-half
of all other cost and expenses incurred in
connection with each appraisal.
18.3 LESSEE'S OPTION TO PURCHASE.
18.3.1 CONDITIONS TO OPTION. On the
conditions (which conditions Lessor may
waive, at its sole option, by notice to
Lessee at any time) that (a) at the time of
exercise of the Purchase Option and on the
applicable Purchase Option Date, there then
exists no Lease Default, nor any state of
facts or circumstance which constitutes, or
with the passage of time and/or the giving of
notice, would constitute a Lease Default and
(b) Lessee strictly complies with the
provisions of this Section 18.3, then Lessee
shall have the option to purchase the Leased
Property, at the price and upon the terms
hereinafter set forth (the "Purchase
Option").
18.3.2 EXERCISE OF OPTION; DEPOSIT. Such
Purchase Option shall permit Lessee to
purchase the Leased Property (a) on the last
day of the Initial Term or (b) on the last
day of any Extended Term effectively
exercised by Lessee (each of such dates are
referred to herein as a "Purchase Option
Date") and shall be exercised by notice given
by Lessee to Lessor (the "Lessee's Purchase
Option Notice") at least one hundred eighty
(180) days (but not more than three hundred
sixty (360) days) prior to the relevant
Purchase Option Date. Notwithstanding
anything to the contrary set forth in this
Lease, Lessee's right to purchase the Leased
Property is subject to the further conditions
that (i) concurrently with the exercise of
the option set forth under this Section 18.3,
the Lessee shall have exercised its right to
purchase the premises demised under each of
the Related Leases in accordance with the
provisions of Section 18.3 of each of the
Related Leases, (ii) the conveyance of the
Leased Property pursuant to the provisions of
this Section 18.3 shall occur simultaneously
with the conveyance of the premises demised
under each of the Related Leases pursuant to
Section 18.3 of each of the Related Leases
and (iii) all conditions contained in the
Agreement Regarding Related Transactions
pertaining to the Purchase Option are
satisfied. Lessee shall have no right to
rescind Lessee's Purchase Option Notice once
given unless (a) a notice of such rescission
is given (i) within ten ( 10) days following
receipt of the final determination of the
Fair Market Value of the Leased Property or
(ii) within thirty (30) days following an
event of Casualty or Condemnation as to which
Lessee has waived any right of termination
set forth in Section 13.2.2 hereof and (b)
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simultaneously with such notice of
rescission, Lessee, by notice given pursuant
to Section 1.3 hereof extends the Term.
18.3.3 CONVEYANCE. If the Purchase
Option is exercised by Lessee in accordance
with the terms hereof, the Leased Property
shall be conveyed by a good and sufficient
deed with covenants only against acts of
Lessor (the "Deed") running to Lessee or to
such grantee as Lessee may designate by
notice to Lessor at least seven (7) days
before the Time of Closing.
18.3.4 CALCULATION OF PURCHASE PRICE.
The price to be paid by Lessee for the
acquisition of the Leased Property pursuant
to this Purchase Option (the "Purchase
Price") shall be equal to the greater of (a)
the Meditrust Investment or (b) an amount
equal to the then Fair Market Value of the
Leased Property minus the Fair Market Added
Value, subject to the terms of the Agreement
Regarding Related Transactions.
18.3.5 PAYMENT OF PURCHASE PRICE. The
Purchase Price shall be paid by Lessee at the
Time of Closing by certified, cashier's,
treasurer's or bank check(s) or wire transfer
pursuant to instructions received from Lessor
in accordance with the terms of the Agreement
Regarding Related Transactions as reduced by
the principal balance of any Fee Mortgage
which Lessee has elected to, and has the
right to, assume in accordance with the terms
hereof.
18.3.6 PLACE AND TIME OF CLOSING. If
this Purchase Option is exercised, the
closing shall occur and the Deed shall be
delivered (the "Closing") at the office of
Lessor at 12:00 o'clock noon (E.S.T.) on the
applicable Purchase Option Date (such time,
as the same may be extended by mutual written
agreement of Lessor and Lessee, being
hereinafter referred to as the "Time of
Closing") in accordance with the terms of the
Agreement Regarding Related Transactions. It
is agreed that time is of the essence of this
Purchase Option.
18.3.7 CONDITION OF LEASED PROPERTY. The
Leased Property is to be purchased "AS IS"
and "WHERE IS" as of the Time of Closing.
18.3.8 QUALITY OF TITLE. If Lessor shall
be unable to give title or to make
conveyance, as stipulated in this Section
18.3, then, at Lessor's option, Lessor shall
use reasonable efforts to remove all defects
in title and the applicable Purchase Option
Date and Time of Closing shall be extended
for period of thirty (30) days other than
with respect to any Encumbrances which Lessor
has caused to exist. Lessor shall not be
required to expend more
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than FIFTY THOUSAND DOLLARS ($50,000)
(inclusive of attorney's fees) in order to
have used "reasonable efforts."
18.3.9 LESSOR'S INABILITY TO PERFORM. If
at the expiration of the extended time Lessor
shall have failed so to remove any such
defects in title, then all other obligations
of all parties hereto under Section 18.3
shall cease and Section 18.3 shall be void
and without recourse to the parties hereto.
Notwithstanding the foregoing, Lessee shall
have the election, at either the original or
extended Purchase Option Date and Time of
Closing, to accept such title as Lessor can
deliver to the Leased Property in its then
condition and to pay therefor the Purchase
Price without reduction, in which case Lessor
shall convey such title; provided, that, in
the event of such conveyance, if any portion
of the Leased Property shall have been taken
by Condemnation prior to the applicable
Purchase Option Date and Time of Closing,
Lessor shall pay over or assign to Lessee at
the Time of Closing, all Awards recovered on
account of such Taking, less any amounts
reasonably expended by Lessor in obtaining
such Award and less any amounts expended for
restoration pursuant to the provisions of
Article 14 hereof, or, to the extent such
Awards have not been recovered as of the
applicable Purchase Option Date and Time of
Closing, Lessor shall assign to Lessee all
its rights with respect to any claim therefor
and further provided, that, in the event of
such conveyance, if any portion of the Leased
Property shall have suffered a Casualty prior
to the applicable Purchase Option Date and
Time of Closing, Lessor shall pay over or
assign to Lessee at the Time of Closing, all
insurance proceeds recovered on account of
such Casualty, less any amounts reasonably
expended by Lessor in obtaining such proceeds
and less any amounts expended for restoration
pursuant to the provisions of Article 13
hereof, or, to the extent such proceeds have
not been recovered as of the applicable
Purchase Option Date and Time of Closing,
Lessor shall assign to Lessee all its rights
with respect to any claim therefor.
18.3.10 MERGER BY DEED. The acceptance
of the Deed by Lessee or the grantee
designated by Lessee, as the case may be,
shall be deemed to be a full performance and
discharge of every agreement and obligation
to be performed by Lessor contained or
expressed in this Lease.
18.3.11 USE OF PURCHASE PRICE TO CLEAR
TITLE. To enable Lessor to make conveyance as
provided in this Section, Lessor may, at the
Time of Closing, use the Purchase Price or
any portion thereof to clear the title of any
Lien, provided that all instruments so
procured are recorded contemporaneously with
the Closing or reasonable arrangements are
made for a recording subsequent to the Time
of Closing in accordance with customary
conveyancing practices.
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18.3.12 LESSEE'S DEFAULT. If Lessee
delivers Lessee's Purchase Option Notice and
fails to consummate the purchase of the
Leased Property in accordance with the terms
hereof for any reason other than Lessor's
willful and unexcused refusal to deliver the
Deed or exercise of the right of rescission
in Section 18.3.2 hereof, (a) Lessee shall
thereafter have no further right to purchase
the Leased Property pursuant to this Section,
although this Lease shall otherwise continue
in full force and effect and (b) Lessor shall
have the right to sue for specific
performance of Lessee's obligations to
purchase the Leased Property provided such
suit for specific performance is commenced
within one (1) year after the applicable
Purchase Option Date on which such sale was
supposed to occur.
ARTICLE 19
SUBLETTING AND ASSIGNMENT
19.1 SUBLETTING AND ASSIGNMENT. Lessee may
not, without the prior written consent of Lessor,
which consent may be withheld in Lessor's sole and
absolute discretion, assign or pledge all or any
portion of its interest in this Lease or any of
the other Lease Documents (whether by operation of
law or otherwise) or sublet all or any part of the
Leased Property. For purposes of this Section
19.1, the term "assign" shall be deemed to
include, but not be limited to, any one or more
sales, pledges, hypothecations or other transfers
(including, without limitation, any transfer by
operation of law) of any of the capital stock of
or partnership interest in Lessee or sales,
pledges, hypothecations or other transfers
(including, without limitation, any transfer by
operation of law) Of the Capital or the assets of
Lessee. Any such assignment, pledge, sale,
hypothecation or other transfer made without
Lessor's consent shall be void and of no force and
effect. Notwithstanding the foregoing, Lessor's
consent shall not be unreasonably withheld with
respect to an assignment or pledge of an interest
of Lessee in this Lease or a sublet of all or a
part of the Leased Property to a
Meditrust/Emeritus Transaction Affiliate.
19.2 ATTORNMENT. Lessee shall insert in each
Sublease approved by Lessor, provisions to the
effect that (a) such Sublease is subject and
subordinate to all of the terms and provisions of
this Lease and to the rights of Lessor hereunder,
(b) in the event this Lease shall terminate before
the expiration of such Sublease, the Sublessee
thereunder will, at Lessor's option, attorn to
Lessor and waive any right the Sublessee may have
to terminate the Sublease or to surrender
possession thereunder, as a result of the
termination of this Lease and (c) in the event the
Sublessee receives a written notice from Lessor
stating that Lessee is in default under this
Lease, the Sublessee shall thereafter be obligated
to pay all rentals accruing under said Sublease
directly to Lessor or as Lessor may direct. All
rentals received from the Sublessee by Lessor
shall be credited against the amounts owing by
Lessee under this Lease.
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ARTICLE 20
TITLE TRANSFERS AND LIENS GRANTED BY LESSOR
20.1 NO MERGER OF TITLE. Except as otherwise
provided in Section I 8.3.10, there shall be no
merger of this Lease or of the leasehold estate
created hereby with the fee estate in the Leased
Property by reason of the fact that the same
Person may acquire, own or hold, directly or
indirectly (a) this Lease or the leasehold estate
created hereby or any interest in this Lease ox
such leasehold estate and (b) the fee estate in
the Leased Property.
20.2 TRANSFERS BY LESSOR. If the original
Lessor named herein or any successor in interest
shall convey the Leased Property in accordance
with the terms hereof, other than as security for
a debt, and the grantee or transferee of the
Leased Property shall expressly assume all
obligations of Lessor hereunder arising or
accruing from and after the date of such
conveyance or transfer, the original Lessor named
herein or the applicable successor in interest so
conveying the Leased Property shall thereupon be
released from all future liabilities and
obligations of Lessor under this Lease arising or
accruing from and after the date of such
conveyance or other transfer as to the Leased
Property and all such future liabilities and
obligations shall thereupon be binding upon the
new owner.
20.3 LESSOR MAY GRANT LIENS. Without the
consent of Lessee, but subject to the terms and
conditions set forth below in this Section 20.3,
Lessor may, from time to time, directly or
indirectly, create or otherwise cause to exist any
lien, encumbrance or title retention agreement
upon the Leased Property or any interest therein
("Encumbrance"), whether to secure any borrowing
or other means of financing or refinancing,
provided that Lessee shall have no obligation to
make payments under such Encumbrances. Lessee
shall subordinate this Lease to the lien of any
such Encumbrance, on the condition that the
beneficiary or holder of such Encumbrance executes
a non-disturbance agreement in conformity with the
provisions of Section 20.4. To the extent that any
such Encumbrance consists of a mortgage or deed of
trust on Lessor's interest in the Leased Property
the same shall be referred to herein as a "Fee
Mortgage" and the holder thereof shall be referred
to herein as a "Fee Mortgagee".
20.4 SUBORDINATION AND NON-DISTURBANCE.
Concurrently with the execution and delivery of
any Fee Mortgage entered into after the date
hereof, provided that the Lessee executes and
delivers an agreement of the type described in the
following paragraph, Lessor shall obtain and
deliver to Lessee an agreement by the holder of
such Fee Mortgage, pursuant to which, (a) the
applicable Fee Mortgagee consents to this Lease
and (b) agrees that, notwithstanding the terms of
the applicable Fee Mortgage held by such Fee
Mortgagee, or any default, expiration,
termination, foreclosure, sale, entry or other act
or omission under or
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pursuant to such Fee Mortgage or a transfer in
lieu of foreclosure, (i) Lessee shall not be
disturbed in peaceful enjoyment of the Leased
Property nor shall this Lease be terminated or
cancelled at any time, except in the event that
Lessor shall have the right to terminate this
Lease under the terms and provisions expressly set
forth herein, (ii) Lessee's option to purchase the
Leased Property shall remain in force and effect
pursuant to the terms hereof and (iii) in the
event that Lessee elects its option to purchase
the Leased Property and performs all of its
obligations hereunder in connection with any such
election, the holder of the Fee Mortgage shall
release its Fee Mortgage upon payment by Lessee of
the purchase price required hereunder, provided,
that (1) such purchase price is paid to the holder
of the Fee Mortgage, in the event that the
Indebtedness secured by the applicable Fee
Mortgage is equal to or greater than the purchase
price or (2) in the event that the purchase price
is greater than the Indebtedness secured by the
Fee Mortgage, a portion of the purchase price
equal to the Indebtedness secured by the Fee
Mortgage is paid to the Fee Mortgagee and the
remainder of the purchase price is paid to Lessor.
At the request from time to time by any Fee
Mortgagee, Lessee shall (a) subordinate this Lease
and all of Lessee's rights and estate hereunder to
the Fee Mortgage held by such Fee Mortgagee and
(b) agree that Lessee will attorn to and recognize
such Fee Mortgagee or the purchaser at any
foreclosure sale or any sale under a power of sale
contained in any such Fee Mortgage as Lessor under
this Lease for the balance of the Term then
remaining. To effect the intent and purpose of the
immediately preceding sentence, Lessee agrees to
execute and deliver such instruments in recordable
from as are reasonably requested by Lessor or the
applicable Fee Mortgagee; provided, however, that
such Fee Mortgagee simultaneously executes,
delivers and records a written agreement of the
type described in the preceding paragraph.
ARTICLE 21
LESSOR OBLIGATIONS
21.1 QUIET ENJOYMENT. As long as Lessee shall
pay all Rent and all other sums due under any of
the Lease Documents as the same become due and
shall fully comply with all of the terms of this
Lease and the other Lease Documents and fully
perform its obligations thereunder, Lessee shall
peaceably and quietly have, hold and enjoy the
Leased Property throughout the Term, free of any
claim or other action by Lessor or anyone claiming
by, through or under Lessor, but subject to all
the Permitted Encumbrances and such Liens as may
hereafter be consented to by Lessee. No failure by
Lessor to comply with the foregoing covenant shall
give Lessee any right to cancel or terminate this
Lease, or to fail to perform any other sum payable
under this Lease, or to fail to perform any
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other obligation of Lessee hereunder.
Notwithstanding the foregoing, Lessee shall have
the right by separate and independent action to
pursue any claim it may have against Lessor as a
result of a breach by Lessor of the covenant of
quiet enjoyment contained in this Article 21.
21.2 MEMORANDUM OF LEASE. Lessor and Lessee
shall, promptly upon the request of either, enter
into a short form memorandum of this Lease, in
form suitable for recording under the laws of the
State, in which reference to this Lease and all
options contained herein shall be made. Lessee
shall pay all recording costs and taxes associated
therewith.
21.3 DEFAULT BY LESSOR. Lessor shall be in
default of its obligations under this Lease only
if Lessor shall fail to observe or perform any
term, covenant or condition of this Lease on its
part to be performed and such failure shall
continue for a period of thirty (30) days after
notice thereof from Lessee (or such shorter time
as may be necessary in order to protect the health
or welfare of any residents of the Facility or to
ensure the continuing compliance of the Facility
with applicable Legal Requirements), unless such
failure cannot with due diligence be cured within
a period of thirty (30) days, in which case such
failure shall not be deemed to continue if Lessor,
within said thirty (30) day period, proceeds
promptly and with due diligence to cure the
failure and diligently completes the curing
thereof within one hundred twenty ( I 20) days
after notice thereof.
ARTICLE 22
NOTICES
Any notice, request, demand, statement or
consent made hereunder or under any of the other
Lease Documents shall be in writing and shall be
deemed duly given if personally delivered, sent by
certified mail, return receipt requested, or sent
by a nationally recognized commercial overnight
delivery service with provision for a receipt,
postage or delivery charges prepaid, and shall be
deemed given when so personally delivered, three
(3) business days following the date postmarked or
the next business day when placed in the
possession of such mail delivery service and
addressed as follows:
If to Lessee : c/o Emeritus
Corporation
3131 Elliot Avenue, Suite 500
Seattle, WA 98121-2162
Attention: Raymond R.
Brandstrom, President
With a copy to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, WA 98101
Attn: Randi S. Nathanson,
Esquire
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If to the Emeritus Corporation
Guarantor: 3131 Elliot Avenue, Suite
500
Seattle, WA 98121-2162
Attention: Raymond R.
Brandstrom, President
With a copy to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, WA 98101
Attn: Randi S. Nathanson,
Esquire
If to Lessor: Meditrust Acquisition
Corporation I
197 First Avenue
Needham Heights, Massachusetts
02194 Attn: President
With copies to: Meditrust Acquisition
Corporation I
197 First Avenue
Needham Heights, Massachusetts
02194 Attn: General Counsel
and Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Attn: Jack H. Fainberg, Esq.
or such other address as Lessor, Lessee or the
Guarantor shall hereinafter from time to time
designate by a written notice to the others given
in such manner. Any notice given to Lessee or the
Guarantor by Lessor at any time shall not imply
that such notice or any further or similar notice
was or is required.
ARTICLE 23
LIMITATION OF MEDITRUST LIABILITY
The Declaration of Trust establishing the
sole shareholder of Lessor, Meditrust, a
Massachusetts business trust ("Meditrust"), dated
August 6, 1985 (the "Declaration"), as amended, a
copy of which is duly filed in the office of the
Secretary of State of the Commonwealth of
Massachusetts, provides that the name "Meditrust"
refers to the trustees under the Declaration
collectively as trustees, but not individually or
personally; and that no trustee, officer,
shareholder, employee or agent of Meditrust or any
of its Subsidiaries shall be held to any personal
liability, jointly, or severally, for any
obligation of, or claim against Meditrust or any
of its Subsidiaries. All Persons dealing with
Meditrust or Lessor, in any way, shall look only
to the assets of Meditrust or Lessor, as
applicable, for the payment of any sum or the
performance of any
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obligation. Furthermore, in no event shall
Meditrust or Lessor ever be liable to Lessee or
any other Person for any indirect or consequential
damages incurred by Lessee or such other Person
resulting from any cause whatsoever.
Notwithstanding the foregoing, Lessee hereby
acknowledges and agrees that Meditrust is not a
party to this Lease and that Lessee shall look
only to the assets of Lessor for the payment of
any sum or performance of any obligation due by or
from Lessor pursuant to the terms and provisions
of the Lease Documents.
ARTICLE 24
MISCELLANEOUS PROVISIONS
24.1 BROKER'S FEE INDEMNIFICATION. Lessee and
Lessor each shall and hereby agrees to indemnify,
defend (with counsel acceptable to the other) and
hold the other harmless from and against any and
all claims for premiums or other charges, finder's
fees, taxes, brokerage fees or commissions and
other similar compensation due to a broker or
finder allegedly employed or retained by it in
connection with any of the transactions
contemplated by the Lease Documents.
Notwithstanding the foregoing, the indemnified
party shall have the option of conducting its own
defense against any such claims with counsel of
such party's choice, but at the expense of the
indemnifying party, as aforesaid. This
indemnification shall include all reasonable
attorneys' fees and expenses and court costs
reasonably incurred by the indemnified party in
connection with the defense against any such
claims and the enforcement of this indemnification
agreement and shall survive the termination of
this Lease.
24.2 NO JOINT VENTURE OR PARTNERSHIP. Neither
anything contained in any of the Lease Documents,
nor the acts of the parties hereto, shall create,
or be construed to create, a partnership or joint
venture between Lessor and Lessee. Lessee is not
the agent or representative of Lessor and nothing
contained herein or in any of the other Lease
Documents shall make, or be construed to make,
Lessor liable to any Person for goods delivered to
Lessee, services performed with respect to the
Leased Property at the direction of Lessee or for
debts or claims accruing against Lessee.
24.3 AMENDMENTS, WAIVERS AND MODIFICATIONS.
None of the terms, covenants, conditions,
warranties or representations contained in this
Lease or in any of the other Lease Documents may
be renewed, replaced, amended, modified, extended,
substituted, revised, waived, consolidated or
terminated except by an agreement in writing
signed by all parties to this Lease or the other
Lease Documents, as the case may be, in the case
of any renewal, replacement, amendment,
modification, extension, substitution, revisions,
consolidation or termination and by the Person
against whom enforcement is sought in the case of
a waiver or except as otherwise expressly provided
for herein or in
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any other Lease Document. The provisions of this
Lease and the other Lease Documents shall extend
and be applicable to all renewals, replacements,
amendments, extensions, substitutions, revisions,
consolidations and modifications of any of the
Lease Documents, the Management Agreements, the
Related Party Agreements, the Permits and/or the
Contracts. References herein and in the other
Lease Documents to any of the Lease Documents, the
Management Agreements, the Related Party
Agreements, the Permits and/or the Contracts shall
be deemed to include any renewals, replacements,
amendments, extensions, substitutions, revisions,
consolidations or modifications thereof.
Notwithstanding the foregoing, any reference
contained in any of the Lease Documents, whether
express or implied, to any renewal, replacement,
amendment, extension, substitution, revisions,
consolidation or modification of any of the Lease
Documents or any Management Agreement, Related
Party Agreement, Permit and/or the Contract is not
intended to constitute an agreement or consent by
Lessor to any such renewal, replacement,
amendment, substitution, revision, consolidation
or modification; but, rather as a reference only
to those instances where Lessor may give, agree or
consent to any such renewal, replacement,
amendment, extension, substitution, revision,
consolidation or modification as the same may be
required pursuant to the terms, covenants and
conditions of any of the Lease Documents.
24.4 CAUTIONS AND HEADINGS. The captions and
headings set forth in this Lease and each of the
other Lease Documents are included for convenience
and reference only, and the words contained
therein shall in no way be held or deemed to
define, limit, describe, explain, modify, amplify
or add to the interpretation, construction or
meaning of, or the scope or intent of, this Lease,
any of the other Lease Documents or any parts
hereof or thereof.
24.5 TIME IS OF THE ESSENCE. Time is of
essence of each and every term, condition,
covenant and warranty set forth herein and in the
other Lease Documents.
24.6 COUNTERPARTS. 'This Lease and the other
Lease Documents may be executed in one or more
counterparts, each of which taken together shall
constitute an original and all of which shall
constitute one in the same instrument.
24.7 ENTIRE AGREEMENT. This Lease and the
other Lease Documents set forth the entire
agreement of the parties with respect to the
subject matter and shall supersede in all respect
the letter of intent, dated January 31,1996 (and
all prior iterations thereof, from Meditrust to
Lessee.
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24.8 WAIVER OF JURY TRIAL. TO THE MAXIMUM
EXTENT PERMITTED BY APPLICABLE LAW, LESSOR AND
LESSEE HEREBY MUTUALLY, KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT WHICH ANY PARTY
HERETO MAY NOW OR HEREAFTER HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THE LEASE OR ANY OF
THE LEASE DOCUMENTS. Lessee hereby certifies that
neither Lessor nor any of Lessor's
representatives, agents or counsel has represented
expressly or otherwise that Lessor would not, in
the event of any such suit, action or proceeding
seek to enforce this waiver to the right of trial
by jury and acknowledges that Lessor has been
induced by this waiver (among other things) to
enter into the transactions evidenced by this
Lease and the other Lease Documents and further
acknowledges that Lessee (a) has read the
provisions of this Lease, and in particular, the
paragraph containing this waiver, (b) has
consulted legal counsel, (c) understands the
rights that it is granting in this Lease and the
rights that it waiving in this paragraph in
particular and (d) makes the waivers set forth
herein knowingly, voluntarily and intentionally.
24.9 SUCCESSORS AND ASSIGNS. This Lease and
the other Lease Documents shall be binding upon
and inure to the benefit of (a) Lessee and
Lessee's legal representatives and permitted
successors and assigns and (b) Lessor and any
other Person who may now or hereafter hold the
interest of Lessor under this Lease and their
respective successors and assigns.
24.10 NO THIRD PARTY BENEFICIARIES. This
Lease and the other Lease Documents are solely for
the benefit of Lessor, its successors, assigns and
participants (if any), the Meditrust Entities,
Lessee, the Guarantor, the other members of the
Leasing Group and their respective permitted
successors and assigns, and, except as otherwise
expressly set forth in any of the Lease Documents,
nothing contained therein shall confer: upon any
Person other than such parties any right to insist
upon or to enforce the performance or observance
of any of the obligations contained therein. All
conditions to the obligations of Lessor to advance
or make available proceeds of insurance or Awards,
or to release any deposits held for Impositions or
insurance premiums are imposed solely and
exclusively for the benefit of Lessor, its
successors and assigns. No other Person shall have
standing to require satisfaction of such
conditions in accordance with their terms, and no
other Person shall, under any circumstances, be a
beneficiary of such conditions, any or all of
which may be freely waived in whole or in part by
Lessor at any time, if, in Lessor s sole and
absolute discretion, Lessor deems it advisable or
desirable to do so.
24.11 GOVERNING LAW. This Lease shall be
construed and the rights and obligations of Lessor
and Lessee shall be determined in
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accordance with the laws of the State. The parties
to
this Lease intend this Lease to be a rental
agreement for a commercial rental unit for
purposes of 25.De1. c. Section 5101(b).
Lessee hereby consents to personal
jurisdiction in the courts of the State and the
United States District Court for the District in
which the Leased Property is situated as well as
to the jurisdiction of all courts from which an
appeal may be taken from the aforesaid courts, for
the purpose of any suit, action or other
proceeding arising out of or with respect to any
of the Lease Documents, the negotiation and/or
consummation of the transactions evidenced by the
Lease Documents, the Lessor's relationship of any
member of the Leasing Group in connection with the
transactions evidenced by the Lease Documents
and/or the performance of any obligation or the
exercise of any remedy under any of the Lease
Documents and expressly waives any and all
objections Lessee may have as to venue in any of
such courts.
24.12 GENERAL. Anything contained in this
Lease to the contrary notwithstanding, all claims
against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this
Lease or any of the other Lease Documents shall
survive such termination.
If any provision of this Lease or any of the
other Lease Documents or any application thereof
shall be invalid or unenforceable, the remainder
of this Lease or the other applicable Lease
Document, as the case may be, and any other
application of such term or provision shall not be
affected thereby. Notwithstanding the foregoing,
it is the intention of the parties hereto that if
any provision of any of this Lease is capable of
two (2) constructions, one of which would render
the provision void and the other of which would
render the provision valid, then such provision
shall be construed in accordance with the
construction which renders such provision valid.
If any late charges provided for in any
provision of this Lease or any of the other Lease
Documents are based upon a rate in excess of the
maximum rate permitted by applicable law, the
parties agree that such charges shall be fixed at
the maximum permissible rate.
Lessee waives all presentments; demands for
performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and
notices of acceptance and waives all notices of
the existence, creation, or incurring of new or
additional obligations, except as to all of the
foregoing as expressly provided for herein.
ARTICLE 25
SUBSTITUTION OF PROPERTY
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25.1 SUBSTITUTION OF PROPERTY FOR THE LEASED
PROPERTY. Provided that no Event of Default has
occurred under this
Lease (excluding any Event of Default which has
been waived, in writing, by the Lessor), nor any
event which, with the giving of notice or the
passage of time or both, would constitute such an
Event of Default, Lessee shall have the right from
time to time (referred to herein as the
"Substitution Right"), exercisable upon not less
than ninety (90) days' prior written notice to
Lessor (referred to herein as a "Substitution
Notice") to substitute, on a date specified in
such Substitution Notice (such date, as the same
may be extended by express written agreement of
lessor, shall be referred to herein as a
"Substitution Date"), the Leased Property with a
Comparable Facility. As used herein, the term
"Comparable Facility" shall be defined as a health
care facility or facilities which Lessor
determines (a) has an appraised Fair Market Value
greater than or equal to the greater of (i) the
appraised Fair Market Value of the Leased Property
as of the Conversion Date or (ii) the appraised
Fair Market Value of the Leased Property at the
time that the applicable Substitution Notice is
furnished to Lessor (based on appraisal criteria
then in effect), (b) has a Facility Debt Coverage
Ratio greater than or equal to the greater of (i)
the Facility Debt Coverage Ratio of the Leased
Property as of the second anniversary of the
Conversion Date, (ii) the Facility Debt Coverage
Ratio of the Leased Property at the time that the
applicable Substitution Notice is furnished to
Lessor, (c) provides a mix of services similar to
the Leased Property and (d) is otherwise
reasonably acceptable, in all respects, to Lessor
(based on Lessor's usual and customary property
evaluation criteria then in effect). Lessee may
not exercise its Substitution Right more than once
in any calendar year.
25.2 CONDITIONS TO SUBSTITUTION. Without
limiting the foregoing, as conditions precedent to
the consummation of any proposed substitution:
(a) as of the applicable Substitution
Date, no Event of Default shall have occurred
under the Lease (excluding any Event of
Default which has been waived, in writing, by
Lessor), nor any event which with the giving
of notice or the passage of time or both
would constitute such an Event of Default;
(b) Lessor shall have received
engineering and inspection reports relating
to the assisted living facility identified by
Lessee in the applicable Substitution Notice
(referred to herein as a "Proposed
Facility"), reasonably satisfactory in all
respects to Lessor.
(c) Lessee shall have delivered to
Lessor (i) an MAI appraisal of the Proposed
Facility (prepared by an appraiser selected
by Lessee and approved by Lessor), in form
and substance
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reasonably satisfactory to Lessor and (ii) an
instrument survey of the premises upon which
the Proposed Facility is located acceptable
to Lessor and the title insurance company
providing insurance with respect to the
Proposed Facility;
(d) Lessor shall be satisfied as to
compliance of Lessee, the Proposed Facility,
the owner of the Proposed Facility (to the
extent such owner is not Lessee as provided
in subsection (1) below) and/or the proposed
substitution, as the case may be, with (i)
all applicable land use, zoning, subdivision
and environmental laws and regulations, (ii)
all applicable assisted living licensure laws
and regulations and (iii) such other matters
as Lessor reasonably deems relevant
(including, without limitation, whether the
conveyance of the property to Lessor in
connection with the proposed substitution may
be avoided under the Bankruptcy Code);
(e) Lessee shall have delivered to
Lessor a valid and binding owner's or
lessee's (as applicable) title insurance
commitment issued by a title insurer
reasonably acceptable to Lessor (the "Title
Company"), in an amount equal to the Fair
Market Value of the Proposed Facility, with
such endorsements and affirmative coverages,
and in such form, as Lessor may reasonably
require insuring Lessor's fee title or
leasehold title to the Proposed Facility,
subject to no Liens except those approved or
assumed by Lessor and arrangements
satisfactory to Lessor shall have been made
for the issuance of a title insurance policy
on the Substitution Date in accordance with
such title insurance commitment;
(f) Lessee shall have delivered an
environmental site assessment report relating
to the Proposed Facility, in form and
substance reasonably acceptable to Lessor and
prepared by an environmental consultant
reasonably acceptable to Lessor;
(g) Lessor shall have obtained, at
Lessee's cost, an opinion of Lessor's
counsel, in form and substance acceptable to
Lessor, confirming that (i) the substitution
of the Proposed Facility for the Leased
Property will qualify as an exchange solely
of property of a like-kind under Section 1031
of the Code, in which, generally, except for
"boot" such as cash needed to equalize
exchange values or discharge indebtedness, no
gain or loss is recognized to Lessor, (ii)
the substitution or sale will not result in
ordinary recapture income to Lessor pursuant
to Code Section 1250(d)(4) or any other Code
provision, (iii) the substitution or sale
will result in income, if any, to Lessor of a
type described in Code Section 856(c)(2) or
(3) and will not result in income of the
types described in Code Section 856(c)(4) or
result in the tax imposed under Code Section
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857(b)(6) and (iv) the substitution or sale,
together with all other substitutions and
sales made or requested by Lessee or any
Affiliate of Lessee or of any Guarantor
pursuant to any other leases with Lessor (or
any of its Affiliates) or any other transfers
of the Leased Property or the properties
leased under other such leases, during the
relevant time period, will not jeopardize the
Qualification of Lessor as a real estate
investment trust under Code Sections 856-860;
(h) Lessor shall have received opinions
of Lessee's counsel as to (i) the compliance
of the Proposed Facility with land use,
zoning, subdivision and environmental laws
and regulations, (ii) the compliance of
Lessee, the owner of the Proposed Facility
(to the extent such owner is not Lessee as
provided in subsection (1) below), the
proposed substitution and the Proposed
Facility with applicable assisted living laws
and regulations, (iii) the due authorization,
execution and enforceability of the
Substitution Documents and (iv) such other
matters as are reasonably requested; in form
and substance reasonably acceptable to
Lessor;
(i) Lessee and each Guarantor shall have
executed and delivered, or caused to be
executed and delivered, such documents as are
reasonably required by Lessor to effectuate
the substitution (collectively, the
"Substitution Documents"), including, without
limitation, (i) a deed with full warranties
or assignment of a leasehold estate with full
warranties (as applicable) conveying to
Lessor title to the Proposed Facility free
and clear of all Liens, except those approved
or assumed by Lessor, (ii) a facility lease
(the "Substitution Lease") duly executed,
acknowledged and delivered by Lessee,
containing the same terms and conditions as
are contained herein except that (1) the
legal description of the land shall refer to
the Proposed Facility, (2) the Minimum
Repurchase Price of the Proposed Facility
shall be an amount equal to the Minimum
Repurchase Price of the Leased Property
increased by any Cash Adjustment paid by
Lessor, (3) the Rent under the Substitution
Lease in all respects shall provide Lessor
with a substantially equivalent yield at the
time of the substitution (i.e., annual return
on its equity in such Proposed Facility) to
that received (and reasonably expected to be
received thereafter) from the Leased
Property, taking into account the Cash
Adjustment, if any, paid by Lessor and any
other relevant factors and (4) such other
changes therein as may be necessary or
appropriate under the circumstances shall be
made; (iii) a collateral assignment of
permits, licenses, approvals and contracts
relating to the Proposed Facility,
substantially in the form of the Permits
Assignment; (iv) UCC financing statements;
(v) a guaranty substantially in the form of
the Guaranty of Lease Obligations shall be
executed by Guarantor, (vi) an affiliated
party subordination agreement,
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<PAGE>
substantially in the form of the Affiliated
Party Subordination Agreement, shall be
executed by the Lessee, and such other
Affiliates of the Lessee as are deemed
necessary or appropriate by the Lessor and
(vii) the Agreement Regarding Related
Transactions shall be amended to reflect the
substitution of the Proposed Facility. The
Substitution Documents shall be based upon
and contain the same terms and conditions as
are set forth in Lease Documents in effect
prior to the substitution, except that such
changes shall be made as may be necessary or
reasonably appropriate under the
circumstances to effectuate the substitution
and secure the protection and priority of the
property and security interests conveyed
and/or granted to Lessor;
(j) without limiting any other provision
contained herein, Lessee shall have delivered
to Lessor such other information and
materials relating to Lessee, the owner of
the Proposed Facility (to the extent that
such owner is not Lessee as provided in
subsection (I) below) and the Proposed
Facility as Lessor may reasonably request,
including, without limitation, leases,
receipted bills, management agreements and
other Contracts, Provider Agreements, cost
reports, Permits, evidence of legal and
actual access to the Proposed Facility,
evidence of the availability and sufficiency
of utilities servicing the Proposed Facility,
historical and current operating statements,
detailed budgets and financial statements and
Lessor shall have found the same to be
satisfactory in all respects;
(k) Lessee or an Affiliate of Lessee
shall be the licensed operator of the
Proposed Facility as of the date of the
consummation of the substitution;
(l) the Proposed Facility shall be owned
or leased by Lessee or an Affiliate of
Lessee; provided, however that in the event
that the Proposed Facility is owned by any
such Affiliate, (i) said Affiliate shall
execute and deliver to Lessor such
Substitution Documents as may be reasonably
required by Lessor and (ii) Lessor shall be
provided with such evidence as it may require
to determine that the conveyance of the
Proposed Facility (or a leasehold interest
therein) to Lessor does not constitute a
fraudulent conveyance (under applicable
federal or state law);
(m) Lessee shall have delivered to
Lessor an insurance certificate evidencing
compliance with all of the insurance
requirements set forth in the Substitution
Documents;
(n) Lessee shall have delivered to
Lessor an Officer's Certificate certifying as
of the Substitution Date that (i) the
Proposed Facility has been accepted by Lessee
for all purposes of
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the Substitution Lease and there has been no
material damage to the improvements located
on the Proposed Facility, nor is any
condemnation or eminent domain proceeding
pending with respect thereto; (ii) all
Permits (including, but not limited to, a
permanent, unconditional certificate of
occupancy and all certificates of need,
licenses and Provider Agreements) which are
necessary to permit the use of the Proposed
Facility in accordance with the provisions of
the Substitution Lease have been obtained and
are in full force and effect; (iii) under
applicable zoning and use laws, ordinances,
rules and regulations, the Proposed Facility
may be used for the purposes contemplated by
Substitution Documents and all necessary
subdivision approvals have been obtained;
(iv) to the best knowledge of Lessee, there
exists no Event of Default under this Lease,
and no defense, offset or claim exists with
respect to any sums to be paid by Lessee
hereunder, and (v) any exceptions to Lessor's
title to the Proposed Facility do not
materially interfere with the intended use of
the Proposed Facility by Lessee;
(o) Lessor shall have determined that
the Proposed Facility constitutes a
Comparable Facility, and
(p) Lessor shall have received all Rent
due and payable hereunder through the
Substitution Date.
In the event that the equity value of
the Proposed Facility (i.e., the Fair Market
Value of the Proposed Facility minus the
Liens to which Lessor will take the Proposed
Facility subject) as of the Substitution Date
is greater than the equity value of the
Leased Property (i.e., the Fair Market Value
of the Leased Property minus the Liens to
which Lessee will take the Leased Property
subject other than those Liens which Lessee
is obligated to pay or discharge pursuant to
the terms of this Lease) as of the
Substitution Date, subject to the limitation
set forth below, Lessor shall pay an amount
equal to the difference to Lessee; provided,
however, that Lessor shall not be obligated
to consummate such substitution if Lessor
would be required to make a payment to Lessee
of an amount equal to or in excess of fifteen
percent (15%) of said Fair Market Value of
the Leased Property (the amount of cash paid
by Lessor to Lessee being referred to herein
as the "Cash Adjustment"). Without limiting
the generality or effect of the preceding
sentence, in the event that, on the
Substitution Date, Lessor is obligated to pay
a Cash Adjustment to Lessee and Lessor does
not have sufficient funds available, or
elects not to make such payment in cash,
Lessor shall provide Lessee with (and Lessee
shall accept) a purchase money note and
mortgage for a term not to exceed eighteen
(18) months from the Substitution Date and
bearing interest, payable monthly, at the
rate described in Section 10.2.
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<PAGE>
25.3 CONVEYANCE TO LESSEE. If the Lessor
shall have determined that the Proposed Facility
Constitutes a Comparable Facility, on the
Substitution Date, after the consummation of a
substitution in accordance with the terms hereof,
Lessor will convey the Leased Property to Lessee
in accordance with the provisions of Article 18
(except as to payment of any expenses in
connection therewith which shall be governed by
Section 22.4 below) and this Lease shall thereupon
terminate as to the Leased Property. Upon
completion of the purchase of the Leased Property,
no Rent shall thereafter accrue with respect
thereto.
25.4 EXPENSES. Whether or not any proposed
substitution is consummated, Lessee shall pay all
of the out-of pocket expenses and other costs
incurred or expended by Lessor in connection with
any proposed substitution (collectively referred
to herein as "Substitution Closing Costs"),
including, without limitation, reasonable
attorneys' fees and expenses, engineering costs,
consultants' fees, appraisal costs, audit and tax
review costs, out-of pocket travel expenses,
inspection fees, title insurance premiums and
other title -fees, survey expenses, mortgage
taxes, transfer; documentary stamp and other
taxes, search charges of any nature, recording,
registration and filing costs; broker's fees and
commissions, if any, escrow fees, fees and
expenses, if any, incurred in qualifying Lessor
and maintaining its right to do business in the
state where the Proposed Facility is located, the
cost of obtaining, preparing and recording a
release of the Leased Property from the lien of
any Fee Mortgage on the Facility (other than the
amount necessary to payoff such Fee Mortgage) and
any other costs expended or incurred by Lessor in
connection with the preparation for and the
documentation and/or the closing of the proposed
substitution. The Substitution Closing Costs shall
be a demand obligation of Lessee to Lessor and, if
not paid within ten ( 10) days after demand, shall
thereafter (to the extent permitted by applicable
law) bear interest at the Overdue Rate until the
date of payment.
25.5 LIMITATION. No Substitution Right may be
exercised earlier than the fifth anniversary of
the Conversion Date.
IN WITNESS WHEREOF, the parties have caused
this Lease to be executed and attested by their
respective officers thereunto duly authorized.
ATTEST: LESSEE: EMERITUS PROPERTIES I,
INC., a Washington
corporation
/s/ Susan Griffin By: /s/ Kelly J. Price
- --------------------- -----------------------
Name: Susan Griffin Name: Kelly J. Price
Title: Vice President of Finance
128
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ATTEST: LESSOR: MEDITRUST ACQUISITION
CORPORATION I, a
Massachusetts
corporation
/s/ Amelia C. Gentry By: /s/ Michael F. Bushee
- ------------------------- ------------------------
Name: Amelia C. Gentry Name: Michael F. Bushee
Title: Chief Operating Officer
129
<PAGE>
THE FOLLOWING DOCUMENT IS SUBSTANTIALLY THE SAME
FOR THE DEVELOPMENT PROPERTIES MIDDLEBURG HEIGHTS
AND NEWARK WITH THE EXCEPTION OF THE AMOUNT THE
LESSOR SHALL FUND THE PROJECT.
Middleburg Heights $8,360,340
Newark $8,001,689
<PAGE>
NEWARK, DELAWARE
LEASEHOLD IMPROVEMENT AGREEMENT
AMONG
MEDITRUST ACQUISITION CORPORATION I
AND
EMERITUS PROPERTIES I, INC.
<PAGE>
LEASEHOLD IMPROVEMENT AGREEMENT
THIS LEASEHOLD IMPROVEMENT AGREEMENT is made
as of September 10, 1997 by and among EMERITUS
PROPERTIES I, INC., a Washington corporation (the
"Lessee"), and MEDITRUST ACQUISITION CORPORATION
I, a Massachusetts corporation (the "Lessor").
l. BACKGROUND
1.1 Lessee.
Lessee is a corporation which is a wholly-
owned Subsidiary of the Guarantor (as hereinafter
defined). The Guarantor is a corporation the stock
of which is publicly traded on the American Stock
Exchange.
1.2 The Land and Existing Improvements.
Lessor is the owner of a certain parcel of
land located in the City of Newark, New Castle
County, Delaware and more particularly described
on EXHIBIT A (the "Land").
1.3 The Facility Lease.
Lessor and Lessee have entered into that
certain Facility Lease Agreement of even date
herewith, relating to the Land (the "Facility
Lease"), a Memorandum of which is to be recorded
with the Newcastle County, Delaware real estate
records.
1.4 Project.
Lessee proposes to construct a 100 unit 104
bed assisted living facility and other
improvements, including, without limitation,
accessory parking and landscaping on the Land
(collectively, the "Improvements"). The Land and
the Improvements are collectively referred to
herein as the "Project".
1.5 Lessor's Agreement to Fund the Project
and Lessee's Agreement to Supervise the Project.
Lessee and Lessor have agreed that the
Project will be a benefit to the premises demised
under the Facility Lease and to Lessee's and
Lessor's respective interests therein. Lessor and
Lessee have further agreed that, pursuant to, and
in accordance with, the terms and conditions of
this Agreement, Lessor shall fund an amount not to
exceed Eight Million One Thousand Six Hundred
Eighty-Nine Dollars ($8,001,689.00) of the cost of
the Project (the "Project Funds"). Lessee has
agreed to supervise and manage the construction of
the Project and Lessor has agreed
to advance the Project Funds to pay for the cost
of the construction of the Project; all pursuant
to the terms and conditions of this Agreement.
1.6 Plans; the Architect and Architect's
Contract.
The Improvements are to be constructed and
equipped in accordance with the plans and
specifications to be delivered as provided herein
(collectively, the "Project Plans"), prepared by
Architects' Moeckel Carbonell Associates (the
"Architect") pursuant to the contract dated March
18,1997 by and between Lessee and the Architect
(the "Architect's Contract").
<PAGE>
1.7 Construction Contracts.
All of the Improvements are to be constructed
pursuant to a guaranteed maximum contract (the
"Construction Contract") to be delivered as
provided herein by and between Lessee and Wohlson
Construction Company, dated August __, 1997 (the
"General Contractor").
1.8 Schedule of Work and Completion Date;
Schedule of Draws.
The work necessary to complete and fully
equip the Project is to be (a) undertaken and
completed in accordance with the schedule of work
and schedule of values ("Schedules") to be
delivered as provided herein; and (b)
substantially completed by the first anniversary
of the date hereof (the "Completion Date") in
accordance with the terms hereof.
1.9 Project Budget.
Lessee has submitted, or shall submit in
accordance with the terms hereof prior to the
making of the first advance which includes amounts
to be expended on the construction or equipping of
the Improvements), to Lessor a line item budget
(the "Project Budget"), for the design and
construction of the Project, including (a) a
breakdown of construction costs (itemized as to
trade category, subdivision of the work to be
performed and the names of each contractor), (b) a
breakdown of all soft costs in connection with the
construction of the Project, including, without
limitation, costs for such items as real estate
taxes, legal and accounting fees, survey costs,
permits and inspection fees, insurance premiums,
architect's and engineer's fees, marketing,
management, leasing and advertising expenses, and
all amounts due in connection with the Advance of
Project Funds pursuant to this Agreement, (c) a
projected draw schedule and (d) a projected
progress schedule for the construction of the
Project.
1.10 Use of Project Funds.
The Project Funds are to be used, to the
extent sufficient therefor, solely for the payment
of Project costs set forth in the Project Budget.
1.11 Project Funds.
Subject to all of the terms, conditions and
provisions of this Agreement, and of the
agreements and instruments referred to herein,
Lessor agrees to advance the Project Funds and
Lessee agrees to supervise and manage the
construction of the Project and to pay the Rent
(as hereinafter defined) due under the Facility
Lease (as the same may from time to time be
adjusted pursuant to the terms and conditions set
forth therein); it being understood that Lessee
shall be liable for the payment of Rent regarding
such sums as shall have been advanced from time to
time under this Agreement to Lessee.
1.12 Guaranties and Indemnities.
As an inducement to Lessor to enter into this
Agreement, advance the Project Funds and enter
into the Facility Lease, the Guarantor has agreed
to furnish certain guaranties as hereinafter
described.
2
<PAGE>
2. DEFINITIONS
In this Agreement, except as otherwise
expressly provided in the text of this Agreement
or unless the context otherwise requires, all
capitalized terms shall have the meaning ascribed
to them in EXHIBIT E.
3. INTENTIONALLY OMITTED.
4. LEASE DOCUMENTS; COLLATERAL SECURITY
4.1 Lease Documents.
The Project Funds shall be advanced,
evidenced, administered and governed by all of the
terms, conditions and provisions of each of the
following:
A. a Fifth Amended and Restated Agreement
Regarding Related Transactions (Development) of
even date by and among Lessee, Lessor, ESC I,
L.P., and ESC G.P. I, Inc., as the same may be
amended from time to time;
B. this Agreement;
C. the Facility Lease;
D. a collateral Assignment of Permits,
Approvals, Licenses, and contracts of even date
granted by lessee to Lessor (the "Permits
Assignment");
E. a Security Agreement of even date by and
between lessee and Lessor (the "Security
Agreement") and related UCC Financing Statements;
F. a Completion Guaranty of even date executed
by the Guarantor for the benefit of Lessor
guarantying the completion of the Project and the
satisfaction of the other Guarantied Obligations
(the "Completion Guaranty");
G. a Guaranty of Lease Obligations of even date
executed by the Guarantor for the benefit of
Lessor guarantying the payment and performance of
the Lease Obligations (the "Guaranty of Lease
Obligations");
H. an Environmental Indemnity Agreement of even
date by and among Lessee and Lessor (the "Deposit
Pledge Agreement");
I. a Deposit Pledge Agreement of even date by
and between Lessee and Lessor (the "Deposit Pledge
Agreement");
J. a Group Two Negative Pledge Agreement
(Development) dated April 15, 1996 by and among
Lessee, Lessor and Guarantor (the "Negative Pledge
Agreement");
K. an Assignment of construction contract
granted by Lessee to Lessor and containing the
consent of the General contractor (the
"Construction Assignment");
3
<PAGE>
L. An Assignment of Architect's Contract of even
date granted by Lessee to lessor and containing
the consent of the Architect (the "Architect's
Assignment");
M. an Affiliated Party Subordination Agreement
of even date by and among Lessee, the Guarantor,
various Affiliates of Less and Lessor (the
"Affiliated Party Subordination Agreement"); and
N. all other documents, instruments, or
agreements now or hereafter evidencing or securing
the obligations under this Agreement and the
Facility Lease.
Items (A) through (N) above, as the same from
time to time may be hereinafter amended,
modified or supplemented, are referred to
herein as the "Lease Documents".
4.2 Lease Obligations.
Lessee agrees to pay and perform all
indebtedness, covenants, liabilities, obligations,
agreements and undertakings (other than Lessor's
obligations) under this Agreement and all of the
other Lease Documents (collectively, the "Lease
Obligations").
4.3 Collateral Security.
The Lease Obligations shall be secured by the
following:
A. a perfected first priority security interest
in all Permits and Contracts pursuant top the
Permits Assignment;
B. a security interest in Tangible Personal
Property, and certain other Collateral and a
security interest in Receivables, all pursuant to
the Security Agreement;
C. the Completion Guaranty;
D. the Guaranty of Lease Obligations;
E. the Environmental Indemnity;
F. a perfected first priority interest in the
Cash Collateral pursuant to the Deposit Pledge
Agreement;
G. all other security interests in such other
property for which provision is made in the Lease
Documents or at law or in equity; and
H. certain other Related Party Agreements.
All of the property in which security interests
are granted as described in items (A) through (H)
above are referred to herein as the "Collateral".
4
<PAGE>
5. REPRESENTATIONS AND WARRANTIES
In order to induce Lessor to advance the
Project Funds pursuant to the terms and conditions
of this Agreement, Lessee represents and warrants
to Lessor that:
5.1 Architect's Contract and Construction
Contract.
The Architect's Contract and the Construction
Contract have been validly executed by, and are
binding upon Lessee and are in full force and
effect in accordance with the terms thereof as of
the date hereof. All of the parties to the
Architect's Contract Construction Contract have
faithfully performed all of their respective
obligations thereunder to the extent accrued as of
the date hereof, and none of the parties to the
foregoing instruments has asserted any claim of
default thereunder and Lessee has no reason to
believe that such agreements have not been validly
executed by and binding upon the other parties
thereto;
5.2 Project Plans.
The two (2) copies of the Project Plans
delivered to Lessor by Lessee (a) are true and
correct and satisfactory to Lessee and (b) have
been filed with and approved by all appropriate
Governmental Authorities. All necessary Permits
relating to the Project Plans to be issued or
granted by any applicable Governmental Authority
having or claiming jurisdiction over the Leased
Property which can be obtained in the ordinary
course as of the date hereof have been obtained
and all such Permits are in full force and effect,
are not subject to any unexpired appeal periods or
any appeals or challenges which have not been
fully resolved in favor of Lessee, and do not
contain any conditions or terms relating to the
Leased Property which have not been fully
satisfied or which will not be fully satisfied by
the completion of the construction of the Project
(in accordance with the Project Plans and the
terms and provisions of this Agreement).
Furthermore, the Project Plans are the plans and
specifications which have been approved in writing
by Lessor, any construction heretofore performed
on the Project has been performed in accordance
with the Project Plans and all future construction
on the Project shall be performed in accordance
with the Project Plans, as the same may be amended
or modified from time in accordance with Section
6.3.2 hereof, and the terms and conditions of this
Agreement.. There are no structural defects in the
Project of which Lessee has been advised or of
which Lessee has notice or knowledge except as
otherwise described in writing to Lessor or
actually known by Lessor. Lessee has not received
any notice claiming that, and Lessee has no
knowledge that, the Project Plans violate any
Legal Requirement;
5.3 Prior Construction Work.
No Person has performed any construction work
or furnished any services in connection with any
construction carried on or to be carried on at the
Leased Property who or which remains unpaid at the
time of execution of this Agreement, except as
indicated in the requisition submitted
simultaneously herewith or otherwise expressly
approved by Lessor and, if applicable, the Other
Permitted Uses;
5.4 Suitability of Project Plans.
The Project Plans provide for the
construction and renovation of all buildings and
related improvements necessary, both legally and
practically, for the construction of the Project
in accordance with the terms of this Agreement
and, after the completion of
5
<PAGE>
the construction thereof, for the operation of the
Project for its Primary Intended Use;
5.5 Compliance with Legal Requirements and
Applicable Agreements.
Upon the completion of construction of the
Project, which shall be constructed in accordance
with the Project Plans and the terms and
provisions of this Agreement, the Project shall be
in compliance with (a) all Legal Requirements; (b)
all Permits and Contracts and (c) all applicable
by-laws, codes, rules, regulations and
restrictions of the Board of Fire Underwriters or
other insurance underwriters or similar bodies.
5.6 Permits and Contracts.
All Permits and Contracts required by or
entered into with any Governmental Authority or
quasi-governmental authority or agency for, or in
connection with, the construction of the Project
which can be obtained in the ordinary course as of
the date hereof have been obtained or executed, as
the case may be. All such Permits and Contracts
are in full force and effect, are not subject to
any unexpired appeal periods or any appeals or
challenges which have not been conclusively
resolved in favor of any member of the Leasing
Group, and do not contain any conditions or terms
which have not been fully satisfied or which will
not be fully satisfied by the completion of the
construction of the Project (if constructed in
accordance with the Project Plans and the terms
and provisions of this Agreement). There is no
action pending, or, to the best knowledge and
belief of Lessee, recommended by the applicable
Governmental Authority having jurisdiction
thereof, either to revoke, repeal, cancel, modify,
withdraw or suspend any such Permit or Contract
relating to the construction of the Project, or
any other action of any other type which would
have a material adverse effect on the Project. All
other Permits and Contracts required for the
completion of the construction of the Project and
the operation of the Facility are described on
SCHEDULE 5.6 annexed hereto and Lessee has no
reason to believe such Permits and Contracts shall
not be obtainable as and when needed.
5.7 First Advance.
As of the date of the first advance of
Project Funds to Lessee pursuant to this
Agreement, the amount of the money expended by
Lessee on account of the construction of the
Project in accordance with the Project Plans and
the items listed on Project Budget will not be
less than the amount of such first advance.
5.8 Valid and Binding.
Lessee is duly authorized to make and enter
into all of the Lease Documents to which Lessee is
a party and to carry out the transactions
contemplated therein. All of the Lease Documents
to which Lessee is a party have been duly executed
and delivered by Lessee, and each is a legal,
valid and binding obligation of Lessee,
enforceable in accordance with its terms.
5.9 No Violation.
The execution, delivery and performance of
the Lease Documents and the consummation of the
transactions thereby contemplated shall not result
in any breach of, or constitute a default under,
or result in the acceleration of, or constitute an
event which, with the giving of notice or the
passage of time, or both, would result in default
or
6
<PAGE>
acceleration of any obligation of any member of
the Leasing Group under any of the Permits or
Contracts or any other contract, mortgage, lien,
lease, agreement, instrument, franchise,
arbitration award, judgment, decree, bank loan or
credit agreement, trust indenture or other
instrument to which any member of the Leasing
Group is a party or by which any member of the
Leasing Group may be bound or affected and do not
violate or contravene any Legal Requirement.
5.10 Consents and Approvals.
Except as already obtained or filed or as
reasonably expected to be obtained in the ordinary
course of business prior to or upon the Completion
of the Project, as the case may be, no consent or
approval or other authorization of, or exemption
by, or declaration or filing with, any Person and
no waiver of any right by any Person is required
to authorize or permit, or is otherwise required
as a condition of the execution, delivery and
performance of its obligations under the Lease
Documents, the Construction Contract or the
Architect's Agreement by any member of the Leasing
Group or as a condition to the validity (assuming
the due authorization, execution and delivery by
Lessor of the Lease Documents to which it is a
party) and the priority of any Liens granted to
Lessor under the Lease Documents, except the
filing of the Financing Statements.
5.11 Pending Actions, Notices and Reports.
(a) There is no action or investigation
pending or, to the best knowledge and belief of
Lessee, threatened, anticipated or contemplated
(nor, to the knowledge of Lessee, is there any
reasonable basis therefor) against or affecting
the Leased Property or any member of the Leasing
Group (or any Affiliate thereof before any
Governmental Authority, which could prevent or
hinder the consummation of the transactions
contemplated hereby or call into question the
validity of any of the Lease Documents or any
action taken or to be taken in connection with the
transactions contemplated thereunder or which in
any single case or in the aggregate might result
in any material adverse change in the business,
prospects, condition, affairs or operations of any
member of the Leasing Group or the Leased Property
(including, without limitation, any action to
revoke, withdraw or suspend any Permit necessary
or desirable for the construction of the Project
for its Primary Intended Use.
(b) No member of the Leasing Group has
received any notice of any claim, requirement or
demand of any Governmental Authority, to take
action so as to make the Project or the Leased
Property conform to or comply with any applicable
Legal Requirement.
6. COVENANTS
6.1 Collection and Enforcement Costs.
Upon demand, Lessee shall reimburse Lessor
for all costs and expenses, including, without
limitation, attorneys' fees and expenses and court
costs, paid or reasonably incurred by Lessor in
connection with the collection of any sum due
hereunder, or in connection with the enforcement
of any of Lessor's rights or any member of the
Leasing Group's obligations under this Agreement
or any of the other Lease Documents. Any amount
due and payable to Lessor pursuant to the
provisions of this Section shall be a demand
obligation and, to the extent permitted by law,
shall be
7
<PAGE>
added to the Lease Obligations and shall be
secured by the Liens created by the Lease
Documents as fully and effectively and with the
same priority as every other obligation of Lessee
secured thereby and, if not paid within ten ( 10)
days after demand, shall thereafter, to the extent
permitted by applicable law, bear interest at the
Overdue Rate until the date of payment. The
obligation of Lessee to pay all costs, charges and
sums due hereunder or under any of the other Lease
Documents shall continue in full force and effect
and in no way shall be impaired, until the actual
payment thereof to Lessor. In the event of (a) a
sale, conveyance, transfer or other disposition of
the Leased Property, (b) any further agreement
given to secure the payment of the obligations set
forth herein or (c) any agreement or stipulation
extending the time or modifying the terms of
payment set forth herein, Lessee shall
nevertheless remain obligated to pay the
indebtedness evidenced by this Agreement, as
extended or modified by any such agreement or
stipulation, unless Lessee is released and
discharged from such obligation by a written
agreement executed by Lessor.
6.2 Continuing Effect of Representations and
Warranties.
All representations and warranties contained
in this Leasehold Improvement Agreement shall
constitute continuing representations and
warranties which shall remain true, correct and
complete throughout the Term.
6.3 Construction Covenants.
6.3.1 Commencement of Construction.
If construction of the Project has not
already begun, Lessee shall commence
construction of the Project within thirty (30)
days from the later of the date hereof or of
issuance of a building permit for the Project.
Lessee shall diligently and continuously cause the
Project to be constructed and completed and made
ready for occupancy and use in accordance with the
Project Plans all in a manner satisfactory to
Lessor on or before the Completion Date.
Notwithstanding anything to the contrary contained
herein, Lessee shall be and shall remain
unconditionally liable to Lessor for (a) the
complete construction of the Project in accordance
with the Project Plans on or before the Completion
Date and whether or not proceeds of the Project
Funds remaining to be disbursed hereunder, if any,
are sufficient to cover all costs of construction
and (b) the complete performance of all other
obligations, covenants, agreements and liabilities
of Lessee hereunder.
6.3.2 Quality of Materials and Workmanship.
The materials used in the Project shall be of
the quality called for by the Project Plans, and
the workmanship shall be in conformity with the
Construction Contract and this Agreement, and both
the quality of such materials and such workmanship
shall be satisfactory to Lessor. Lessee shall not
make any changes in, and shall not permit the
General Contractor or the Architect to make any
changes in, the quality of such materials, the
Project Plans or the Project Budget, whether by
change order or otherwise, without the prior
written consent of Lessor, in each instance (which
consent may be withheld in Lessor's reasonable
discretion); provided, however, that such consent
shall not be required for any individual change
which has been approved by the Architect, which
does not materially affect the structure or
exterior of the Project, and the cost of which
does not exceed TEN THOUSAND DOLLARS ($10,000) or
which changes, in the aggregate, do not exceed ONE
HUNDRED THOUSAND DOLLARS ($100,000) in cost.
Notwithstanding the foregoing, prior to making any
change in Project Plans, copies
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of all change orders shall be submitted by Lessee
to Lessor and Lessee shall also deliver to Lessor
evidence satisfactory to Lessor, in its reasonable
discretion, that all necessary Permits and/or
Contracts required by any Governmental Authority
in connection therewith have been obtained or
entered into, as the case may be.
6.3.3 Project Budget.
Upon the request of Lessor, Lessee shall
furnish Lessor with revisions for the Project
Budget to reflect (a) any changes approved by
Lessor to the Project Budget, (b) the total cost
of the construction of the Project completed
through any specific date and (c) the remaining
cost to complete the construction of the Project
in accordance with the Project Plans and the terms
and provisions of this Agreement.
6.3.4 Architect Certificates.
Lessee agrees to cause the Architect to
furnish such statements as to progress and
certificates of completion as Lessor may
reasonably require from time to time during such
period as this Agreement may be in effect, all
without expense to Lessor; provided, however, that
to the extent the delivery of such certificates
will require a visit to the Project, Lessee shall
have no obligation to deliver the same more
frequently than with every other advance request
hereunder. Lessee agrees to cause the Architect to
make the Project Plans available to Lessor without
expense to Lessor, and to agree that, in the event
that Lessor shall take over the Project by reason
of an occurrence of a Lease Default, Lessor shall
be entitled to use said Project Plans without any
additional compensation to the Architect above
what is required (and was not previously paid)
under the Architect's Contract.
6.3.5 Intentionally Deleted.
6.3.6 Lessor's Consultant.
Lessee agrees to pay the costs and expenses
reasonably incurred by Lessor to retain the
Consultants to perform various services to Lessor
in connection with the construction of the Project
and the advances of Project Funds contemplated
hereunder, including, without limitation, the
following:
A.to review and analyze the Project Plans
and advise Lessor whether the same are
satisfactory for the intended purposes
thereof;
B.to make periodic inspections of the Leased
Property for the purpose of assuring that
construction performed in connection with
the Project prior to the date of such
inspection has been completed in
accordance with the Project Plans and this
Agreement;
C.to review Lessee's then current
requisition to determine whether it is
consistent with the obligations of Lessee
under this Agreement, and to advise Lessor
of the anticipated costs of, and the time
for, the completion of the Project in
accordance with the Project Plans, and the
adequacy of reserves and contingencies
related thereto;
D.to review and analyze any proposed changes
to the Project Plans and advise Lessor
regarding the same;
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E.to review and analyze the Project Budget
and advise Lessor as to the sufficiency
thereof; and
F.to review and analyze the Architect's
Contract and the Construction Contract
entered into by Lessee in connection with
the construction of the Project and advise
Lessor regarding the same.
Except as otherwise expressly provided
herein, Lessee agrees promptly to make such
changes or corrections in the construction of the
Project as may be required by Lessor, based on the
recommendation of any of the Consultants, unless
Lessee demonstrates to Lessor's satisfaction that
such corrective work is inconsistent with the
Project Plans.
6.3.7 Title To Materials and Security
Interest Granted to Lessor.
Except as otherwise expressly provided
herein, Lessee shall not suffer the use in
connection with any construction relating to the
Project of any materials, fixtures or equipment
intended to become part of the Project which are
purchased upon lease or conditional bill of sale
or to which Lessee does not have absolute and
unencumbered title. Lessee covenants to cause to
be paid punctually all sums becoming due for
labor, materials, fixtures or equipment used or
purchased in connection with any such construction
and, in recognition of the fact that it is
intended that the Project Funds be used to pay for
the costs of the construction of the Project on
behalf of the Lessor, Lessee agrees that title to
all materials, fixtures and equipment that are
incorporated into the Project shall automatically
pass to Lessor upon such incorporation without the
need for the execution or delivery of any further
instrument of conveyance.
Notwithstanding the foregoing, in order to
more fully secure Lessor with reference to all
advances of Project Funds made hereunder, Lessee
hereby conveys to Lessor a security interest in
all of Lessee's right, title and interest in
materials on the Leased Property which are not at
any relevant time incorporated into the Project
and materials, wherever located, intended for
incorporation into the Project. Lessee agrees:
A. that Lessor shall have all the rights,
with reference to such security, as a
secured party is entitled to hold with
reference to any security interest under
the UCC;
B. that such security interest shall cover
cash and non-cash proceeds of such
materials;
C. that such materials will not be held for
sale to others or disposed of by Lessee
without the prior written consent of
Lessor and, if at any time located on
the Leased Property shall be suitably
stored, secured and insured and
furthermore, shall not be removed from
the Leased Property; and
D. that such security interest shall be
prior to the rights of any other Person
other than the Permitted Prior Security
Interests.
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The undertakings of Lessee in this Section
shall also be applicable to any personal property
that is owned by Lessee and that is used (or to be
used) in connection with the Project, whether or
not the purchase thereof was financed by advances
of Project Funds made by Lessor.
Lessee agrees to execute such instruments as
Lessor may from time to time
request to perfect the security interest of Lessor
in any and all rights under this Agreement and the
other Lease Documents, and any and all property of
Lessee which, under applicable provisions of this
Agreement and/or any of the other Lease Documents,
may or shall stand as security for advances of
Project Funds under this Agreement and for the
complete performance of the Lease Obligations.
6.3.8 Compliance With Legal Requirements And
Applicable Agreements.
Lessee, the Project Plans and the Leased
Property and all uses thereof (including, without
limitation, the construction of the Project) shall
comply with (a) all Legal Requirements, (b) all
Permits and Contracts, (c) all applicable by-laws,
codes, rules, regulations and restrictions of the
Board of Fire Underwriters or other insurance
underwriters or similar body and (d) the Lease
Documents, except to the extent any of the matters
represented in clause (a) or (c) are being duly
contested in accordance with the terms of the
Facility Lease.
6.3.9 Liens.
The Leased Property shall at all times be
free from any attachment, encumbrance, lis
pendens, mechanic's or materialmen's lien or
notice arising from the furnishing of materials or
labor and, with the exception of the Permitted
Encumbrances, all other Liens of any kind except
to the extent the same is being duly contested in
accordance with the terms of the Facility Lease or
the terms hereof. Lessee shall not permit the
recording of any notice of contract or mechanic's
or materialmen's lien relating to construction of
the Project or otherwise affecting the Leased
Property except to the extent the same is being
duly contested in accordance with the terms of the
Facility Lease or the terms hereof.
Notwithstanding the foregoing provisions of this
Section 6.3.09, the existence of an attachment or
lis pendens for a period not in excess of thirty
(30) days shall not be deemed to be a default
hereunder provided that (a) there shall be no
cessation of construction of the Project, (b) a
Lease Default has not occurred and (c) Lessee
shall proceed promptly to cause such attachment or
lis pendens to be removed, but Lessor shall not be
obliged to make any further advance under this
Agreement while such attachment or lis pendens
remains outstanding, unless a bond, satisfactory
to Lessor, has been posted as security for such
attachment or lis pendens.
6.3.10 Books And Records.
Lessee shall cause to be kept and maintained,
and shall permit Lessor and its representatives to
inspect at all reasonable times, accurate books of
accounts in which complete entries will be made in
accordance with GAAP, if applicable, reflecting
all financial transactions of Lessee relating to
the Project (showing, without limitation, all
materials ordered and received and all
disbursements, accounts payable and accounts
receivable in connection with the construction of
the Project and the operation of the Leased
Property). Such books and records must accurately
reflect that all funds advanced
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hereunder for construction of the Project have
been used solely for the payment of obligations
and expenses properly incurred in accordance with
the Project Budget.
6.3.11 Inspection Of Construction.
Lessor and its representatives including,
without limitation, the Consultants, shall, at all
times as long as this Agreement remains in effect,
have the right to enter the Leased Property, upon
reasonable notice to Lessee and at reasonable
times (except in the event of an emergency) for
the purpose of inspecting the Project and the
progress of the work and materials thereon, and if
any such inspection reveals that Lessee is not in
compliance herewith (in its sole and absolute
discretion), then Lessor shall not be obligated to
make any further advances under this Agreement to
Lessee.
6.3.12 Notice Of Delay.
Lessee shall give to Lessor prompt written
notice of any fire, explosion, accident, flood,
storm, earthquake or other casualty or strike,
lock out, act of God or interruption of the
construction of the Project which is reasonably
anticipated to interfere with the ability of
Lessee to complete the Project by the Completion
Date.
6.3.13 Bonds.
Performance, payment and lien bonds, in form
and substance and guaranteed by sureties
satisfactory to Lessor (in its sole and absolute
discretion), shall be furnished to Lessor in
connection with the Construction Contract in
amounts at least equivalent to the amount of such
contract, naming Lessor as a dual obligee and
shall be furnished to Lessor prior to the
commencement of any work pursuant to such
contract.
6.3.14 Use of Project Funds.
Lessee shall utilize all advances by Lessor
pursuant to the terms of this Agreement only for
those items for which requisitions are permitted
under this Agreement or for reimbursement of
expenditures already made for items for which
requisitions are so permitted. Lessee agrees to
hold all advances by Lessor hereunder as a trust
fund for the purpose of payment of the costs and
expenses permitted under this Agreement.
6.3.15 Occupancy of the Project.
Lessee shall not permit any occupancy of the
Project (other than such occupancy as is required
in connection with the construction thereto) prior
to (a) the substantial completion of that portion
of the Project being occupied and (b) the issuance
by the appropriate Governmental Authorities of a
Certificate of Occupancy (or its equivalent)
permitting the occupancy of the Project for its
Primary Intended Use and, if applicable, the Other
Permitted Uses. The Project shall not be deemed to
have been completed unless and until constructed
in accordance with this Agreement and a
Certificate of Occupancy (or its equivalent)
permitting the occupancy of the Project for its
Primary Intended Use has been issued by the
applicable Governmental Authorities.
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7. CONSTRUCTION ADVANCES
7.1 Conditions Precedent to First Advance of
Project Funds.
Prior to the first advance of Project Funds
contemplated by this Agreement, and as a condition
of Lessee's right to receive any of the proceeds
of the Project Funds, there shall have been
furnished to Lessor:
A.An owner's title insurance policy in form
and substance satisfactory to Lessor, in
its sole and absolute discretion, issued
by a title insurance company or companies
satisfactory to Lessor (the "Title
Company") with such endorsements,
reinsurance and/or co-insurance as Lessor
may require, insuring Lessor's fee title
to the Leased Property free from all Liens
and without exception for (i) filed or
unfiled mechanics' liens, (ii) survey
matters, (iii) rights of parties in
possession, (iv) environmental liens and
(v) any other matters of any kind or
nature whatsoever other than the Permitted
Encumbrances (the "Title Policy");
B. Such evidence as Lessor may require that the
use contemplated for the Project, and all of the
improvements and construction contemplated by the
Project Plans, comply with all applicable Legal
Requirements, to the extent in force and
applicable;
C.Insurance policies and/or Certificates of
Insurance required pursuant to the terms
and provisions of the Facility Lease;
D.Such evidence as Lessor may require to
determine that the total cost of
completion of the Project in all respects,
including all related direct and indirect
costs as previously approved by Lessor,
will not exceed the amount set forth in
the Project Budget;
E.Such evidence as Lessor may require that
Lessee's representations and warranties
contained herein and in all of the other
Lease Documents are true and correct in
every material respect;
F.Such evidence as Lessor may require as to
the satisfaction of such of the terms and
conditions of this Agreement and of the
other Lease Documents as may by their
nature be satisfied prior to the making of
such advance;
G.Such evidence as Lessor may require that
all outstanding Impositions which are due
and payable as of the date of the First
Advance pertaining to the Leased Property
have been paid in full in accordance with
the terms of the Facility Lease;
H.A current instrument survey, satisfactory
in form and content to Lessor, prepared in
accordance with the requirements set forth
in EXHIBIT G (the "Survey") and a
certificate substantially in the form of
EXHIBIT H (the "Surveyor's Certificate"),
prepared and signed by a surveyor licensed
to do business in the state where the
Leased Property is located with his or her
seal affixed thereto;
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I.True and correct copies of the
Construction Contract and the Architect's
Contract in effect with respect to the
Project, as well as all receipted bills
paid by Lessee to the General Contractor
and the Architect for goods and/or
services rendered with respect to the
Project prior to the date hereof;
J.A certificate from an engineer and/or
architect, registered as such in the state
where the Leased Property is located,
substantially in the form attached hereto
as EXHIBIT H, certifying as to the (i)
compliance of the Leased Property with all
applicable Legal Requirements, (ii) the
availability and adequacy of access/egress
to and from the Leased Property and (iii)
the availability and adequacy of sewer,
drainage, water, electric and other
utility services to the lot line of the
Leased Property; together with such other
assurances concerning the design of the
Project as Lessor may require;
K.Lessor's receipt of opinions, in forms
satisfactory to Lessor (in its sole and
absolute discretion), from Lessee's
counsel and the Guarantor's counsel,
regarding (i) the due execution, authority
and enforceability of the Lease Documents;
(ii) the compliance of the Leased Property
and the Project, in all material respects,
with applicable zoning and other land-use
Legal Requirements (except in such
instances in which a satisfactory title
insurance zoning endorsement has been
issued); (iii) the valid issuance of the
Certificate of Need, if applicable, and
all other Permits required for the
construction of the Project, the
continuing effectiveness of said
Certificate of Need, if applicable, and
other Permits and Lessee's and Project's
compliance therewith and (iv) such other
matters as Lessor may reasonably request
(collectively, the "Opinions");
L.Payment of the Leasehold Improvement Fee
(subject, however, to the provisions of
Section 3 hereof;
M.True and correct copies of all Permits and
Contracts relating to the construction and
operation of the Project (including,
without limitation, an unconditional
building permit or a building permit which
is subject only to such conditions as will
be fully satisfied by the completion of
the construction of the Project in
accordance with the Project Plans and this
Agreement);
N.Such evidence as Lessor may require that
there has been no material adverse change
in the financial condition and strength of
Lessee and the Guarantor, and that the
Leased Property shall have sustained no
impairment, reduction, loss or damage
which has not been fully restored and
repaired, and that no Condemnation
proceedings or other governmental action
is or shall be pending against or with
respect thereto;
O.Such evidence as Lessor may require that
the General Contractor and the Architect
maintain adequate insurance, as determined
in Lessor's reasonable discretion.
P. True and correct copies of all
payment, performance and completion bonds
required pursuant to 6.3.13 hereof;
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Q.A fully executed Construction Assignment,
in form and substance satisfactory to
Lessor; and
R.A fully executed and authorized
Architect's Assignment, in form and
substance satisfactory to Lessor.
7.2 Lessor's Right to Advance the Project
Funds.
Without at any time waiving any of Lessor's
rights hereunder, Lessor shall have the right to
make the first advance of a portion of the Project
Funds hereunder without the satisfaction of each
and every condition precedent to Lessor's
obligation to make such advance, and Lessee agrees
to accept such advance as Lessor may elect to
make. The making of any advance hereunder shall
not constitute an approval or acceptance by Lessor
of any work on the Project theretofore completed.
7.3 Submission of Requests for Advances of
the Project Funds.
Advances under this Agreement shall be made
not more than once each month and at least ten
(10) days before the date upon which an advance is
requested, Lessee shall give notice to Lessor,
specifying the total advance which will be
desired, accompanied by:
A.Itemized requisitions for advances or, at
Lessee's option, for reimbursements to
Lessee for prepaid items, signed by
Lessee, the Architect and the General
Contractor on A.I.A. Forms G702, G702A or
G703 or such other form(s) as Lessor may
reasonably require (together with copies
of invoices or receipted bills relating to
items covered by such requisitions when so
requested by Lessor). All such
requisitions shall include an
indemnification of Lessor by the
Architect, the General Contractor and
Lessee, jointly and severally, to the
extent such indemnification is available
from the General Contractor and the
Architect upon Lessee's best efforts to
obtain such indemnification, against any
and all claims of any subcontractors,
laborers and suppliers;
B. A certificate executed by Lessee
substantially in the form attached hereto as
EXHIBIT I;
C. A certificate executed by the
General Contractor substantially in the form
attached hereto as EXHIBIT J;
D. With respect to every other Advance
requested, a certificate executed by the
Architect substantially in the form attached
hereto as EXHIBIT K.
E. At Lessor's request, certificates
executed by the Consultants in such form as
Lessor may reasonably require;
F. To the event the Advance is not
clearly subject to effective coverage, an
endorsement of the Title Policy issued by the
Title Company, satisfactory in form and
substance to Lessor, redating the Title
Policy to the date that the then current
advance will be made, increasing the coverage
afforded by the Title Policy so that the same
shall constitute insurance in an amount at
least
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equal to the sum of the amount of the
insurance then existing under the Title
Policy plus the amount of the then current
advance of Project Funds to be disbursed to
Lessee under this Agreement and subject to no
additional exceptions other than the
Permitted Encumbrances;
G. If and when reasonably requested by
Lessor, satisfactory assurance that the
construction of the Project has been
performed in accordance with the requirements
of the Construction Contract, the Project
Plans, this Agreement and all of the other
Lease Documents and has been inspected and
found satisfactory by the parties hereto;
H. If and when reasonably requested by
Lessor, an updated Surveyor's Certificate
substantially in the form attached hereto as
EXHIBIT G and/or updated
Engineer's/Architect's Certificate
substantially in the form attached hereto as
EXHIBIT H;
I. If and when requested by Lessor,
updated Opinions from Lessee's counsel and
the Guarantor's counsel (in form and
substance satisfactory to Lessor in its sole
and absolute discretion);
J. If and when requested by Lessor,
satisfactory evidence that the funds
remaining unadvanced under this Agreement are
sufficient for the payment of all related
direct and indirect costs for the completion
of the Project in accordance with the terms
and provisions hereof. If the evidence
furnished shall not be satisfactory to
Lessor, in its sole and absolute discretion,
it shall be a condition to the making of any
further advance hereunder that Lessee will
provide Lessor with such financial guaranties
(whether in the form of a bond, cash deposit,
letter of credit or otherwise) as are
acceptable to Lessor, in its sole and
absolute discretion, to assure the completion
of the construction of the Project in
accordance with the Project Plans and the
terms and conditions of this Agreement. In
the event that Lessor requires a cash deposit
from Lessee, Lessee shall deposit with Lessor
such funds, to be held in an interest bearing
account with the interest accruing thereon to
the benefit of Lessee, which, together with
such unadvanced funds of the Loan, shall be
sufficient to pay all of the aforesaid costs.
All funds so deposited with Lessor along with
the proceeds thereof, shall be disbursed
prior to any further advance hereunder and
upon completion of the Project any remaining
funds so deposited or any unadvanced portion
of the Project Funds, shall be remitted to
Lessee;
K. A certification of work completed by
the General Contractor, together with a
statement of the payment due therefor;
L. Partial lien waivers from the
General Contractor for all work theretofore
performed, and from all other contractors and
all subcontractors and suppliers for all
work, the cost of which in each instance
exceeds ONE THOUSAND DOLLARS ($1,000.00),
which was the subject of a requisition in the
immediately preceding month;
M. If and when reasonably requested,
Lessee shall deliver to Lessor an updated
Survey of the Leased Property, acceptable to
Lessor (in its reasonable discretion);
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N. Evidence satisfactory to Lessor (in
its reasonable discretion) that all materials
and other property furnished by any
contractors, subcontractors, materialmen or
other Persons, the cost of which will be paid
with the proceeds of the advance to be made
by Lessor, are free and clear of all Liens,
except (a) encumbrances, if any, (securing
indebtedness due to Persons whose names,
addresses and amounts due to them are
identified to Lessor) that shall be
discharged upon the disbursement of the funds
then being requested, (b) the Liens created
by the Lease Documents and (c) the Permitted
Encumbrances;
O. Such evidence as Lessor may require
that there has been no material adverse
change in the financial condition and
strength of Lessee and the Guarantor, and
that the Leased Property shall have sustained
no impairment, reduction, loss or damage
which has not been fully restored and
repaired and that no condemnation is or shall
be pending against or with respect thereto;
and
P. Prior to the first advance which
includes amounts to be expended on the
construction or equipping of the
Improvements, Lessee shall, to the extent not
previously delivered to Lessor, submit to
Lessor true and correct copies of (i) the
Project Budget, (ii) the Project Plans, (iii)
the Schedules and (iv) the Construction
Contract, each of which shall be in form and
content satisfactory to Lessor (in its sole
and absolute discretion);
Lessee hereby designates Clark Claypool as
Lessee's construction representative with
authority to approve requisitions and to execute
certificates to be delivered pursuant to Section
13.3B on behalf of Lessee.
7.4 Advances by Wire Transfer.
All advances hereunder shall be made by wire
transfer of funds into a bank account maintained
by either Lessee or an authorized agent of Lessee.
7.5 Conditions Precedent to All Advances.
A. Advances hereunder shall be made solely
for the payment of the costs and
expenses incurred by Lessee directly in
connection with the construction of the
Project, consistent with the Project
Budget, which are required to be paid
out-of pocket to all other Persons or to
reimburse Lessee for out-of pocket costs
incurred by it pursuant to the Project
Budget. No funds advanced by Lessor
shall be utilized for any purpose other
than as specified herein and none of the
Project Funds shall be paid over to any
officer, stockholder or employee of any
member of the Leasing Group or to any of
the Persons collectively constituting
any member of the Leasing Group or those
holding a beneficial interest in any
member of the Leasing Group, or any
employee thereof, except to the extent
funds are used to pay compensation to an
employee for and with respect to
activity of such employee in
construction of the Project.
B. The amount of each requisition shall
represent (i) the cost of the work
completed on the Project as of the date
of such requisition, which has not been
paid for under prior requisitions, (ii)
the cost of all equipment, fixtures and
furnishings included within the Project
Budget approved
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by Lessor, which has not been paid
for under prior requisitions, but not
incorporated into any contract and which
have been delivered to the Leased
Property for incorporation into the
Project; provided that, in Lessor's
judgment, such materials are suitably
stored, secured and insured and that
Lessee can furnish Lessor with evidence
satisfactory to Lessor of Lessee's
unencumbered title thereto and (iii)
approved soft costs, which have not been
paid for under prior requisitions.
C.All requisitions for the first fifty
percent (50%) of the Project Funds shall
be subject to a ten percent ( 10%)
retainage for the completion of the
Project, and no retainage shall be
required with respect to all requisitions
thereafter. It is understood that such
retainage is intended to provide a
contingency fund to assure that the
construction of the Project shall be fully
completed in accordance with the Project
Plans and the terms and provisions of this
Agreement. All amounts so withheld shall
be disbursed after (i) construction of the
Project has been fully completed in
accordance with the Project Plans and the
terms and provisions of this Agreement,
(ii) all of the items set forth in Section
7.6 hereof have been delivered to Lessor
and (iii) the expiration of the period
during which liens may be perfected with
respect to any work performed or labor or
materials supplied in connection with the
construction of the Project or the receipt
of such evidence as may be required to
assure Lessor that no claim may thereafter
arise with respect to any work performed
or labor or materials supplied in
connection with the construction of the
Project.
D.At the time of each advance, no event
which constitutes, or which, with notice
or lapse of time, or both, would
constitute, a Lease Default shall have
occurred and be continuing.
E.Without at any time waiving any of
Lessor's rights under this Agreement,
Lessor shall always have the right to make
an advance hereunder without satisfaction
of each and every condition upon Lessor's
obligation to make an advance under this
Agreement, and Lessee agrees to accept any
advance which Lessor may elect to make
under this Agreement. Notwithstanding the
foregoing, Lessor shall have the right,
notwithstanding a waiver relative to the
first advance or any subsequent advance
hereunder, to refuse to make any and all
subsequent advances under this Agreement
until each and every condition set forth
in this Section has been satisfied. The
making of any advance hereunder shall not
constitute an approval or acceptance by
Lessor of any work on the Project
theretofore completed.
F.If, while this Agreement is in effect, a
claim is made that the Project does not
comply with any Legal Requirement or an
action is instituted before any
Governmental Authority with jurisdiction
over the Leased Property or Lessee in
which a claim is made as to whether the
Project does so comply, Lessor shall have
the right to defer any advance of Project
Funds which Lessor would otherwise be
obligated to make until such time as any
such claim is finally disposed of
favorably to the position of Lessee,
without any obligation on the part of
Lessor to make a determination of, or
judgment on, the merits of any such claim.
For the purposes of the foregoing
sentence, the term "claim" shall mean an
assertion by
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<PAGE>
any Governmental Authority or Person
as to which, in each case, Lessor has made
a good faith determination that the
assertion may properly be made by the
party asserting the same, that the
assertion, on its face, is not without
foundation and that the interests of
Lessor require that the assertion be
treated as presenting a bona fide risk of
liability or adverse effect on the
Project.
If any such proceeding is not
favorably resolved within thirty (30) days
after the commencement thereof, Lessor
shall also have the right, at its option,
to treat the commencement of such action
as a Lease Default, for which Lessor shall
have all rights herein specified for a
Lease Default. As aforesaid, Lessor shall
have no obligation to make a determination
with reference to the merits of any such
claim. No waiver of the foregoing right
shall be implied from any forbearance by
Lessor in making such election or any
continuation by Lessor in making advances
under this Agreement.
In all events, Lessee agrees to notify
Lessor forthwith upon learning of the
assertion of any such claim or the
commencement of any such proceedings.
G.It is contemplated that all advances of
the Project Funds made by Lessor to Lessee
will be pursuant to this Agreement.
H.No inspections or any approvals of the
Project during or after construction shall
constitute a warranty or representation by
Lessor or any of the Consultants as to the
technical sufficiency, adequacy or safety
of any structure or any of its component
parts, including, without limitation, any
fixtures, equipment or furnishings, or as
to the subsoil conditions or any other
physical condition or feature pertaining
to the Leased Property. All acts,
including any failure to act, relating to
the Leased Property by any agent,
representative or designee of Lessor
(including, without limitation, the
Consultants) are performed solely for the
benefit of Lessor to assure the payment
and performance of the Obligations and are
not for the benefit of Lessee or the
benefit of any other Person.
7.6 Completion of the Project.
Upon the completion of the construction of
the Project in accordance with the Project Plans
and the terms and provisions of this Agreement,
Lessee shall provide Lessor with (A) true, correct
and complete copies of (i) a final unconditional
Certificate of Occupancy (or its equivalent)
issued by the appropriate governmental
authorities, permitting the occupancy and use of
the Project for its Primary Intended Use and (ii)
all Permits issued by the appropriate Governmental
Authorities which are necessary in order to
operate the Project as a fully-licensed assisted
living facility, (B) a certification from the
Architect or the Consultants stating that the
Project was completed in accordance with the
Project Plans, (C) an updated Survey of the Leased
Property, acceptable to Lessor (in its sole and
absolute discretion), (D) updated Opinions and (E)
such other items relating to the operation and/or
construction of the Project as may be reasonably
requested by Lessor.
8. LESSOR'S RIGHT TO MAKE PAYMENTS AND TAKE OTHER
ACTION
Lessor may, after ten ( 10) Business Days'
prior notice to Lessee of its intention so to do
(except in an emergency when such shorter notice
shall be given as is reasonable
19
<PAGE>
under the circumstances), unless Lessee
demonstrates the same has already been paid, pay
any sums due or claimed to be due for labor or
materials furnished in connection with the
ownership, construction, development, maintenance,
management, repair, use or operation of the Leased
Property, and any other sums which in the
reasonable opinion of Lessor, or its attorneys, it
is expedient to pay, and may take such other and
further action which in the reasonable opinion of
Lessor is reasonably necessary in order to secure
(A) the completion of the Project in accordance
with the Project Plans and the terms and
conditions of this Agreement, (B) the protection
and priority of the security interests granted to
Lessor pursuant to the Lease Documents and (C) the
performance of all obligations under the Lease
Documents. Lessor, in its sole and absolute
discretion, may charge any such payments against
any advance that may otherwise be due hereunder to
Lessee or may otherwise collect such amounts from
Lessee, and Lessee agrees to repay to Lessor all
such amounts, which may exceed the line item
amount therefor in the Project Budget. Any amount
which is not so charged against advances due
hereunder and all costs and expenses reasonably
incurred by Lessor in connection therewith
(including, without limitation, attorneys' fees
and expenses and court costs) shall be a demand
obligation of Lessee and, to the extent permitted
by applicable law, shall be added to the Lease
Obligations and secured by the Liens created by
the Lease Documents, as fully and effectively and
with the same priority as every other obligation
of Lessee thereunder and, if not paid within ten (
10) days after demand, shall thereafter, to the
extent permitted under applicable law, bear
interest at the Overdue Rate until the date of
payment.
If Lessee fails to observe or cause to be
observed any of the provisions of this Agreement
and such failure continues beyond any applicable
notice or cure period provided for under this
Agreement, Lessor or a lawfully appointed receiver
of the Leased Property, at their respective
options, from time to time may perform, or cause
to be performed, any and all repairs and such
other work as they deem necessary to bring the
Leased Property into compliance with the
provisions of this Agreement may enter upon the
Leased Property for any of the foregoing purposes,
and Lessee hereby waives any claim against Lessor
or such receiver arising out of such entry or out
of any other act carried out pursuant to this
Section. All amounts so expended or incurred by
Lessor and by such receiver and all costs and
expenses reasonably incurred in connection
therewith (including, without limitation,
attorneys' fees and expenses and court costs),
shall be a demand obligation of Lessee to Lessor
or such receiver, and, to the extent permitted by
law, shall be added to the Obligations and shall
be secured by the Liens created by the Lease
Documents as fully and effectively and with the
same priority as every other obligation of Lessee
secured thereunder and, if not paid within ten (
10) days after demand, shall thereafter, to the
extent permitted by applicable law, bear interest
at the Overdue Rate until the date of payment.
9. INSURANCE; CASUALTY; TAKING
9.1 General Insurance Requirements.
Lessee shall at its sole cost and expense
keep the Leased Property and the business
operations conducted thereon insured as required
under the Facility Lease.
9.2. Fire or Other Casualty or Condemnation.
In the event of any damage or destruction to
the Leased Property by reason of fire or other
hazard or casualty (a "Casualty") or a taking by
power of eminent domain or conveyance in lieu
thereof of all or any portion of the Leased
Property (a "Condemnation"), Lessee shall give
immediate written notice thereof to Lessor and
20
<PAGE>
comply with the provisions of the Facility Lease
governing Casualties and Condemnations.
10. EVENTS OF DEFAULT
Each of the following shall constitute an
"Event of Default" hereunder and shall entitle
Lessor to exercise its remedies hereunder and
under any of the other Lease Documents:
A. any failure of Lessee to pay any amount
due hereunder or under any of the other
Lease Documents within ten (10) days
following the date when such payment was
due;
B. any failure in the observance or
performance of any other covenant, term,
condition or warranty provided in this
Agreement or any of the other Lease
Documents, other than the payment of any
monetary obligation and other than as
specified in subsections (C) through (F)
below (referred to herein as a "Failure
to Perform"), continuing for thirty (30)
days after the giving of notice by
Lessor to Lessee specifying the nature
of the Failure to Perform; except as to
matters not susceptible to cure within
thirty (30) days, provided that with
respect to such matters, (i) Lessee
commences the cure thereof within thirty
(30) days after the giving of such
notice by Lessor to Lessee, (ii) Lessee
continuously prosecutes such cure to
completion, (iii) such cure is completed
within one hundred twenty (120) days
after the giving of such notice by
Lessor to Lessee and (iv) such Failure
to Perform does not impair Lessor's
rights with respect to the Leased
Property or otherwise impair the
Collateral or Lessor's security interest
therein;
C. the occurrence of any default or breach
of condition continuing beyond the
expiration of the applicable notice and
grace periods, if any, under any of the
other Lease Documents;
D. if any representation, warranty or
statement contained herein or in any of
the other Lease Documents proves to be
untrue in any material respect as of the
date when made or at any time during the
Term if such representation or warranty
is a continuing representation or
warranty pursuant to Section 6.2;
E. except as a result of any Casualty or a
partial or complete Condemnation, if a
suspension of any work in connection
with the construction of the Project
occurs for a period in excess of ten (
10) Business Days, irrespective of the
cause thereof, provided that Lessee
shall not be deemed to be in default
under this Subsection if such suspension
is for circumstances not reasonably
within its control, but only if Lessor,
in its sole and absolute discretion,
shall determine that such suspension
shall not create any risk that the
construction of the Project will not be
completed (in accordance with the
Project Plans and the terms and
conditions of this Agreement) on or
before the Completion Date; and
21
<PAGE>
F. if construction of the Project shall not
be completed in accordance with the
Project Plans and this Agreement
(including, without limitation,
satisfaction of the conditions set forth
in Section 7.6) on or before the
Completion Date.
11. REMEDIES IN EVENT OF DEFAULT
Upon the occurrence of an Event of Default,
at the option of Lessor, which may be exercised at
any time after an Event of Default shall have
occurred, Lessor shall have all rights and
remedies available to it, at law or in equity,
including, without limitation, all of the rights
and remedies under the Facility Lease and the
other Lease Documents. Subject to the requirements
of applicable law, all materials at that time on
or near the Leased Property which are the property
of Lessee and which are to be used in connection
with the completion of the Project shall be
subject to the Liens created by the Lease
Documents.
In addition to, and without limitation of,
the foregoing, Lessor is authorized to charge all
money expended for completion of the Project
against sums hereunder which have not already been
advanced (even if the aggregate amount of such
sums expended and all amounts previously advanced
hereunder exceed the amount of the Project Funds
which Lessor has agreed to advance hereunder); and
Lessee agrees to pay to Lessor Rent under the
Facility Lease (calculated, in part, thereunder
based upon all sums advanced hereunder, including,
without limitation, all sums expended in good
faith by Lessor in connection with the completion
of the Project), and, in addition thereto, Lessee
agrees to pay to Lessor (as Rent under the
Facility Lease), for services in connection with
said completion of the Project, such additional
sums as shall compensate Lessor
for the time and effort Lessor and its employees
shall have expended in connection therewith.
Lessor is authorized, but not obligated in any
event, to do all such things in connection with
the construction of the Project as Lessor, in its
sole and absolute discretion, may deem advisable,
including, without limitation, the right to make
any payments with respect to any obligation of
Lessee to Lessor or to any other Person in
connection with the completion of construction of
the Project and to make additions and changes in
the Project Plans, to employ contractors,
subcontractors and agents and to take any and all
such action, either in Lessor's own name or in the
name of Lessee, and Lessee hereby grants Lessor an
irrevocable power of attorney to act in its name
in connection with the foregoing. This power of
attorney, being coupled with an interest, shall be
irrevocable until all of the Obligations are fully
paid and performed and shall not be affected by
any disability or incapacity which Lessee may
suffer and shall survive the same. The power of
attorney conferred on Lessor by the provisions of
this Section 11 is provided solely to protect the
interests of Lessor and shall not impose any duty
on Lessor to exercise any such power and neither
Lessor nor such attorney-in-fact shall be liable
for any act, omission, error in judgment or
mistake of law, except as the same may result from
its gross negligence or wilful misconduct. In the
event that Lessor takes possession of the Leased
Property and assumes control of the Project as
aforesaid, it shall not be obligated to continue
the construction of the Project and/or the
operation of the Project for any period of time
longer than Lessor shall see fit (in its sole and
absolute discretion), and Lessor may thereafter,
at any time, abandon its efforts and refuse to
make further payments for the account of Lessee,
whether or not the Project has been completed.
In addition, at Lessor's option and without
demand, notice or protest, the occurrence of any
Event of Default shall also constitute a default
under any one or more of the Related Party
Agreements.
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<PAGE>
12. GENERAL
The provisions set forth in Articles 22, 23
and Sections 2.2,16.8 through 16.10, 24.2 through
24.6, and 24.8 through 24.12 of the Facility Lease
are hereby incorporated by reference, mutatis,
mutandis, and shall be applicable to this
Agreement as if set forth in full herein.
This Agreement, the other Lease Documents and
the other Lease Documents set forth the entire
agreement of the parties with respect to the
subject matter and shall supersede in all respect
the Letter of Intent.
13. LEASE PROVISIONS PARAMOUNT
In the event of a conflict between the
provisions hereof and the provisions of the
Facility Lease, the provisions of the Facility
Lease are paramount.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT
BLANK)
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement on the day and year first
above written.
ATTEST: LESSEE:
EMERITUS PROPERTIES I, INC.,
a Washington corporation
/s/ Susan Griffin By: /s/ Kelly J. Price
---------------- ---------------------
Name: Susan Griffin Name: Kelly J.Price
Title: Vice President of Finance
ATTEST: LESSOR:
MEDITRUST ACQUISITION
CORPORATION I, a
Massachusetts corporation
/s/ Amelia C. Gentry By: /s/ Michael F. Bushee
--------------------- ------------------------
Name: Amelia C. Gentry Name: Michael F. Bushee
Title: Chief Operating Officer
24
<PAGE>
VAN VISTA FACILITY
AND
COLUMBIA HOUSE FACILITY
VANCOUVER, WASHINGTON
AGREEMENT TO PROVIDE ACCOUNTING AND
ADMINISTRATIVE SERVICES TO AN ASSISTED LIVING
FACILITY
This Agreement made as of October 1, 1997 by
and between ACORN SERVICE CORPORATION, a
Washington corporation (hereinafter referred to as
"Administrator"), and VANCOUVER HOUSING, L.L.C., a
Washington limited liability company (hereinafter
referred to as "Manager").
WHEREAS, Manager is the Manager of properties
located at 410 West l3th Street and 130 West 24th
Street, Vancouver, Washington which properties
include assisted living facilities (the
"Facilities"), pursuant to the terms of that
certain Management Agreement dated April 28,1997,
I 997 between the Vancouver Housing Authority and
Manager (the "Management Agreement");
WHEREAS, Manager 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 Manager with
assistance with the Administrative
Responsibilities; and
WHEREAS, Manager 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 ADMINISTRATOR:
Manager hereby engages Administrator and
Administrator hereby accepts such engagement and
agrees to assist Manager with respect to the
performance by Manager of the Administrative
Responsibilities. By entering into this Agreement,
Manager does not delegate to Administrator any
powers, duties or responsibilities which it is
prohibited by law from delegating. Manager 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
Manager in establishing the schedules of
recommended charges, including any and all special
charges for services rendered to the residents at
the Facilities.
B. ACCOUNTING: Administrator shall
provide administrative and accounting support to
the Facilities. 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. If Manager so elects by
notice to Administrator, Administrator shall
prepare or cause to be prepared all tax returns
required in connection with the operation of the
Facilities, including payroll tax returns (but
excluding Manager's income tax returns, which
Administrator shall prepare only if Manager and
Administrator agree upon separate compensation to
be paid to Administrator for preparing such income
tax returns) and, at Manager's sole cost and
expense, Administrator shall cause all local,
state and federal taxes to be timely paid
<PAGE>
or contested, as appropriate.
C. REPORTS: Within thirty (30) days
after the end of each calendar month,
Administrator shall provide Manager with an
unaudited balance sheet of the Facilities, dated
the last day of such month, and an unaudited
statement of income and expenses for such month
relating to the operation of the Facilities.
Within ninety (90) days after the end of the
fiscal year of the Facilities, Administrator shall
provide Manager with unaudited financial
statements including a balance sheet of the
Facilities, 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 Facilities.
D. BANK ACCOUNTS: Administrator shall
open a new checking account in the name of the
Facilities ("Facility Checking Account") and shall
deposit in the Facility Checking Account all money
received during the term of this Agreement in the
course of the operation of the Facilities;
provided, however, that during the term hereof,
withdrawals and payments from the Facility
Checking Account shall be made only on checks
signed by a person or persons authorized by
Administrator. Manager shall be given notice as to
the identity of said authorized signatories. All
facility expenses incurred in the operation of the
Facilities shall be paid by check drawn on the
Facility Checking Account. Withdrawals from the
Facility Checking Account shall be made to pay
facility expenses in such order of priority as
Administrator deems appropriate to the operation
of the Facility. In the event the revenues
generated by the Facility ate at any time
insufficient to pay all of the facility expenses,
Manager shall, within five (5) days of Manager's
receipt of a written demand by Administrator,
deposit in the Facility Checking Account
sufficient funds to satisfy the then working
capital needs of the Facilities.
E. PERSONNEL:
1. All employees shall remain the
employees of Manager. Administrator shall
administer payroll, including payroll tax
reporting, and Manager shall fund payroll twice
monthly, in accordance with all applicable federal
and state laws and regulations. Manager shall
promptly reimburse Administrator for all amounts
expended by Administrator in connection therewith.
2. Manager shall hire, train,
promote, direct, discipline, suspend and discharge
personnel at the Facilities; establish salary
levels and personnel policies; and establish
employee performance standards, all as needed
during the term of this Agreement to ensure the
ef3Ccient operation of all departments within and
services offered by the Facilities. Manager 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 Facilities.
F. INSURANCE: During the term hereof,
Manager, at its sole cost and expense, shall
arrange for and maintain:
1. All necessary and proper hazard
insurance covering the Facilities, the furniture,
fixtures, and equipment situated thereon,
2. All employee health and worker's
compensation insurance for so long as it is the
employer of the employees of the Facilities under
the terms hereof, which insurance shall be
administered by Manager, and
2
<PAGE>
3. 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 Management Agreement.
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 properly 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 Manager, except as authorized by
Administrator.
IV. TERM: The Term of this Agreement shall
commence as of October l,1997 (the "Commencement
Date") and shall terminate September 30, 2001
unless earlier terminated as provided herein. This
Agreement may be terminated on thirty (30) days
prior written notice, with or without cause, by
either Manager or Administrator, by giving notice
of termination to the other party hereto not less
than thirty (30) days prior to the effective date
specified in such notice of termination.
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:
1. 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 Manager, which notice shall
specify the event or events constituting the
default; or
2. 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 all or a
substantial part of its assets.
B. With respect to Manager, it shall be
an Event of Default hereunder:
I. If Manager 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;
2. If Manager 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 Manager; provided, however, that
in the case of Manager's failure to provide
necessary working capital upon demand by
3
<PAGE>
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;
3. If Manager 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 Manager to lose possession of the Facilities
or any personal property which would be required
to operate the Facilities in the normal course; or
4. If Manager shall be dissolved or
shall apply for or consent to the appointment of a
receiver, trustee or liquidator of Manager 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
Manager a bankrupt or insolvent or approving a
petition seeking reorganization of Manager or
appointing a receiver, trustee or liquidator of
Manager of all or a substantial part of its
assets.
VI. REMEDIES UPON DEFAULT:
A. If any Event of Default by Manager
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, Manager 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
Manager's right to receive payment of damages from
Administrator.
VII. MANAGER'S INSPECTION: During the term
hereof, Manager 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 Facilities prepared or maintained by
Administrator.
VIII. ADMINISTRATIVE SERVICES FEE: Throughout
the term of this Agreement, Administrator shall
receive a monthly fee equal to $3,000.00 per month
for the first 12 months, and $4,000.00 per month
thereafter.
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.
4
<PAGE>
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.
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: Acorn
Service Corporation
3131 Elliott Avenue, Suite
500
Seattle, Washington 98121
Telephone No.: (206) 298-
2909
Facsimile No.: (206) 301-
4500
Attn: Jeff Mikus
To Manager: Vancouver Housing, L.L.C.
3131 Elliott Avenue
Seattle, Washington 98121
Telephone No.: (206) 298-
1201
Facsimile No.: (206) 301-
4545
Attn: Keith James
XI. RELATIONSHIP OF THE PARTIES: The
relationship of the parties shall be that of
Manager and Independent Contractor and all acts
performed by Administrator during the term hereof
as Administrator of the Facilities 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 Manager, its successors and assigns on the
one hand, and Administrator, its successors and
assigns on the other hand.
XII. INDEMNIFICATION: Administrator shall
indemnify, defend, and hold harmless Manager from
and against any loss incurred by or damage to
Manager where such loss or damage results from the
negligent acts or omissions or the willful
misconduct of Administrator in performing
Administrator's obligations under this Agreement.
Manager shall indemnify, defend and hold harmless
Administrator from and against any loss incurred
by or damage to Administrator where such loss or
damage results from the negligent act or omissions
or the willful misconduct of Manager in performing
Manager's 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.
5
<PAGE>
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.
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
Manager and Administrator have been duly
authorized by all necessary laws, resolutions or
corporate action, and this Agreement constitutes
the valid and enforceable obligations of Manager
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.]
6
<PAGE>
IN WITNESS WHEREOF, the parties have hereto
caused this Agreement to be duly executed, as of
the day and year first above written.
VANCOUVER HOUSING, L.L.C.
a Washington limited liability company
By: /s/ Daniel R. Baty
----------------------------
Its: Manager
ACORN SERVICE CORPORATION
a Washington corporation
By: /s/ Michelle a. Bickford
----------------------------
Its: V.P. - New Business Development
7
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 11,912
<SECURITIES> 3,509
<RECEIVABLES> 2,366
<ALLOWANCES> (198)
<INVENTORY> 362
<CURRENT-ASSETS> 26,319
<PP&E> 146,581
<DEPRECIATION> (6,735)
<TOTAL-ASSETS> 203,560
<CURRENT-LIABILITIES> 31,183
<BONDS> 151,969
0
0
<COMMON> 1
<OTHER-SE> 12,746
<TOTAL-LIABILITY-AND-EQUITY> 203,560
<SALES> 0
<TOTAL-REVENUES> 84,968
<CGS> 0
<TOTAL-COSTS> 95,425
<OTHER-EXPENSES> (236)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,421
<INCOME-PRETAX> (14,837)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,837)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,837)
<EPS-PRIMARY> (1.35)
<EPS-DILUTED> (1.35)
</TABLE>
