<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- -----------------------------------------------------------------
FORM 10-Q
- -----------------------------------------------------------------
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT 1934
For the quarterly period ended June 30, 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 JUNE 30, 1997
WASHINGTON 91-1605464
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
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 August 14, 1997, there were 11,000,000 shares of the
Registrant's Common Stock, par value $.0001, outstanding.
<PAGE>
EMERITUS CORPORATION
Index
Part I. Financial Information
Item 1. Financial Statements: Page No.
Condensed Consolidated Balance Sheets as of
December 31, 1996 and June 30, 1997.............. 1
Condensed Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 1996 2
and 1997.........................................
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1997.. 3
Notes to Condensed Consolidated Financial 4
Statements.......................................
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 7
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security 15
Holders..........................................
Item 6. Exhibits......................................... 15
Signatures....................................... 17
Note: Items 1-3 and Item 5 of Part II are omitted
because they are not applicable
<PAGE>
EMERITUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1996 and June 30, 1997
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
June 30,
December 31, 1997
1996 (unaudited)
------------ -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................... $ 23,039 $ 13,084
Current portion of restricted deposits........ 934 469
Trade accounts receivable..................... 1,713 1,821
Prepaid expenses and other current assets..... 4,561 8,837
Investment securities available for sale...... 2,152 2,668
Property held for sale........................ - 6,949
------------ -----------
Total current assets.................. 32,399 33,828
------------ -----------
Property and equipment, net..................... 97,150 126,502
Property held for development................... 8,796 13,563
Notes receivable from and investments in
affiliates................................... 2,464 4,762
Lease acquisition costs, net.................... 8,127 8,317
Other assets, net............................... 9,102 11,914
------------ -----------
Total assets.......................... $158,038 $198,886
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings......................... $ - $ 2,000
Current portion of long-term debt............. 5,816 7,696
Trade accounts payable........................ 4,707 4,829
Construction advances - leased communities.... 6,387 -
Other current liabilities..................... 5,732 8,161
------------ -----------
Total current liabilities............. 22,642 22,686
------------ -----------
Security deposits............................... 1,014 1,110
Other long-term liabilities..................... 3,740 7,794
Deferred gain on sale of communities............ 9,433 12,931
Deferred income................................. 843 558
Convertible debentures.......................... 32,000 32,000
Long-term debt, less current portion............ 60,260 100,573
------------ -----------
Total liabilities..................... 129,932 177,652
------------ -----------
Minority interest............................... 1,918 1,589
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....... 18 894
Foreign currency translation adjustment........ - 1
Accumulated deficit............................ (18,618) (26,038)
------------ -----------
Total shareholders' equity............ 26,188 19,645
------------ -----------
Total liabilities and shareholders'
equity.............................. $158,038 $198,886
============ ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial
Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations.
1
<PAGE>
EMERITUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months and Six Months Ended June 30, 1996 and 1997
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rent............................ $14,678 $23,749 $25,892 $44,480
Service fees.................... 1,378 5,191 2,681 8,963
--------- --------- --------- ---------
Total operating revenues... 16,056 28,940 28,573 53,443
--------- --------- --------- ---------
Expenses:
Community operations............ 10,790 19,258 19,601 36,142
General and administrative...... 1,402 2,748 2,382 4,955
Depreciation and amortization... 471 1,482 1,305 2,567
Rent............................ 3,633 8,123 5,617 14,986
--------- --------- --------- ---------
Total operating expenses... 16,296 31,611 28,905 58,650
--------- --------- --------- ---------
Loss from operations....... (240) (2,671) (332) (5,207)
--------- --------- --------- ---------
Other income (expense):
Interest expense, net........... (471) (1,584) (1,650) (2,397)
Other, net...................... (108) 407 (121) 184
--------- --------- --------- ---------
Net other expense.......... (579) (1,177) (1,771) (2,213)
--------- --------- --------- ---------
Net loss................... $ (819) $(3,848) $(2,103) $(7,420)
========= ========= ========= =========
Net loss per share................ $ (0.07) $ (0.35) $ (0.19) $ (0.67)
========= ========= ========= =========
Weighted average number of common
and common equivalent shares
outstanding..................... 11,000 11,000 11,000 11,000
========= ========= ========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial
Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations.
2
<PAGE>
EMERITUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 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)....................................... $(2,148) $(1,898)
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment.............. (29,887) (13,925)
Acquisition of property held for development....... (821) (8,119)
Acquisition of property held for sale.............. - (1,495)
Proceeds from sale of property and equipment....... 47,636 20,910
Purchase of investment securities.................. - (1,839)
Sale of investment securities...................... - 3,207
Construction advances - leased communities......... - 14,785
Construction expenditures - leased communities..... - (23,399)
Advances to affiliates............................. (1,614) (1,275)
Acquisition of interest in affiliates.............. - (1,252)
--------- ---------
Net cash provided by (used in) investing
activities.................................. 15,314 (12,402)
--------- ---------
Cash flows from financing activities:
Restricted deposits................................ (4,755) (1,815)
Proceeds from short-term borrowings, net........... 1,000 2,000
Debt issue and other financing costs............... (5,241) (543)
Proceeds from long-term borrowings................. 12,856 20,385
Proceeds from issuance of convertible debentures... 30,720 -
Repayment of long-term borrowings.................. (41,075) (15,682)
Other.............................................. (92) -
--------- ---------
Net cash provided by (used in) financing
activities.................................. (6,587) 4,345
--------- ---------
Net increase (decrease) in cash................ 6,579 (9,955)
Cash at the beginning of the period.................. 9,507 23,039
--------- ---------
Cash at the end of the period........................ $16,086 $13,084
========= =========
Supplemental disclosure of cash flow information -
cash paid during the period for interest........... $ 1,702 $ 2,461
========= =========
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............................ - 12,375
Transfer of property and equipment to property held
for sale.......................................... - 6,949
Vehicle acquisition 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 June 30, 1997 and for the
three and six months ended June 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 six months ended June 30, 1997, was $(91,000)
and $(145,000) or $(0.01) and $(0.01) per share, respectively.
Effective January 1, 1997, the Company also changed the
estimate for the useful life of acquired buildings. The impact
on the for the three months ended and six months ended June 30,
1997, was $105,000 and $165,000 or $0.01 and $0.02 per share,
respectively. The impact for the three months ended and six
months ended June 30, 1996 would have been $60,000 and $111,000,
or $0.01 and $0.01 per share, respectively, if the Company had
changed the estimate during the fiscal year 1996.
3. ACQUISITIONS
During the year ended December 31, 1996 and the six months
ended June 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 47
Laurel Place (formerly Golden Park)....... April 25, 1996 2,100 72
Madison Glen (formerly Sunshine Manor).... May 15, 1996 3,842 140
The Hearthstone (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 1,338
================ =========
</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 $688,000. 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 six months
ended June 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 Initial Renewal Annual
Communities leased Acquisition date Lease Term Options Rent Units
------------------ ---------------- ----------- -------- ------ -----
<S> <C> <C> <C> <C> <C>
Carolina Communities (1)..... February 1996 15 years Three five-year $ 4,145,607 648
Evergreen Lodge.............. April 1996 13 years Four five-year 572,569 98
Rosewood Court (2)........... April 1996 14 yrs/9 mos Three five-year 393,200 71
Barrington Place............. May 1996 11 yrs/11 mos Four five-year 413,601 80
Springtree................... May 1996 11 yrs/11 mos Four five-year 1,410,353 185
The Terrace (3).............. August 1996 11 yrs/8 mos Four five-year 416,887 88
Lodge at Mainlands........... August 1996 11 yrs/7 mos Four five-year 924,530 154
Colonial Park Club........... August 1996 11 yrs/7 mos Four five-year 770,862 90
Ridge Wind................... August 1996 11 yrs/8 mos Four five-year 458,061 80
Other 1996 Leases............ October 1996 11 years Four five-year 1,753,006 226
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.
5
<PAGE>
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
(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.
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 Six months ended
June 30, June 30,
-------------------- -------------------
1996 1997 1996 1997
--------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue................. $27,157 $29,791 $53,887 $58,374
Net loss................ (2,054) (3,912) (4,178) (6,359)
Net loss per share...... $ (0.19) $ (0.36) $ (0.38) $ (0.58)
</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. PROPERTY HELD FOR SALE
At June 30, 1997, the Company had a commitment with a REIT
to refinance a $5.5 million development securing $2.5 million in
related construction financing (the "Property Held For Sale" or
"Property") through a sale/leaseback transaction, pursuant to
which the REIT will acquire the Property and lease such Property
back to the Company under an operating lease agreement. The
remaining $1.4 million of Property Held For Sale represents land
located in Maryland.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Since it's organization in July 1993, the Company has
achieved significant growth in revenues, primarily due to the
acquisition and operation of residential communities. The Company
believes that it is one of the largest providers of assisted-
living services in the United States. The Company's revenues are
derived primarily from rents and service fees charged to its
residents. For the six months ended June 30, 1996 and 1997, the
Company generated total operating revenues of $28.6 million and
$53.4 million, respectively representing an 87% increase. For the
three months ended June 30, 1996 and 1997, the Company generated
total operating revenues of $16.1 million and $28.9 million,
respectively representing an 80% increase. As of June 30, 1997,
the Company's accumulated deficit was $26.0 million and its total
shareholders' equity was $19.6 million. For the six months ended
June 30, 1996 and 1997, the Company generated net losses of $2.1
million and $7.4 million, respectively. For the three months
ended June 30, 1996 and 1997, the Company generated net losses of
$819,000 and $3.8 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 August 9, 1997, the Company holds ownership,
leasehold or management interests in 93 residential communities
(the "Operating Communities") consisting of approximately 8,100
units with a capacity of over 9,400 residents, located in 24
states. Of the 93 Operating Communities 11 newly developed
communities were opened during the first and second quarters of
1997 and three commenced operations during the third quarter of
1997. In addition to the 93 Operating Communities, two
communities have received their certificate of occupancy and are
expected to receive their operating license during the third
quarter of 1997. The Company also completed construction on an
expansion to an existing community. The Company owns, has a
leasehold interest in or has acquired an option to purchase
development sites for 27 new assisted-living communities (the
"Development Communities"). Nine of the Development Communities
are currently under construction, four of which are scheduled to
open during 1997. The Company leases 67 of its Operating
Communities, typically from a financial institution such as a
Real Estate Investment Trust ("REIT"), owns 16 communities,
manages three communities and has a joint venture and partnership
interest in four communities. Additionally, the Company holds a
minority interest in Alert Care Corporation ("Alert"), an
Ontario, Canada based owner and operator of 18 assisted-living
communities consisting of approximately 1,000 units. Assuming
completion of the 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 11,000 residents. There can be no assurance,
however, that the Pending 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.
When used in this discussion, the words "believes,"
"anticipates," "intends" and similar expressions are intended to
identify forward-looking statements. Such statements are subject
to certain risks and uncertainties that could cause actual
results to differ materially from those projected. See "Factors
Affecting Future Results and Regarding Forward-Looking
Statements" in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996. Readers are cautioned not
to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes
no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect
recent events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated,
certain items of the Company's Condensed Consolidated Statements
of Operations as a percentage of total revenues and the
percentage change of the dollar amounts from period to period.
<TABLE>
<CAPTION>
Period to Period
Percentage Increase
(Decrease)
Percentage of Revenues Three Months Six Months
Three Months Ended Six Months Ended Ended Ended
June 30, June 30, June 30, June 30,
------------------ ---------------- ------------- -------------
1996 1997 1996 1997 1996-1997 1996-1997
-------- -------- ------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.......................... 100.0 % 100.0 % 100.0 % 100.0 % 80.2 % 87.0 %
Expenses:
Community operations............ 67.2 66.5 68.6 67.6 78.5 84.4
General and administrative...... 8.7 9.5 8.3 9.3 96.0 108.0
Depreciation and amortization... 2.9 5.1 4.6 4.8 214.6 96.7
Rent............................ 22.6 28.1 19.7 28.0 123.6 166.8
-------- -------- ------- ------- ------------- -------------
Total operating expenses..... 101.4 109.2 101.2 109.7 94.0 102.9
-------- -------- ------- ------- ------------- -------------
Loss from operations......... (1.4) (9.2) (1.2) (9.7) 1012.9 1468.4
-------- -------- ------- ------- ------------- -------------
Other income (expense):
Interest expense, net........... (2.9) (5.5) (5.8) (4.5) 236.3 45.3
Other, net...................... (0.7) 1.4 (0.4) 0.3 (476.9) (252.1)
-------- -------- ------- ------- ------------- -------------
Net loss..................... (5.0)% (13.3)% (7.4)% (13.9)% 369.8 % 252.8 %
======== ======== ======= ======= ============= =============
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1996
REVENUES. Total operating revenues for the six months ended
June 30, 1997 were $53.4 million, representing a $24.8 million,
or 87%, increase over operating revenues of $28.6 million for the
comparable period in 1996. The increase resulted from the
opening of new developments and the acquisition of communities
between June 30, 1996 and 1997 and the modification in rate
structures at the communities. The Company ended with 48 and 90
communities as of June 30, 1996 and 1997, respectively, an
increase of 88%.
COMMUNITY OPERATIONS. Expenses for community operations for
the six months ended June 30, 1997 were $36.1 million,
representing a $16.5 million, or 84% increase over $19.6 million
for the comparable period in 1996, primarily due to the Company's
opening of new developments and the acquisition of communities
between June 30, 1996 and 1997. The Company ended with 48 and 90
communities as of June 30, 1996 and 1997, respectively, an
increase of 88%. As a percentage of total operating revenues,
expenses for community operations decreased to 68% for the six
months ended June 30, 1997, from 69% for the comparable period in
1996.
GENERAL AND ADMINISTRATIVE. General and administrative
expenses for the six months ended June 30, 1997 were $5.0
million, representing an increase of $2.6 million, or 108% from
$2.4 million for the comparable period in 1996. As a percentage
of total operating revenues, general and administrative expenses
increased to 9% for the six months ended June 30, 1997, from 8%
for the comparable period in 1996. The increase in general and
administrative expenses was attributable to salaries and
associated costs relating to additional employment in conjunction
with new business, increased accounting costs and higher travel
and other costs relating to the Company's acquisition and
development program. General and administrative costs are
expected to continue to increase in line with revenues and
community operations at least through 1997 as the Company
acquires additional existing communities and develops new
communities.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
DEPRECIATION AND AMORTIZATION. Depreciation and
amortization for the six months ended June 30, 1997 was $2.6
million, or 5% of total operating revenues, compared to $1.3
million or 5% of total operating revenues, for the comparable
period in 1996. The dollar increase was primarily due to the
Company's opening new developments and the acquisition of seven
communities owned by the Company net of communities sold in
sale/leaseback transactions between June 30, 1996 and 1997. The
Company owned 16 of its 90 communities at June 30, 1997 compared
to 12 of its 48 communities at June 30, 1996.
RENT. Rent expense for the six months ended June 30, 1997
was $15.0 million, representing an increase of $9.4 million, or
168% from rent expense of $5.6 million for the comparable period
in 1996. As a percentage of total operating revenues, rent
expense increased to 28% for the six months ended June 30, 1997,
from 20% 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 74% or
67 out of 90 of its residential communities as of June 30, 1997
compared to 71% or 34 out of 48 communities as of June 30, 1996.
Rent expense is expected to continue to increase as the Company
refinances owned communities through sale/leaseback transactions
and acquires additional communities through lease financing
transactions.
INTEREST EXPENSE, NET. Interest expense, net, for the six
months ended June 30, 1997 was $2.4 million compared to $1.7
million for the comparable period in 1996, decreasing as a
percentage of total operating revenues to 5% for the six months
ended June 30, 1997 from 6% 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 three developments owned by
the Company offset by the refinancing of existing debt with lower
interest mortgages in the first quarter of 1997 and the repayment
of existing mortgage debt with convertible debenture proceeds in
1996.
OTHER INCOME AND EXPENSE, NET. Other income and expense,
net, for the six months ended June 30, 1997 was income of
$184,000 compared to expense of $121,000 for the comparable
period in 1996. The dollar variance was primarily due to gains
recognized from the sale of investment securities consisting of
stock and convertible debentures.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1996
REVENUES. Total operating revenues for the three months
ended June 30, 1997 were $28.9 million, representing a $12.8
million, or 80%, increase over operating revenues of $16.1
million for the comparable period in 1996. The increase resulted
from the opening of new developments and the acquisition of
communities between June 30, 1996 and 1997 and the modification
of rate structures at the communities. The Company ended with 48
and 90 communities as of June 30, 1996 and 1997, respectively, an
increase of 88%.
COMMUNITY OPERATIONS. Expenses for community operations for
the three months ended June 30, 1997 were $19.3 million,
representing an $8.5 million, or 79% increase over $10.8 million
for the comparable period in 1996, primarily due to the Company's
opening of new developments and the acquisition of communities
between June 30, 1996 and 1997. The Company ended with 48 and 90
communities as of June 30, 1996 and 1997, respectively, an
increase of 88%. As a percentage of total operating revenues,
expenses for community operations decreased to 66.5% for the
three months ended June 30, 1997, from 67.0% for the comparable
period in 1996.
GENERAL AND ADMINISTRATIVE. General and administrative
expenses for the three months ended June 30, 1997 were $2.7
million, representing an increase of $1.3 million, or 93% from
$1.4 million for the comparable period in 1996. As a percentage
of total operating revenues, general and administrative expenses
increased to 10% for the three months ended June 30, 1997, from
9% for the comparable period in 1996. The increase in general
and administrative expenses was attributable to salaries and
associated costs relating to additional employment in conjunction
with new business, increased accounting costs and higher travel
and other costs relating to the Company's acquisition and
development program. General and administrative costs are
expected to continue to increase in line with revenues and
community operations at least through 1997 as the Company
acquires additional existing communities and develops new
communities.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
DEPRECIATION AND AMORTIZATION. Depreciation and
amortization for the three months ended June 30, 1997 was $1.5
million, or 5% of total operating revenues, compared to $471,000
or 3% of total operating revenues, for the comparable period in
1996. The dollar increase was primarily due to the Company's
opening new developments and the acquisition of seven communities
owned by the Company net of communities sold in sale/leaseback
transactions between June 30, 1996 and 1997. The Company owned
16 of its 90 communities at June 30, 1997 compared to 12 of its
48 communities at June 30, 1996.
RENT. Rent expense for the three months ended June 30, 1997
was $8.1 million, representing an increase of $4.5 million, or
125% from rent expense of $3.6 million for the comparable period
in 1996. As a percentage of total operating revenues, rent
expense increased to 28% for the three months ended June 30,
1997, from 23% 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 74% or
67 out of 90 of its residential communities as of June 30, 1997
compared to 71% or 34 out of 48 communities as of June 30, 1996.
Rent expense is expected to continue to increase as the Company
refinances owned communities through sale/leaseback transactions
and acquires additional communities through lease financing
transactions.
INTEREST EXPENSE, NET. Interest expense, net, for the three
months ended June 30, 1997 was $1.6 million compared to $471,000
for the comparable period in 1996, increasing as a percentage of
total operating revenues to 6% for the three months ended June
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 three developments owned by the
Company offset by the refinancing of existing debt with lower
interest mortgages in the first quarter of 1997.
OTHER INCOME AND EXPENSE, NET. Other income and expense,
net, for the three months ended June 30, 1997 was income of
$407,000 compared to expense of $108,000 for the comparable
period in 1996. The dollar variance was primarily due to gains
recognized from the sale of investment securities consisting of
stock and convertible debentures.
COMMUNITY COMPARISON
The Company operated 37 communities ("Same Community") on a
comparable basis during both the three months ended June 30, 1996
and 1997. Same Community average occupancy for the three months
ended June 30, 1997 was at 86% compared to 87% for the three
months ended June 30, 1996 while net operating margins increased
by $778,000 to 36% on revenue of $15.3 million as compared to 32%
on revenue of $14.4 million for the three months ended June 30,
1996. Same Community pre-tax income increased by 80% to $1.0
million before corporate overhead compared to the comparable
period last year.
The following tables set forth a comparison of Same
Community results of operations before corporate overhead for the
three months ended June 30, 1996 and 1997.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1997
(In thousands)
Increase/
1996 1997 (Decrease) Percentage Change
--------- --------- ---------- ------------------
<S> <C> <C> <C> <C>
Revenue........................... $14,390 $15,283 $893 6 %
Community operating expense....... 9,730 9,845 115 1
--------- --------- ---------- ------------------
Community operating income..... 4,660 5,438 778 17
--------- --------- ---------- ------------------
Depreciation and amortization..... 316 350 34 11
Rent.............................. 3,296 3,669 373 11
--------- --------- ---------- ------------------
Operating income............... 1,048 1,419 371 35
--------- --------- ---------- ------------------
Interest income (expense), net.... (457) (383) 74 (16)
Other income (expense), net....... (13) 5 18 (138)
--------- --------- ---------- ------------------
Pre-tax income................. $ 578 $ 1,041 $463 80 %
========= ========= ========== ==================
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
For the three months ended June 30, 1997, the Company had 48
communities that had achieved average occupancy in excess of 90%
during one quarter in the last 12 months ("Group One
Communities") and 42 communities that had average occupancy of
less than 90%, which includes 26 newly opened developments and/or
communities with significant ongoing repositioning and/or
refurbishment activity ("Group Two Communities").
Group One Communities ended the second quarter with an
average occupancy of 90% compared to 95% for the three months
ended June 30, 1996 while net operating margins increased by $3.8
million to 39% on revenue of $19.6 million as compared to 36% on
revenue of $10.8 million for the three months ended June 30,
1996. Group One Community pre-tax income increased by 53% to $1.7
million before corporate overhead compared to the comparable
period last year. The total number of Group One Communities
increased by 24 compared to the second quarter of 1996 due to a
combination of seventeen acquisitions and seven communities
achieving an occupancy greater than 90%.
Group Two Communities ended the second quarter with an
average occupancy of 53% compared to 64% for the three months
ended June 30, 1996 while net operating margins increased by
$640,000 to 22% on revenue of $9.4 million as compared to 27% on
revenue of $5.2 million for the three months ended June 30, 1996.
Group Two Community pre-tax loss increased by 402% to $3.1
million before corporate overhead compared to the comparable
period last year. The total number of Group Two Communities had a
net increase of 18 compared to the second quarter of 1996 due
primarily to the opening of new developments.
The following tables set forth a comparison of Group One and
Group Two communities results of operations for the three months
ended June 30, 1997.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1997
(In thousands)
Three
Group One Group Two Months Ended
Communities Communities Overhead June 30, 1997
----------- ----------- -------- ---------------
<S> <C> <C> <C> <C>
Revenue........................... $19,561 $ 9,372 $ 7 $28,940
Community operating expense....... 11,934 7,324 - 19,258
----------- ----------- -------- ---------------
Community operating income..... 7,672 2,048 7 9,682
----------- ----------- -------- ---------------
General and administrative........ - - 2,748 2,748
Depreciation and amortization..... 332 1,055 95 1,482
Rent.............................. 5,180 2,822 121 8,123
----------- ----------- -------- ---------------
Operating income (loss)........ 2,115 (1,829) (2,957) (2,671)
----------- ----------- -------- ---------------
Interest income (expense), net.... (372) (1,384) 172 (1,584)
Other income (expense)............ 5 143 259 407
----------- ----------- -------- ---------------
Net income (loss).............. $ 1,748 $(3,070) $(2,526) $(3,848)
=========== =========== ========= ===============
Communities....................... 48 42
Units............................. 3,662 4,206
Average Occupancy................. 90% 53%
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1996 and 1997, net cash
flow used in operating activities was $2.1 million and $1.9
million, respectively. During the six months ended June 30,
1997, the Company obtained $20.9 million in proceeds from the
sale of communities in sale/leaseback financing transactions and
repaid related mortgage debt of $8.8 million as well as $8.8
million of unrelated mortgage debt including refinancing $1.8
million and repaying $2.1 million in long-term debt on two
assisted-living communities located in Arizona. The Company also
incurred additional long-term debt of $43.6 million and purchased
additional property and equipment, property held for development
and property held for sale of $23.5 million. As a result of these
acquisition and financing transactions the Company decreased its
cash position by approximately $10.0 million. At June 30, 1997,
the Company had a commitment with a REIT to refinance one
development through a sale/leaseback transaction (the "Properties
Held For Sale" or "Property"), pursuant to which the REIT would
acquire the Property and lease such Property back to the Company
under an operating lease agreement. Of the $6.9 million in
Properties Held For Sale $5.5 million represents the development
securing $2.5 million in related construction financing. The
remaining $1.4 million represents land located in Maryland.
During the six months ended June 30, 1996, the Company obtained
$47.6 million in proceeds from the sale of communities in
sale/leaseback financing transactions and repaid related mortgage
debt of $31.6 million as well as $9.5 million of unrelated
mortgage debt. The Company also incurred additional long-term
debt of $43.6 million, including $30.7 million, net proceeds
from the private placement of convertible subordinated debentures
and purchased additional property and equipment and property held
for development of $30.7 million. As of June 30, 1997, the
Company had working capital of $11.1 million compared to a
working capital of $9.8 million as of December 31, 1996.
In April 1997, the Company completed $21.0 million in lease
financing on three assisted-living communities located in Texas.
The communities contain an aggregate of 411 units and were
acquired by the Company pursuant to an operating lease with a
REIT. The leases include an initial term of 15 years with three
five-year renewal options and annual base rent aggregating $2.2
million. The Company entered into an agreement with Columbia
House LLC ("Columbia House"), an affiliate of the Company, to
provide administrative and accounting services for a 50 unit
independent-living community located in South Carolina. Under
the agreement the Company shall receive an administrative
services fee of $2,500 payable monthly over the term of the
agreement of four years and nine months. In addition, the
Company completed construction on four developments aggregating
355 units, Elm Grove Estates in Kansas, Spring Meadows Residence
in Montana, Cold Springs Commons in Connecticut and Stonecreek
Lodge in Kentucky. The community located in Kansas received its
license to operate in June and is operated by the Company
pursuant to an operating lease agreement with a REIT. The lease
consists of an initial term of 13 years, with four five-year
renewal options and annual base rent of approximately $972,000.
The community located in Montana received its license in May and
is owned and operated by the Company. The communities located in
Kentucky and Connecticut received their license in May and June,
respectively, and are operated by the Company on a joint venture
basis pursuant to operating lease agreements with a third party.
The leases consist of an initial term of 20 years with two ten-
year renewal options and annual base rent aggregating
approximately $1.5 million. Also, the Company completed
construction on a 62 unit expansion to an existing community
located in Idaho which received its license to operate in June
and completed $533,000 in financing for an 82 unit assisted-
living to-be-constructed community located in Ogden, Utah. The
community will be constructed and operated by the Company
pursuant to an operating lease and leasehold improvement
agreement with a REIT.
On April 25, 1997, the Company and Carematrix Corporation
("Carematrix"), formerly known as The Standish Care Company
("Standish"), entered into an agreement (the "Agreement") with
respect to a community located in New Hampshire (the "Sunny Knoll
Facility"). Under this Agreement the Company agreed to the
transfer and relinquishment of its 49% interest in the Sunny
Knoll Facility and Carematrix agreed to pay $410,000 plus accrued
interest to the Company for all outstanding obligations between
the two parties. Pursuant to the Agreement, the Company was
indemnified for all future liabilities and operations and any
other agreements and obligations related to the Sunny Knoll
Facility. Also, under this Agreement, the Company was
indemnified with respect to all pre-existing agreements and
obligations with respect to Standish.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
In May 1997, the Company acquired three communities located
in Florida for a purchase price of $33.1 million financed through
a first mortgage and subordinated debt. The communities contain
an aggregate of 473 units consisting of independent, assisted-
living and Alzheimer's care. Also, the Company refinanced
approximately $8.8 million of its mortgage indebtedness secured
by four assisted-living communities aggregating 271 units through
sale/leaseback transactions with a REIT. The leases consist of
initial terms of 12 years with four five-year renewal options and
annual base rent of approximately $2.0 million. Additionally,
the Company completed construction on two newly developed
communities, Bellaire Place in South Carolina and Myrtlewood
Estates in Texas aggregating approximately 160 units. The
communities received their certificate of occupancy and upon
completion of licensure, will be operated by the Company pursuant
to operating lease agreements with a REIT. The leases consist of
an initial terms of twelve years nine months and thirteen years
eight months for Bellaire Place and Myrtlewood Estates,
respectively, with four five-year renewal options and annual base
rent of approximately $1.1 million. Bellaire Place is expected
to commence operations during the third quarter of 1997and
Myrtlewood Estates commenced operations in August 1997. In
addition, the Company entered into two agreements
("Management/Lease-Up Agreements") with an independent third
party for two to-be-constructed 82 unit communities located in
Auburn California and Cheyenne, Wyoming. Under the Management
Lease-Up Agreements, 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's monthly revenues exceed operating expenses, 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.
In June 1997, the Company entered into an agreement with
Columbia House to provide management services for a 94 unit
congregate care and assisted-living community located in
Missouri. Under the agreement the Company shall receive a base
management fee equal to 4% of gross revenues payable monthly over
the term of the agreement of twelve years with an automatic
extension of two years. In addition to the base management fee,
the Company shall receive monthly incentive fees based on the
operational performance of the community. Also, the Company
opened two newly developed communities aggregating 130 units,
Walking Horse Meadows in Tennessee and Woods at Eddy Pond in
Massachusetts. The community located in Tennessee is operated by
the Company pursuant to an operating lease agreement with a REIT.
The lease consists of an initial term of thirteen years nine
months, with four five-year renewal options and annual base rent
of approximately $361,000. 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 consist of an initial term of 20 years with two ten-year
renewal options and annual base rent aggregating approximately
$769,500. In addition, the Company completed construction on
three developments aggregating 220 units, Eastman Estates,
Meadowlands Terrace and Lakeridge Place all located in Texas.
The communities received their certificate of occupancy and upon
completion of licensure, Lakeridge Place will be operated by the
Company pursuant to an operating lease agreement with a REIT and
Eastman Estates has a commitment to be refinanced through a
sale/leaseback transaction with a REIT, pursuant to which the
Company would operate the community under an operating lease
agreement. Meadowlands Terrace is owned and will be operated by
the Company. The Lakeridge Place lease consists of an initial
term of thirteen years eight months with four five-year renewal
options and annual base rent of approximately $563,000. Eastman
Estates is expected to commence operations during the third
quarter of 1997 and Meadowlands Terrace and Lakeridge Place
commenced operations in July 1997, and August 1997, respectively.
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.
13
<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.
14
<PAGE>
PART II OTHER INFORMATION
Items 1-3 are not applicable.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on May
22, 1997. The following summarizes all matters voted on at the
meeting.
(a) To elect two directors into the Class I of the
Company's Board of Directors for a three year term:
Votes Cast
--------------------------
Nominee For Against Withheld
--------------- ------- ------- --------
Patrick Carter 10,326,344 - 13,215
Motoharu Iue 10,326,244 - 13,315
(b) To ratify the appointment of KPMG Peat Marwick LLP as
the Company's independent public accounts for the fiscal year
1997.
For Against Abstain Non-Votes
---- ------- ------- ---------
10,323,774 5,145 - -
Item 5 is not applicable.
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
10.1 Kirkland Lodge at Lakeside in Kirkland, Washington, Park
Place in Casper, Wyoming, The Hearthstone in Moses Lake,
Washington and Meadowbrook Retirement in Ontario, Oregon.
The following agreement is representative of that executed
in connection with these properties.
10.1.1 Lease Agreement dated May 1, 1997 and May 23, 1997
between Emeritus Properties I, Inc., ("Lessee") and
Meditrust Acquisition Corporation I ("Lessor").
10.2 La Villita in Phoenix, Arizona
10.2.1 Promissory Note dated April 22, 1997 in the amount of
$3,500,000 between U.S. Bank of Washington ("Lender")
and Emeritus Properties VI, Inc. ("Borrower").
10.2.2 First Addendum to Promissory Note between Lender and
Borrower.
10.2.3 Second Addendum to Promissory Note between Lender and
Borrower.
10.2.4 Construction Deed of Trust dated April 22, 1997
between Emeritus Properties VI, Inc. ("Trustor"), U.S.
Bank of Washington ("Lender " and "Beneficiary") and
United States National Bank of Oregon ("Trustee").
10.2.5 Addendum to Construction Deed of Trust between
Trustor, Lender and Trustee.
10.2.6 Guaranty dated April 22, 1997 between Daniel R. Baty
("Guarantor") U.S. Bank of Washington ("Lender") and
Emeritus Properties VI, Inc. ("Borrower").
15
<PAGE>
10.3 Autumn Ridge Retirement Home in Herculaneum, Missouri
10.3.1 Management Services Agreement dated June 1, 1997
between the registrant ("Manager") and Columbia House
LLC ("Owner").
10.4 Development Property in Ogden, Utah
10.4.1 Lease Agreement dated April 30, 1997 between Emeritus
Properties I, Inc., ("Lessee") and Meditrust
Acquisition Corporation I ("Lessor").
10.4.2 Leasehold Improvement Agreement dated April 30, 1997
between Emeritus Properties I, Inc., ("Lessee") and
Meditrust Acquisition Corporation I ("Lessor").
10.5 Development Properties in Cheyenne, Wyoming and Auburn,
California. The following agreements are representative of
those executed in connection with these properties.
10.5.1 Management Agreement dated May 30, 1997 between
Willard Holdings, Inc., ("Owner") and the registrant
("Manager").
10.5.2 Lease Agreement dated May 30, 1997 between Willard
Holdings, Inc., ("Lessor") and the registrant
("Lessee").
10.6 Senior Management Employment Agreements entered into
between the registrant and each of the following
individuals:
10.6.1 Michelle A. Bickford
10.6.2 Frank A. Ruffo
10.6.3 Kelly J. Price
10.6.4 Gary D. Witte
10.6.5 Sarah J. Curtis
10.6.6 Raymond R. Brandstrom
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K with the Securities
and Exchange Commission on May 16, 1997, which is incorporated
herein by reference, reported under Item 2, the Company's
acquisition of the La Casa Communities.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: August 14, 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)
17
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
10.1 Kirkland Lodge at Lakeside in Kirkland, Washington, Park
Place in Casper, Wyoming, The Hearthstone in Moses Lake,
Washington and Meadowbrook Retirement in Ontario, Oregon.
The following agreement is representative of that executed
in connection with these properties.
10.1.1 Lease Agreement dated May 1, 1997 and May 23, 1997
between Emeritus Properties I, Inc., ("Lessee") and
Meditrust Acquisition Corporation I ("Lessor").
10.2 La Villita in Phoenix, Arizona
10.2.1 Promissory Note dated April 22, 1997 in the amount of
$3,500,000 between U.S. Bank of Washington ("Lender")
and Emeritus Properties VI, Inc. ("Borrower").
10.2.2 First Addendum to Promissory Note between Lender and
Borrower.
10.2.3 Second Addendum to Promissory Note between Lender and
Borrower.
10.2.4 Construction Deed of Trust dated April 22, 1997
between Emeritus Properties VI, Inc. ("Trustor"), U.S.
Bank of Washington ("Lender " and "Beneficiary") and
United States National Bank of Oregon ("Trustee").
10.2.5 Addendum to Construction Deed of Trust between
Trustor, Lender and Trustee.
10.2.6 Guaranty dated April 22, 1997 between Daniel R. Baty
("Guarantor") U.S. Bank of Washington ("Lender") and
Emeritus Properties VI, Inc. ("Borrower").
10.3 Autumn Ridge Retirement Home in Herculaneum, Missouri
10.3.1 Management Services Agreement dated June 1, 1997
between the registrant ("Manager") and Columbia House
LLC ("Owner").
10.4 Development Property in Ogden, Utah
10.4.1 Lease Agreement dated April 30, 1997 between Emeritus
Properties I, Inc., ("Lessee") and Meditrust
Acquisition Corporation I ("Lessor").
10.4.2 Leasehold Improvement Agreement dated April 30, 1997
between Emeritus Properties I, Inc., ("Lessee") and
Meditrust Acquisition Corporation I ("Lessor").
10.5 Development Properties in Cheyenne, Wyoming and Auburn,
California. The following agreements are representative of
those executed in connection with these properties.
10.5.1 Management Agreement dated May 30, 1997 between
Willard Holdings, Inc., ("Owner") and the registrant
("Manager").
10.5.2 Lease Agreement dated May 30, 1997 between Willard
Holdings, Inc., ("Lessor") and the registrant
("Lessee").
10.6 Senior Management Employment Agreements entered into
between the registrant and each of the following
individuals:
10.6.1 Michelle A. Bickford
10.6.2 Frank A. Ruffo
10.6.3 Kelly J. Price
10.6.4 Gary D. Witte
10.6.5 Sarah J. Curtis
10.6.6 Raymond R. Brandstrom
27.1 Financial Data Schedule.
<PAGE>
THE FOLLOWING DOCUMENT IS SUBSTANTIALLY THE
SAME FOR ALL FOUR COMMUNITIES WITH THE
EXCEPTION OF THE FOLLOWING ITEMS:
Lease
Commencement Lease Term Annual Lease
Date Date Payment
---------- ---------- ----------
Kirkland Lodge Apr 30, 1997 Apr 30, 2009 $708,400
Park Place May 23, 1997 Apr 30, 2009 370,024
The Hearthstone May 23, 1997 Apr 30, 2009 596,192
Meadowbrook May 23, 1997 Apr 30, 2009 302,560
<PAGE>
KIRKLAND LODGE
F A C I L I T Y L E A S E A G R E E M E N T
MEDITRUST ACQUISITION CORPORATION I
(A Massachusetts corporation)
as
Lessor
AND
EMERITUS PROPERTIES I, INC.
(A Washington corporation)
as
Lessee
Dated as of May 1, 1997
For Premises Located At
6505 Lakeview Drive, N.E.
Kirkland, Washington 98033
<PAGE>
FACILITY LEASE AGREEMENT
This FACILITY LEASE AGREEMENT ("Lease")
is dated as of the 1st day of May, 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
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
<PAGE>
EXHIBIT B); (iii) all applicable laws and
(iv) all matters, whether or not of a similar
nature, which would be disclosed by an
inspection of the Leased Property or by an
accurate survey thereof.
1.2 Term. The term of this Lease shall
consist of: the "Initial Term", which shall
commence on April 30, 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.
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.
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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) 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 Agreement Regarding
Related Transactions (Acquisition) dated
October 1, 1996, 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
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Index in effect as of the date hereof. The
term "Price Index" means the Consumer Price
Index for Urban Wage Earners and Clerical
Workers, All Items-Series A (1982-84=100),
published by the Bureau of Labor Statistics,
U.S. Department of Labor. If the Bureau of
Labor Statistics should cease to publish such
Price Index in its present form and
calculated on the present basis, then the
most similar index published by the same
Bureau shall be used for the same purpose.
If there is no such similar index, a
substitute index which is then generally
recognized as being similar to such Price
Index, such substitute index to be reasonably
selected by Lessor.
Appurtenant Agreements: Collectively,
all instruments, documents and other
agreements that now or hereafter create any
utility, access or other rights or
appurtenances benefiting or relating to the
Leased Property.
Award: All compensation, sums or
anything of value awarded, paid or received
on a total or partial Condemnation.
Base Gross Revenues: The annualized
Gross Revenues of the Facility for the period
from and including May 1, 1998 through and
including April 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
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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 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, 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
5
<PAGE>
operation of any programs or services in
conjunction with the Facility and all
renewals, replacement and substitutions
therefor, now or hereafter issued to any
member of the Leasing Group by, or entered
into by any member of the Leasing Group with,
any Governmental Authority, Accreditation
Body or Third Party Payor or maintained or
used by any member of the Leasing Group or
entered into by any member of the Leasing
Group with any third Person.
Current Assets: All assets of any
Person which would, in accordance with GAAP,
be classified as current assets.
Current Liabilities: All liabilities of
any Person which would, in accordance with
GAAP, be classified as current liabilities.
Date of Taking: The date the Condemnor
has the right to possession of the property
being condemned.
Debt Coverage Ratio: The ratio of (i)
Cash Flow for each applicable period to (ii)
the total of all Rent (excluding Additional
Rent due under this Lease) paid or payable
during such period or accrued for such
period.
Declaration: As defined in Article 23.
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.
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 74 unit fully licensed
assisted living facility known as Kirkland
Lodge on the Land (together with related
parking and other amenities).
Failure to Operate: As defined in
Article 16.
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<PAGE>
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.
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
7
<PAGE>
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
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
8
<PAGE>
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.
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
(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
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upon all properties owned by Lessor that are
located within the particular jurisdiction
subject to any such tax.
Indebtedness: The total of all
obligations of a Person, whether current or
long-term, which in accordance with GAAP
would be included as liabilities upon such
Person's balance sheet at the date as of
which Indebtedness is to be determined, and
shall also include (i) all capital lease
obligations and (ii) all guarantees,
endorsements (other than for collection of
instruments in the ordinary course of
business), or other arrangements whereby
responsibility is assumed for the obligations
of others, whether by agreement to purchase
or otherwise acquire the obligations of
others, including any agreement contingent or
otherwise to furnish funds through the
purchase of goods, supplies or services for
the purpose of payment of the obligations of
others.
Indemnified Parties: As defined in
Section 12.2.2.
Index: The rate of interest of actively
traded marketable United States Treasury
Securities bearing a fixed rate of interest
adjusted for a constant maturity of ten (10)
years as calculated by the Federal Reserve
Board.
Initial Term: As defined in Section
1.2.
Instruments: As defined in the UCC.
Insurance Requirements: All terms of
any insurance policy required by this Lease,
all requirements of the issuer of any such
policy with respect to the Leased Property
and the activities conducted thereon and the
requirements of any insurance board,
association or organization or underwriters'
regulations pertaining to the Leased
Property.
Land: As defined in Article 1.
Lease: As defined in the preamble of
this Lease.
Lease Default: The occurrence of any
default or breach of condition continuing
beyond any applicable notice and/or grace
periods under this Lease and/or any of the
other Lease Documents.
Lease Documents: Collectively, this
Lease, the Guaranty of Lease Obligations, the
Agreement Regarding Related Transactions, the
Security Agreement, the Deposit Pledge
Agreement, the Negative Pledge Agreement, the
Permits Assignment, the Financing Statements,
the Affiliated Party Subordination Agreement,
the Environmental Indemnity Agreement and any
and all other instruments, documents,
certificates or agreements executed or
furnished by any member of the Leasing Group
in connection with the transactions evidenced
by the Lease and/or any of the foregoing
documents.
Lease Obligations: Collectively, all
indebtedness, covenants, liabilities,
obligations, agreements and undertakings
(other than Lessor's obligations) under this
Lease and the other Lease Documents.
Lease Year: A twelve month period
ending on April 30 of each year; provided,
that the first Lease Year shall begin on the
Commencement Date and shall end on April 30,
1998 and the final Lease Year shall end at
the end of the Term.
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Leased Improvements: As defined in
Article 1.
Leased Property: As defined in Article
1.
Leasing Commitment Fee: Thirty-Five
Thousand and 00/100 Dollars ($35,000.00).
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.
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.
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Managed Care Plans: All health
maintenance organizations, preferred provider
organizations, individual practice
associations, competitive medical plans, and
similar arrangements.
Management Agreement: Any agreement,
whether written or oral, between Lessee or
any Sublessee and any other Person pursuant
to which Lessee or such Sublessee provides
any payment, fee or other consideration to
any other Person to operate or manage the
Facility.
Management Subordination Agreement: The
Management Subordination Agreement as of even
date herewith between Lessee and Lessor.
Manager: Any Person who has entered
into a Management Agreement with Lessee or
any Sublessee.
Material Structural Work: Any (i)
structural alteration, (ii) structural repair
or (iii) structural renovation to the Leased
Property, which would customarily require or
which require the design and/or involvement
of a structural engineer or architect or
which would require the issuance of a Permit.
Medicaid: The medical assistance
program established by Title XIX of the
Social Security Act (42 USC 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 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 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
Four Negative Pledge Agreement (Acquisition)
of even date herewith by and between
Guarantor,
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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.
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, or another officer
authorized to so sign by the Board of
Directors or By-Laws of Lessee, or any other
Person whose power and authority to act has
been authorized by delegation in writing by
any of the Persons holding the foregoing
offices.
Original Meditrust Investment: The sum
of Seven Million Dollars ($7,000,000).
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
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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
74 fully licensed units or such additional
number of units 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.
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.
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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 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: 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),
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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.
UCC: The Uniform Commercial Code as in
effect from time to time in the State.
United States Treasury Securities: The
uninsured treasury securities issued by the
United States Federal Reserve Bank.
Unsuitable For Its Primary Intended Use:
As used anywhere in this Lease, the term
"Unsuitable For Its Primary Intended Use"
shall mean that, by reason of Casualty, or a
partial or temporary Taking by Condemnation,
in the good faith judgment of Lessor, the
Facility cannot be operated on a commercially
practicable basis for the Primary Intended
Use, taking into account, among other
relevant factors, the number of usable units
or beds affected by such Casualty or partial
or temporary Taking.
Unavoidable Delays: Delays due to
strikes, lockouts, inability to procure
materials, power failure, acts of God,
governmental restrictions, enemy
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action, civil commotion, fire, unavoidable
casualty or other causes beyond the control
of the party responsible for performing an
obligation hereunder, provided that lack of
funds shall not be deemed a cause beyond the
control of either party hereto.
Upgrade Renovations: Repair and
refurbishing other than normal janitorial,
cleaning and maintenance activities.
Work: As defined in Section 13.1.1.
Work Certificates: As defined in
Section 13.1.4.
Working Capital Loan: As defined in
Section 6.1.2.
Working Capital Stock Pledge: As
defined in Section 16.1(h).
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 Seven
Hundred Eight Thousand Four Hundred
Dollars ($708,400) and that is payable
in advance in equal, consecutive monthly
installments due on the first day of
each calendar month, commencing on May
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 May 1, 1999 (the
"Additional Rent Accrual Date") and
shall be payable during the Term,
quarterly in arrears, commencing on July
1, 1999 ("Additional Rent Commencement
Date") and shall be payable during the
Term, quarterly in arrears, commencing
on the first day of the first fiscal
quarter occurring following the
Additional Rent Accrual Date and there
shall be an annual reconciliation as
provided in Section 3.2 below.
3.2 Calculation and Payment of
Additional Rent; Annual
Reconciliation.
3.2.1Officer'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.
3.2.2Annual 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.
3.2.3Deficits. If the Additional
Rent, as finally determined for any
calendar year (or portion thereof),
exceeds the sum of the quarterly
payments of Additional Rent previously
paid by Lessee with respect to said
calendar year, within thirty (30) days
after such determination is required to
be made hereunder, Lessee shall pay such
deficit to Lessor and, if the deficit
exceeds five percent (5%) of the
Additional Rent which was previously
paid to Lessor with respect to said
calendar year, then Lessee shall also
pay Lessor interest on such deficit at
the Overdue Rate from the date that such
payment should have been made by Lessee
to the date that Lessor receives such
payment.
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3.2.4Overpayments. 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.
3.2.5Final 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.
3.2.6Best 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.
3.3.1Maintain Accounting Systems.
Lessee shall utilize, or cause to be
utilized, an accounting system for the
Leased Property in accordance with usual
and customary practices in the assisted
living industry and in accordance with
GAAP which will accurately record all
Gross Revenues. Lessee shall retain,
for at least three (3) years after the
expiration of each calendar year (and in
any event until the final reconciliation
described in Section 3.2 above has been
made), adequate records conforming to
such accounting system showing all Gross
Revenues for such calendar year.
3.3.2Audit 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.
3.3.3Deficiencies and Overpayments.
If any such audit discloses a deficiency
in the reporting of Gross Revenues, and
either
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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.
3.3.4Survival. The obligations of
Lessor and Lessee contained in this
Section shall survive the expiration or
earlier termination of this Lease.
3.4 Additional Charges. Subject to the
rights to contest as set forth in Article 15,
in addition to the Base Rent and Additional
Rent, (a) Lessee will also pay and discharge
as and when due and payable all Impositions,
all amounts, liabilities and obligations
under the Appurtenant Agreements and all
other amounts, liabilities and obligations
which Lessee assumes or agrees to pay under
this Lease, and (b) in the event of any
failure on the part of Lessee to pay any of
those items referred to in clause (a) above,
Lessee will also promptly pay and discharge
every fine, penalty, interest and cost which
may be added for non-payment or late payment
of such items (the items referred to in
clauses (a) and (b) above being referred to
herein collectively as the "Additional
Charges"), and Lessor shall have all legal,
equitable and contractual rights, powers and
remedies provided in this Lease, by statute
or otherwise, in the case of non-payment of
the Additional Charges, as well as the Base
Rent and Additional Rent. To the extent that
Lessee pays any Additional Charges to Lessor
pursuant to any requirement of this Lease,
Lessee shall be relieved of its obligation to
pay such Additional Charges to any other
Person to which such Additional Charges would
otherwise be due.
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.
3.6.1No Termination. Except as may
be otherwise specifically and expressly
provided in this Lease, Lessee, to the
extent
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not prohibited by applicable law, shall
remain bound by this Lease in accordance
with its terms and shall neither take
any action without the consent of Lessor
to modify, surrender or terminate the
same, nor seek nor be entitled to any
abatement, deduction, deferment or
reduction of Rent, or set-off against
the Rent, nor shall the respective
obligations of Lessor and Lessee be
otherwise affected by reason of (a) any
Casualty or any Taking of the Leased
Property, (b) the lawful or unlawful
prohibition of, or restriction upon,
Lessee's use of the Leased Property or
the interference with such use by any
Person (other than Lessor, except to the
extent permitted hereunder) or by reason
of eviction by paramount title; (c) any
claim that Lessee has or might have
against Lessor, (d) any default or
breach of any warranty by Lessor or any
of the other Meditrust Entities under
this Lease, any other Lease Document or
any Related Party Agreement, (e) any
bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation,
dissolution, winding up or other
proceedings affecting Lessor or any
assignee or transferee of Lessor or (f)
for any other cause whether similar or
dissimilar to any of the foregoing,
other than a discharge of Lessee from
any of the Lease Obligations as a matter
of law.
3.6.2Waiver. 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.
3.6.3Independent 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
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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
Taking in order to create a viable and
functional Facility under all of the
circumstances ("Net Award Amount") and the
"net amount of the insurance proceeds" shall
mean the insurance proceeds paid to Lessor or
Lessor's mortgagee on account of such
Casualty, minus all costs and expenses
incurred by Lessor in connection therewith
and minus any amounts paid to or for the
account of Lessee to reimburse for the costs
and expenses of reconstructing the Facility
following such Casualty in order to create a
viable and functional Facility under all of
the circumstances ("Net Proceeds Amount").
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.
4.1.1Lessee 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.
4.1.2Installment Elections. If any
such Imposition may, at the option of
the taxpayer, lawfully be paid in
installments (whether or not interest
shall accrue on the unpaid balance of
such Imposition), Lessee may exercise
the option to pay the same (and any
accrued interest on the unpaid balance
of such Imposition) in installments and,
in such event, shall pay such
installments during the Term hereof
(subject to Lessee's right to contest
pursuant to the provisions of Section
4.1.5 below) as the same respectively
become due and before
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any fine, penalty, premium, further
interest or cost may be added thereto.
4.1.3Returns 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.
4.1.4Refunds. 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.
4.1.5Protest. Upon giving notice
to Lessor, at Lessee's option and sole
cost and expense, and subject to
compliance with the provisions of
Article 15, Lessee may contest, protest,
appeal, or institute such other
proceedings as Lessee may deem
appropriate to effect a reduction of any
Imposition and Lessor, at Lessee's cost
and expense as aforesaid, shall fully
cooperate in a reasonable manner with
Lessee in connection with such protest,
appeal or other action.
4.2 Notice of Impositions. Lessor shall
give prompt notice to Lessee of all
Impositions payable by Lessee hereunder of
which Lessor at any time has knowledge, but
Lessor's failure to give any such notice
shall in no way diminish Lessee's obligations
hereunder to pay such Impositions.
4.3 Adjustment of Impositions.
Impositions imposed in respect of the period
during which the expiration or earlier
termination of the Term occurs shall be
adjusted and prorated between Lessor and
Lessee, whether or not such Impositions are
imposed before or after such expiration or
termination, and Lessee's obligation to pay
its prorated share thereof shall survive such
expiration or termination.
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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.
4.6.1Lessor's Option. At the
option of Lessor upon the occurrence of
an event or circumstance which, with the
giving of notice and/or the passage of
time, would constitute a Lease Default,
which may be exercised at any time
thereafter, Lessee shall, upon written
request of Lessor, on the first day on
the calendar month immediately following
such request, and on the first day of
each calendar month thereafter during
the Term (each of which dates is
referred to as a "Monthly Deposit
Date"), pay to and deposit with Lessor a
sum equal to one-twelfth (1/12th) of the
Impositions to be levied, charged,
filed, assessed or imposed upon or
against the Leased Property within one
(1) year after said Monthly Deposit Date
and a sum equal to one-twelfth (1/12th)
of the premiums for the insurance
policies required pursuant to Article 12
which are payable within one (1) year
after said Monthly Deposit Date. If the
amount of the Impositions to be levied,
charged, assessed or imposed or
insurance premiums to be paid within the
ensuing one (1) year period shall not be
fixed upon any Monthly Deposit Date,
such amount for the purpose of computing
the deposit to be made by Lessee
hereunder shall be estimated by Lessor
based upon the most recent available
information concerning said Impositions
with an appropriate adjustment to be
promptly made between Lessor and Lessee
as soon as such amount becomes
determinable. In addition, Lessor may,
at its option, from time to time require
that any particular deposit be greater
than one-twelfth (1/12th) of the
estimated amount payable within one (1)
year after said Monthly Deposit Date, if
such additional deposit is required in
order to provide to Lessor a sufficient
fund from which to make payment of all
Impositions on or before the next due
date of any installment thereof, or to
make payment of any required insurance
premiums not later than the due date
thereof.
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4.6.2Use of Deposits. The sums
deposited by Lessee under this Section
4.6 shall be held by Lessor and shall be
applied in payment of the Impositions or
insurance premiums, as the case may be,
when due. Any such deposits may be
commingled with other assets of Lessor,
and shall be deposited by Lessor at such
bank as Lessor may, from time to time
select, and, provided that Lessor has
invested such deposits in one or more of
the investment vehicles described on
SCHEDULE 4.6.2 attached hereto and
incorporated by reference, Lessor shall
not be liable to Lessee or any other
Person (a) based on Lessor's (or such
bank's) choice of investment vehicles,
(b) for any consequent loss of principal
or interest or (c) for any
unavailability of funds based on such
choice of investment. Furthermore,
Lessor shall bear no responsibility for
the financial condition of, nor any act
or omission by, Lessor's depository
bank. The income from such investment
or interest on such deposit shall be
paid to Lessee on a semi-annual basis as
long as no Lease Default has occurred
and is then continuing, and as long as
no fact or circumstance exists which,
with the giving of notice and/or the
passage of time, would constitute a
Lease Default. Lessee shall give not
less than ten (10) days prior written
notice to Lessor in each instance when
an Imposition or insurance premium is
due, specifying the Imposition or
premium to be paid and the amount
thereof, the place of payment, and the
last day on which the same may be paid
in order to comply with the requirements
of this Lease. If Lessor, in violation
of its obligations under this Lease,
does not pay any Imposition or insurance
premium when due, for which a sufficient
deposit exists, Lessee shall not be in
default hereunder by virtue of the
failure of Lessor to pay such Imposition
or such insurance premium and Lessor
shall pay any interest or fine assessed
by virtue of Lessor's failure to pay
such Imposition or insurance premium.
4.6.3Deficits. If for any reason
any deposit held by Lessor under this
Section 4.6 shall not be sufficient to
pay an Imposition or insurance premium
within the time specified therefor in
this Lease, then, within ten (10) days
after demand by Lessor, Lessee shall
deposit an additional amount with
Lessor, increasing the deposit held by
Lessor so that Lessor holds sufficient
funds to pay such Imposition or premium
in full (or in installments as otherwise
provided for herein), together with any
penalty or interest due thereon. Lessor
may change its estimate of any
Imposition or insurance premium for any
period on the basis of a change in an
assessment or tax rate or on the basis
of a prior miscalculation or for any
other good faith reason; in which event,
within ten (10) days after demand by
Lessor, Lessee shall deposit with Lessor
the amount in excess of the sums
previously deposited with Lessor for the
applicable period which would
theretofore have been payable under the
revised estimate.
4.6.4Other 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
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of such Imposition and Lessee shall not
have the right to apportion any deposit
with respect to such Imposition.
4.6.5Transfers. In connection with
any assignment of Lessor's interest
under this Lease, the original Lessor
named herein and each successor in
interest shall transfer all amounts
deposited pursuant to the provisions of
this Section 4.6 and still in its
possession to such assignee (as the
subsequent holder of Lessor's interest
in this Lease) and upon such transfer,
the original Lessor named herein or the
applicable successor in interest
transferring the deposits shall
thereupon be completely released from
all liability with respect to such
deposits so transferred and Lessee shall
look solely to said assignee, as the
subsequent holder of Lessor's interest
under this Lease, in reference thereto.
4.6.6Security. 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.
4.6.7Return. 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.
4.6.8Receipts. 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.
5.2.1Lessee 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
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replacements thereof, shall be at all
times the property of Lessee.
5.2.2Sufficient Personal Property.
Lessee shall maintain, during the entire
Term, the Tangible Personal Property and
Leased 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.
5.2.3Removal 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 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.
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6.1.1Security. 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.
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
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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
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. 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
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CONDITION OR OTHERWISE, OR AS TO DEFECTS IN
THE QUALITY OF THE MATERIAL OR WORKMANSHIP
THEREIN, LATENT OR PATENT; IT BEING AGREED
THAT ALL RISKS RELATING TO THE DESIGN,
CONDITION AND/OR USE OF THE LEASED PROPERTY
ARE TO BE BORNE BY LESSEE. LESSEE HEREBY
ASSUMES ALL RISK OF THE PHYSICAL CONDITION OF
THE LEASED PROPERTY, THE SUITABILITY OF THE
LEASED PROPERTY FOR LESSEE'S PURPOSES, AND
THE COMPLIANCE OR NON-COMPLIANCE OF THE
LEASED PROPERTY WITH ALL APPLICABLE
REQUIREMENTS OF LAW, INCLUDING BUT NOT
LIMITED TO ENVIRONMENTAL LAWS AND ZONING OR
LAND USE LAWS.
Upon the request of Lessor, at any time
and from time to time during the Term, Lessee
shall engage one (1) or more independent
professional consultants, engineers and
inspectors, qualified to do business in the
State and acceptable to Lessor to perform any
environmental and/or structural
investigations and/or other inspections of
the Leased Property and the Facility as
Lessor may reasonably request in order to
detect (a) any structural deficiencies in the
Leased Improvements or the utilities
servicing the Leased Property or (b) the
presence of any condition that (i) may be
harmful or present a health hazard to the
residents and other occupants of the Leased
Property or (ii) constitutes a breach or
violation of any of the Lease Documents. In
the event that Lessor reasonably determines
that the results of such testing or
inspections are unsatisfactory, within thirty
(30) days of notice from Lessor, Lessee shall
commence such appropriate remedial actions as
may be reasonably requested by Lessor to
correct such unsatisfactory conditions and,
thereafter, shall diligently and continuously
prosecute such remedial actions to completion
within the time limits prescribed in this
Lease or the other Lease Documents.
7.2 Use of the Leased Property;
Compliance; Management.
7.2.1Obligation 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.
7.2.2Permitted 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.
7.2.3Compliance 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
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with and to insure that the Leased
Property complies with all Insurance
Requirements.
7.2.4No 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.
7.2.5No 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.
7.2.6No 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 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.
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Each Management Agreement shall provide
that Lessor shall be provided notice of any
defaults thereunder and, at Lessor's option,
an opportunity to cure such default. Lessee
shall furnish to Lessor, within three (3)
days after receipt thereof, or after the
mailing or service thereof by Lessee, as the
case may be, a copy of each notice of default
which Lessee shall give to, or receive from
any Person, based upon the occurrence, or
alleged occurrence, of any default in the
performance of any covenant, condition,
promise or obligation under any Management
Agreement.
Whenever and as often as Lessee shall
fail to perform, promptly and fully, at its
sole cost and expense, any covenant,
condition, promise or obligation on the part
of the licensed operator of the Leased
Property under and pursuant to any Management
Agreement, Lessor, or a lawfully appointed
receiver of the Leased Property, may, at
their respective options (and without any
obligation to do so), after five (5) days'
prior notice to Lessee (except in the case of
an emergency) enter upon the Leased Property
and perform, or cause to be performed, such
work, labor, services, acts or things, and
take such other steps and do such other acts
as they may deem advisable, to cure such
defaulted covenant, condition, promise or
obligation, and any amount so paid or
advanced by Lessor or such receiver and all
costs and expenses reasonably incurred in
connection therewith (including, without
limitation, attorneys' fees and expenses and
court costs), shall be a demand obligation of
Lessee to Lessor or such receiver, and,
Lessor shall have the same rights and
remedies for failure to pay such costs on
demand as for Lessee's failure to pay any
other sums due hereunder.
7.5 Participation in Third Party Payor
Programs. No provision of this Lease shall
be deemed to require Lessee to commence
participation in any Third Party Payor
Program or any Managed Care Plan.
ARTICLE 8
REPAIRS; RESTRICTIONS
8.1 Maintenance and Repair.
8.1.1 Lessee's Responsibility.
Lessee, at its sole cost and expense,
shall keep the Leased Property and all
private roadways, sidewalks and curbs
appurtenant thereto which are under
Lessee's control in good order and
repair (whether or not the need for such
repairs occurs as a result of Lessee's
use, any prior use, the elements or the
age of the Leased Property or such
private roadways, sidewalks and curbs or
any other cause whatsoever other than
Lessor's gross negligence or willful
misconduct) and, subject to Articles 9,
13 and 14, Lessee shall promptly, with
the exercise of all reasonable efforts,
undertake and diligently complete all
necessary and appropriate repairs,
replacements, renovations, restorations,
alterations and modifications thereof of
every kind and nature, whether interior
or exterior, structural or non-
structural, ordinary or extraordinary,
foreseen or unforeseen or arising by
reason of a condition (concealed or
otherwise) existing prior to the
commencement of, or during, the Term and
thereafter until Lessee surrenders the
Leased Property in the manner required
by this Lease. In addition, Lessee, at
its sole cost and expense, shall make
all repairs, modifications,
replacements, renovations and
alterations of the Leased Property (and
such private roadways, sidewalks and
curbs) that
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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.
Without limiting the generality of the
foregoing, Lessee shall install, or pay
for, the underground utilities if and to
the extent any Person is or shall be
required to do so pursuant to the
Concomitant Agreement Relating to
Construction or Installation of Public
Improvements by and between Emeritus
Corporation and City of Kirkland,
Washington and recorded with King County
Records as Recording No. 9604080115.
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 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
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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 of any
labor or services or the furnishing of
any materials or other property
furnished to the Leased Property at or
by the request of Lessee or any other
Person other than Lessor. Lessee shall
notify any contractor, subcontractor,
laborer, materialman or vendor providing
any labor, services or materials to the
Leased Property of this provision.
8.2 Encroachments; Title Restrictions.
If any of the Leased Improvements shall, at
any time, encroach upon any property, street
or right-of-way adjacent to the Leased
Property, or shall violate the agreements or
conditions contained in any lawful
restrictive covenant or other Lien now or
hereafter affecting the Leased Property, or
shall impair the rights of others under any
easement, right-of-way or other Lien to which
the Leased Property is now or hereafter
subject, then promptly upon the request of
Lessor, Lessee shall, at its sole cost and
expense, subject to Lessee's right to contest
the existence of any encroachment, violation
or impairment as set forth in Article 15, (a)
obtain valid and effective waivers or
settlements of all claims, liabilities and
damages resulting from each such
encroachment, violation or impairment or (b)
make such alterations to the Leased
Improvements, and take such other actions, as
Lessee in the good faith exercise of its
judgment deems reasonably practicable, to
remove such encroachment, or to end such
violation or impairment, including, if
necessary, the alteration of any of the
Leased Improvements. Notwithstanding the
foregoing, Lessee shall, in any event, take
all such actions as may be reasonably
necessary in order to be able to continue the
operation of the Leased Improvements for the
Primary Intended Use and, if applicable, the
Other Permitted Uses substantially in the
manner and to the extent that the Leased
Improvements were operated prior to the
assertion of such encroachment, violation or
impairment and nothing contained herein shall
limit Lessee's obligations to operate the
Leased Property in accordance with its
Primary Intended Use. Any such alteration
made pursuant to the terms of this Section
8.2 shall be completed in conformity with the
applicable requirements of Section 8.1 and
Article 9. Lessee's obligations under this
Section 8.2 shall be in addition to and shall
in no way discharge or diminish any
obligation of any insurer under any policy of
title or other insurance. If and to the
extent any obligation of an insurer under any
policy of title or other insurance exists and
Lessee has incurred costs and expenses with
respect to the subject matter of such
obligation and provided Lessor is reasonably
satisfied with the resolution of such subject
matter, at the request of Lessee, Lessor, at
Lessor's option, shall either assign to
Lessee any right it may have to proceed
against such insurer or remit to Lessee any
amount which Lessor recovers from such
insurer, minus any amounts needed to
reimburse Lessor for its reasonable costs and
expenses, 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.
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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.
9.2.1No 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.
9.2.2Lessee'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.
9.2.3Lessor'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
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other terms and conditions as Lessor may
in its discretion reasonably impose or
(d) any combination of the foregoing.
Unless Lessor notifies Lessee in writing
of a contrary election within thirty
(30) days of Lessee's request or unless
Lessor is required to consent thereto
pursuant to this Section 9.2.3, Lessor
shall be deemed to have denied the
request for the Capital Addition or
Material Structural Work. In the event
and to the extent Lessor has granted
permission for the construction of the
applicable Capital Addition or Material
Structural Work and (x) Lessor has not
offered to finance the construction of
the same or (y) Lessee declines to
accept the financing offered by Lessor,
Lessee may separately finance such
construction, subject to the limitation
on Liens set forth in Section 9.2.1, or
pay for such construction itself. In
the event Lessee declines to accept the
financing offered by Lessor or if Lessor
has not offered such financing to Lessee
and proposes to obtaining financing from
another Person, Lessee shall inform
Lessor in writing of the terms and
conditions of such financing and shall
provide Lessor with a copy of a
commitment letter evidencing the same
and Lessor may, by giving notice thereof
to Lessee within twenty (20) days
following being so informed, elect to
provide financing to Lessee at the
effective rate of interest as such
financing. Lessor shall not unreasonably
withhold its permission for the
construction of Material Structural Work
which is necessary to protect the safety
or welfare of residents of the Facility.
9.2.4Lessor 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.
9.3.1Advances. 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.
9.3.2Lessor'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
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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 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
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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.
9.3.3Payment of Costs. By virtue
of making a request to finance a Capital
Addition, whether or not such financing
is actually consummated, Lessee shall be
deemed to have agreed to pay, upon
demand, all costs and expenses
reasonably incurred by Lessor and any
Person participating with Lessor in any
way in the financing of the Capital
Addition Cost, including, but not
limited to (a) fees and expenses of
their respective attorneys, (b) all
photocopying expenses, if any, (c) the
amount of any filing, registration and
recording taxes and fees, (d)
documentary stamp taxes and intangible
taxes (e) title insurance charges and
appraisal fees.
9.4 General Limitations. Without in any
way limiting Lessor's options with respect to
proposed Capital Additions or Material
Structural Work: (a) no Capital Addition or
Material Structural Work shall be completed
that could, upon completion, significantly
alter the character or purpose or detract
from the value or operating efficiency of the
Leased Property, or significantly impair the
revenue-producing capability of the Leased
Property, or adversely affect the ability of
Lessee to comply with the terms of this
Lease; (b) no Capital Addition or Material
Structural Work shall be completed which
would tie in or connect any Leased
Improvements on the Leased Property with any
other improvements on property adjacent to
the Leased Property (and not part of the Land
covered by this Lease) including, without
limitation, tie-ins of buildings or other
structures or utilities, unless Lessee shall
have obtained the prior written approval of
Lessor, which approval may be withheld in
Lessor's sole and absolute discretion and (c)
all proposed Capital Additions and Material
Structural Work shall be architecturally
integrated and consistent with the Leased
Property.
9.5 Non-Capital Additions. Lessee shall
have the obligation and right to make
repairs, replacements and alterations which
are not Capital Additions as required by the
other Sections of this Lease, but in so
doing, Lessee shall always comply with and
satisfy the conditions of Section 9.4.
Lessee shall have the right, from time to
time, to make additions, modifications or
improvements to the Leased Property which do
not constitute Capital Additions or Material
Structural Work as it may deem to be
desirable or necessary for its
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uses and purposes, subject to the same limits
and conditions imposed under Section 9.4.
The cost of any such repair, replacement,
alteration, addition, modification or
improvement shall be paid by Lessee and the
results thereof shall be included under the
terms of this Lease and become a part of the
Leased Property, without payment therefor by
Lessor at any time. Notwithstanding the
foregoing, all such additions, modifications
and improvements which affect the structure
of any of the Leased Improvements, or which
involve the expenditure of more than FIFTY
THOUSAND DOLLARS ($50,000.00), shall be
undertaken only upon compliance with the
provisions of Section 13.1.3, all applicable
Legal Requirements and all other applicable
requirements of this Lease; provided,
however, that in the event of a bona fide
emergency during which Lessee is unable to
contact the appropriate representatives of
Lessor, Lessee may commence such additions,
modifications and improvements as may be
necessary in order to address such emergency
without Lessor's prior approval, as long as
Lessee immediately thereafter advises Lessor
of such emergency and the nature and scope of
the additions, modifications and improvements
performed and obtains Lessor's approval of
the remaining work to be completed. Any such
addition, modification and improvement which
affects the structure of any of the Leased
Improvements which is not a Capital Addition
or Material Structural Work shall be exempt
from the requirements of Section 9.2 hereof.
9.6 Compensation to Lessee for Capital
Additions Paid For or Financed by Lessee.
Upon the expiration or earlier termination of
this Lease, except by reason of the default
by Lessee hereunder, Lessor shall compensate
Lessee for all Capital Additions paid for or
financed by Lessee in any of the following
ways, determined in the sole discretion of
Lessor:
(a) By purchasing all Capital Additions
paid for or financed by Lessee from Lessee
for cash in the amount of the Fair Market
Added Value (determined as of the date of
such purchase) of all such Capital Additions
paid for or financed by Lessee; or
(b) By purchasing such Capital Addition
from Lessee by delivering to Lessee Lessor's
purchase money promissory note in the amount
of said Fair Market Added Value, due and
payable no later than eighteen (18) months
after the date of expiration or other
termination of this Lease, bearing interest
at a rate equal to one hundred ten percent
(110%) of the applicable federal rate
(determined at the time of execution of such
note pursuant to Section 1274 of the Code or
any successor section thereto), compounded
semiannually, or, if no such rate exists, or
such rate is in excess of that permitted
under applicable law, at the Prime Rate,
which interest shall be payable monthly, and
which note shall be secured by a mortgage on
the Leased Property, subject to all Liens on
the Leased Property at the time of such
purchase; or
(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
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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
10.1Representations 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,
mortgage, lien, lease, agreement,
instrument, franchise, arbitration
award, judgment, decree, bank loan or
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credit agreement, trust indenture or
other instrument to which any member of
the Leasing Group is a party or by which
any member of the Leasing Group may be
bound or affected and do not violate or
contravene any Legal Requirement.
10.1.5 Consents and Approvals.
Except as already obtained or filed, as
the case may be, no consent or approval
or other authorization of, or exemption
by, or declaration or filing with, any
Person and no waiver of any right by any
Person is required to authorize or
permit, or is otherwise required as a
condition of the execution, delivery and
performance of its obligations under the
Lease Documents by any member of the
Leasing Group or as a condition to the
validity (assuming the due
authorization, execution and delivery by
Lessor of the Lease Documents to which
it is a party) and the first priority of
any Liens granted under the Lease
Documents, except the filing of the
Financing Statements.
10.1.6 No Liens or Insolvency
Proceedings. Each member of the Leasing
Group in existence as of the date hereof
is financially solvent and there are no
actions, suits, investigations or
proceedings including, without
limitation, outstanding federal or state
tax liens, garnishments or insolvency or
bankruptcy proceedings, pending or, to
the best of Lessee's knowledge and
belief, threatened:
(a) against or affecting any
member of the Leasing Group, which
if adversely resolved to such
member of the Leasing Group, would
materially adversely affect the
ability of any of the foregoing to
perform their respective
obligations under the Lease
Documents;
(b) against or affecting the
Leased Property or the ownership,
construction, development,
maintenance, management, repair,
use, occupancy, possession or
operation thereof; or
(c) which may involve or
affect the validity, priority or
enforceability of any of the Lease
Documents, at law or in equity, or
before or by any arbitrator or
Governmental Authority.
10.1.7 Intentionally deleted.
10.1.8 Commercial Acts.
Lessee's performance of and compliance
with the obligations and conditions set
forth herein and in the other Lease
Documents will constitute commercial
acts done and performed for commercial
purposes.
10.1.9 Adequate Capital, Not
Insolvent. After giving effect to the
consummation of the transactions
contemplated by the Lease Documents,
each member of the Leasing Group:
(a) will be able to pay its
debts as they become due;
(b) will have sufficient
funds or available capital to carry
on its business as now conducted or
as
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contemplated to be conducted (in
accordance with the terms of the
Lease Documents); and
(c) will not be rendered
insolvent as determined by
applicable law.
10.1.10 Not Delinquent.
Except as permitted under Section
11.3.8, no member of the Leasing Group
which exists as of the date hereof is
delinquent or claimed to be delinquent
under any obligation for the payment of
borrowed money.
10.1.11 No Affiliate Debt.
Lessee has not created, incurred,
guaranteed, endorsed, assumed or
suffered to exist any liability (whether
direct or contingent) for borrowed money
from the Guarantor (or any of its
Affiliates) or any Affiliate of Lessee
which has not been fully subordinated to
the Lease Obligations.
10.1.12 Taxes Current. Each
member of the Leasing Group which exists
as of the date hereof has filed all
federal, state and local tax returns
which are required to be filed as to
which extensions are not currently in
effect and has paid all taxes,
assessments, impositions, fees and other
governmental charges (including interest
and penalties) which have become due
pursuant to such returns or pursuant to
any assessment or notice of tax claim or
deficiency received by each such member
of the Leasing Group. No tax liability
has been asserted by the Internal
Revenue Service against any member of
the Leasing Group or any other federal,
state or local taxing authority for
taxes, assessments, impositions, fees or
other governmental charges (including
interest or penalties thereon) in excess
of those already paid.
10.1.13 Financials Complete
and Accurate. The financial statements
of each member of the Leasing Group
given to Lessor in connection with the
execution and delivery of the Lease
Documents were true, complete and
accurate, in all material respects, and
fairly presented the financial condition
of each such member of the Leasing Group
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.
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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 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, 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
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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, 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
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story to any of the Leased Improvements,
decreased the amount of parking
available on the Leased Property or
otherwise involved any alteration which
would be regulated by applicable zoning
requirements, in each case without the
express written consent of Lessor.
Except for matters which have been
disclosed to Lessor or concerning which
Lessor has independent actual knowledge,
Lessee has no actual knowledge of any
such structural alteration or
improvement made to any of the Leased
Improvements during the last ten (10)
years and has no knowledge of any such
structural alteration or renovation made
to any of the Leased Improvements or any
such decrease in parking during such
period.
10.1.18 Third Party Payor
Agreements.
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.
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10.1.23 No Broker. No
member of the Leasing Group nor any of
their respective Affiliates has dealt
with any broker or agent in connection
with the transactions contemplated by
the Lease Documents.
10.1.24 No Improper
Payments. No member of the Leasing
Group nor any of their respective
Affiliates has:
(a) made any contributions,
payments or gifts of its funds or
property to or for the private use
of any government official,
employee, agent or other Person
where either the payment or the
purpose of such contribution,
payment or gifts is illegal under
the laws of the United States, any
state thereof or any other
jurisdiction (foreign or domestic);
(b) knowingly established or
maintained any unrecorded fund or
asset for any purpose or knowingly
made any false or artificial
entries on any of its books or
records for any reason;
(c) made any payments to any
Person with the intention or
understanding that any part of such
payment was to be used for any
other purpose other than that
described in the documents
supporting the payment; or
(d) made any contribution, or
reimbursed any political gift or
contribution made by any other
Person, to candidates for public
office, whether federal, state or
local, where such contribution
would be in violation of applicable
law.
10.1.25 Nothing Omitted.
Neither this Lease, nor any of the other
Lease Documents, nor any certificate,
agreement, statement or other document,
including, without limitation, any
financial statements concerning the
financial condition of any member of the
Leasing Group, furnished to or to be
furnished to Lessor or its attorneys in
connection with the transactions
contemplated by the Lease Documents,
contains or will contain any untrue
statement of a material fact or omits or
will omit to state a material fact
necessary in order to prevent all
statements contained herein and therein
from being misleading. There is no fact
within the special knowledge of Lessee
which has not been disclosed herein or
in writing to Lessor that 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
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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, 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
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10.1.13 and in the second sentence of Section
10.1.25 shall not constitute continuing
representations and warranties throughout the
Term provided, however, that nothing
contained in the first sentence of Section
10.1.25 shall be construed as imposing any
obligation on Lessee to update after the
Commencement Date the information furnished
to Lessor prior to the execution and delivery
of this Lease but without derogation of any
other obligation Lessee has under this Lease
to provide information to Lessor.
ARTICLE 11
FINANCIAL AND OTHER COVENANTS
11.1 Status Certificates. At any time,
and from time to time, upon request from the
other, Lessee and Lessor shall furnish to the
other, within ten (10) Business Days' after
receipt of such request, an Officer's
Certificate certifying that this Lease is
unmodified and in full force and effect (or
that this Lease is in full force and effect
as modified and setting forth the
modifications) and the dates to which the
Rent has been paid. Any Officer's
Certificate furnished pursuant to this
Section at the request of Lessor shall be
addressed to any prospective purchaser or
mortgagee of the Leased Property as Lessor
may request and may be relied upon by Lessor
and any such prospective purchaser or
mortgagee of the Leased Property.
11.2 Financial Statements; Reports;
Notice and Information.
11.2.1 Obligation To Furnish.
Lessee will furnish and shall cause to
be furnished to Lessor the following
statements, information and other
materials:
(a) Annual Statements.
Within ninety (90) days after the
end of each of their respective
fiscal years, (i) a copy of the
Consolidated Financials for each of
(x) Lessee, (y) the Guarantor and
(z) any Sublessee which is an
Affiliate of Lessee for the
preceding fiscal year, certified
and, in the case of Guarantor,
audited by, and with the
unqualified opinion of, independent
certified public accountants
acceptable to Lessor and certified
as true and correct by Lessee, the
Guarantor or the applicable
Sublessee, as the case may be (and,
without limiting anything else
contained herein, the Consolidated
Financials for Lessee and for each
such Sublessee shall include a
detailed balance sheet for Leased
Property as of the last day of such
fiscal year and a statement of
earnings from the Leased Property
for such fiscal year showing, among
other things, all rents and other
income therefrom and all expenses
paid or incurred in connection with
the operation of the Leased
Property); (ii) separate
statements, certified as true and
correct by Lessee, the Guarantor,
any Manager which is an Affiliate
of Lessee and each such Sublessee
which is an Affiliate of Lessee,
stating whether, to the best of the
signer's knowledge and belief after
making due inquiry, Lessee, the
Guarantor, such Manager or any such
Sublessee, as the case may be, is
in default in the performance or
observance of any of the terms of
this Lease or any of the other
Lease Documents and, if so,
specifying all such defaults, the
nature thereof and the steps
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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 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
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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
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
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the giving of notice or the passage
of time, or both, would constitute
a Lease Default, a written
statement of Lessee setting forth
the details of such Lease Default,
event or circumstance and the
action which Lessee proposes to
take with respect thereto.
(k) Official Actions.
Promptly but in no event more than
ten (10) days after the
commencement thereof, notice of all
actions, suits and proceedings
before any Governmental Authority
or Accreditation Body which could
have a material adverse effect on
any member of the Leasing Group or
the Leased Property.
(l) Audit Reports. Promptly
but in no event more than ten (10)
days after receipt, a copy of all
audits or reports submitted to
Lessee by any independent public
accountant in connection with any
annual, special or interim audits
of the books of Lessee and, if
requested by Lessor, any letter of
comments directed by such
accountant to the management of
Lessee.
(m) Adverse Developments.
Promptly but in no event more than
ten (10) days after Lessee acquires
knowledge thereof, written notice
of:
(i) the potential
termination of any
Permit or Provider
Agreement necessary
for the operation of
the Leased Property;
(ii) any loss,
damage or destruction
to or of the Leased
Property in excess of
TWENTY-FIVE THOUSAND
DOLLARS ($25,000)
(regardless of
whether the same is
covered by
insurance);
(iii) any material
controversy involving
Lessee or any
Sublessee which is an
Affiliate of Lessee
and (x) Facility
administrator or
Facility employee of
similar stature or
(y) any labor
organization or (z)
the Manager or any
employee of the
Manager which has, or
is reasonably likely
to have, a materially
adverse effect on the
financial condition
and/or operations of
the Facility;
(iv) any controversy
that calls into
question the
eligibility of the
Facility for the
participation in any
Medicaid, Medicare or
other Third Party
Payor Program in
which the Facility is
participating;
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(v) any refusal of
reimbursement by any
Third Party Payor
which, singularly or
together with all
other such refusals
by any Third Party
Payors, could
reasonably be
expected to have a
material adverse
effect on the
financial condition
of Lessee or any
Sublessee which is an
Affiliate of Lessee;
and
(vi) any fact within
the special knowledge
of any member of the
Leasing Group, or any
other development in
the business or
affairs of any member
of the Leasing Group,
which could
reasonably be
expected to be
materially adverse to
the business,
properties, assets or
condition, financial
or otherwise, of any
member of the Leasing
Group or the Leased
Property.
(n) Responses To Inspection
Reports. Within thirty (30) days
after receipt of an inspection
report relating to the Leased
Property from Lessor, a written
response describing in detail
prepared plans to address concerns
raised by the inspection report.
(o) Public Information. Upon
the completion or filing, mailing
or other delivery thereof, complete
copies of all financial statements,
reports, notices and proxy
statements, if any, sent by any
member of the Leasing Group (which
is a publicly held corporation) to
its shareholders and of all
reports, if any, filed by any
member of the Leasing Group (which
is a publicly held corporation)
with any securities exchange or
with the Securities Exchange
Commission.
(p) Annual Budgets. 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
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member of the Leasing Group shall be
signed by an executive officer of such
member (in the event that any of the
foregoing is not an individual), having
a position of Vice President or higher
and with respect to financial matters,
any such certificate, instrument, notice
or other document shall be signed by the
chief financial officer of such member.
11.2.3 No Material Omission. No
certificate, instrument, notice or other
document, including without limitation,
any financial statements furnished or to
be furnished to Lessor pursuant to the
terms hereof or of any of the other
Lease Documents shall contain any untrue
statement of a material fact or shall
omit to state any material fact
necessary in order to prevent all
statements contained therein from being
misleading.
11.2.4 Confidentiality. Lessor
shall afford any information received
pursuant to the provisions of the Lease
Documents the same degree of
confidentiality that Lessor affords
similar information proprietary to
Lessor; provided, however, that Lessor
shall have the unconditional right to
(a) disclose any such information as
Lessor deems necessary or appropriate in
connection with any sale, transfer,
conveyance, participation or assignment
of the Leased Property or any of the
Lease Documents or any interest therein
and (b) use such information in any
litigation or arbitration proceeding
between Lessor and any member of the
Leasing Group. Without limiting the
foregoing, Lessor may also utilize any
information furnished to it hereunder as
and to the extent (i) counsel to Lessor
determines that such utilization is
necessary pursuant to 15 U.S.C. 77a-77aa
or 15 U.S.C. 78a-78jj and the rules and
regulations promulgated thereunder, (ii)
Lessor is required or requested by any
Governmental Authority to disclose any
such information and/or (iii) Lessor is
requested to disclose any such
information by any of the Meditrust
Entities' lenders or potential lenders.
Lessor shall not be liable in any way
for any subsequent disclosure of such
information by any Person to which
Lessor has provided such information in
accordance with the terms hereof.
Nevertheless, in connection with any
such disclosure, Lessor shall inform the
recipient of any such information of the
confidential nature thereof. Lessor
shall observe any prohibitions or
limitations on the disclosure of any
such information under applicable
confidentiality law or regulations, to
the extent that the same are applicable
to such information.
11.3 Financial Covenants. Lessee
covenants and agrees that, throughout the
Term and as long as Lessee is in possession
of the Leased Property:
11.3.1 Debt Coverage Ratio of
Lessee. From and after the second
anniversary of the date hereof until the
fourth anniversary hereof, Lessee shall
maintain with respect to the Facility
and all other Group Four Acquisition
Facilities for each Fiscal Quarter an
aggregate Debt Coverage Ratio equal to
or greater than 1.1 to 1 and from and
after the fourth anniversary hereof and
for the remainder of the Term, Lessee
shall maintain with respect to the
Facility and all other Group Four
Acquisition Facilities 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
TWENTY MILLION DOLLARS ($20,000,000).
11.3.8 No Indebtedness. Lessee
shall not create, incur, assume or
suffer to exist any liability for
borrowed money except (i) Indebtedness
to Lessor under the Lease Documents and,
(ii) Impositions allowed pursuant to the
provisions of the Lease, (iii) unsecured
normal trade debt incurred upon
customary terms in the ordinary course
of business, (iv) Indebtedness created
in connection with any financing of any
Capital Addition, provided, that each
such financing has been approved by
Lessor in accordance with the terms of
Article 9 hereof, (v) Indebtedness to
any Affiliate, provided, that, such
Indebtedness is fully subordinated to
this Lease pursuant to the Affiliated
Party Subordination Agreement, (vi)
other Indebtedness of Lessee in the
aggregate amount not to exceed TWO
HUNDRED THOUSAND DOLLARS ($200,000)
incurred, for the exclusive use of the
Leased Property, on account of purchase
money indebtedness or finance lease
arrangements, each of which shall not
exceed the fair market value of the
assets or property acquired or leased
and shall not extend to any assets or
property other than those purchased or
leased and purchase money security
interests in equipment and equipment
leases which comply with the provisions
of Section 6.1.2 and (vii) Indebtedness
specifically permitted by the
Meditrust/Emeritus Transaction
Documents.
11.3.9 No Guaranties. Lessee
shall not assume, guarantee, endorse,
contingently agree to purchase or
otherwise become directly or
contingently liable (including, without
limitation, liable by way of agreement,
contingent or otherwise, to purchase, to
provide funds for payment, to supply
funds to or otherwise to invest in any
debtor or otherwise to assure any
creditor against loss) in connection
with any Indebtedness of any other
Person, except by the endorsement of
negotiable instruments for deposit or
collection or similar transactions in
the ordinary course of business and
except for a guaranty of the
Indebtedness of the Guarantor in
connection with a Working Capital Loan
which expressly limits recourse under
such guaranty to the Receivables.
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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).
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
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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 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
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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:
(a) convey, assign,
hypothecate, transfer, dispose of
or encumber, or permit the
conveyance, assignment, transfer,
hypothecation, disposal or
encumbrance of all or any part of
any legal or beneficial interest in
this Lease, its other assets or the
Leased Property except as expressly
permitted by the terms of this
Lease Agreement; provided, however,
that this restriction shall not
apply to (i) the Permitted
Encumbrances that may be created
after the date hereof pursuant to
the Lease Documents; (ii) Liens
created in accordance with Section
6.1.2 against Tangible Personal
Property securing Indebtedness
permitted under Section 11.3.8(v);
(iii) the sale, conveyance,
assignment, hypothecation, lease or
other transfer of any material
asset or assets (whether now owned
or hereafter acquired), the fair
market value of which equals or is
less than TWENTY-FIVE THOUSAND
DOLLARS ($25,000), individually, or
ONE HUNDRED THOUSAND DOLLARS
($100,000) collectively; (iv)
without limitation as to amount,
the disposition in the ordinary
course of business of any obsolete,
worn out or defective fixtures,
furnishings or equipment used in
the operation of the Leased
Property provided that the same are
replaced with fixtures, furnishings
or equipment of equal or greater
utility or value or Lessee provides
Lessor with an explanation
(reasonably satisfactory to Lessor)
as to why such fixtures,
furnishings or equipment is no
longer required in connection with
the operation of the Leased
Property; (v) without limitation as
to amount, any sale of inventory by
Lessee in the ordinary course of
business; and (vi) subject to the
terms of the Negative Pledge
Agreement and the Affiliated Party
Subordination Agreement,
distributions to the shareholders
of Lessee;
(b) permit the use of the
Facility for any purpose other than
the Primary Intended Use and the
Other Permitted Uses; or
(c) liquidate, dissolve or
merge or consolidate with any other
Person except, subject to Lessor's
prior written consent, which
consent shall not be unreasonably
withheld, a Meditrust/Emeritus
Transaction Affiliate.
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11.5.2 No Liens. Lessee will not
directly or indirectly create or allow
to remain and will promptly discharge at
its expense any Lien, title retention
agreement or claim upon or against the
Leased Property (including Lessee's
interest therein) or Lessee's interest
in this Lease or any of the other Lease
Documents, or in respect of the Rent,
excluding (a) this Lease and any
permitted Subleases, (b) the Permitted
Encumbrances, (c) Liens which are
consented to in writing by Lessor, (d)
Liens for those taxes of Lessor which
Lessee is not required to pay hereunder,
(e) Liens of mechanics, laborers,
materialmen, suppliers or vendors for
sums either not yet due or being
contested in strict compliance with the
terms and conditions of Article 15, (f)
any Liens which are the responsibility
of Lessor pursuant to the provisions of
Article 20, (g) Liens for Impositions
which are either not yet due and payable
or which are in the process of being
contested in strict compliance with the
terms and conditions of Article 15 (h)
the Liens incurred pursuant to the
provisions of Section 6.1.2 and (i)
involuntary Liens caused by the actions
or omissions of Lessor.
11.5.3 Limits on Affiliate
Transactions. Lessee shall not enter
into any transaction with any Affiliate,
including, without limitation, the
purchase, sale or exchange of any
property, the rendering of any service
to or with any Affiliate and the making
of any loan or other extension of
credit, except in the ordinary course
of, and pursuant to the reasonable
requirements of, Lessee's business and
upon fair and reasonable terms no less
favorable to the Lessee than would be
obtained in a comparable arms'-length
transaction with any Person that is not
an Affiliate.
11.5.4 Non-Competition. Lessee
acknowledges that upon and after any
termination of this Lease, any
competition by any member of the Leasing
Group with any subsequent owner or
subsequent lessee of the Leased Property
(the "Purchaser") would cause
irreparable harm to Lessor and any such
Purchaser. To induce Lessor to enter
into this Lease, Lessee agrees that,
from and after the date hereof and
thereafter until (a) in the case of the
expiration of the Initial Term or a
termination of this Lease, the fifth
(5th) anniversary of the termination
hereof or of the expiration of the
Initial Term, as applicable, and (b) in
the case of an expiration of any of the
Extended Terms, the second (2nd)
anniversary of the expiration of the
applicable Extended Term, no member of
the Leasing Group nor any Person holding
or controlling, directly or indirectly,
any interest in any member of the
Leasing Group (collectively, the
"Limited Parties") shall be involved in
any capacity in or lend any of their
names to or engage in any capacity in
any assisted living facility, center,
unit or program (or in any Person
engaged in any such activity or any
related activity competitive therewith)
other than (a) those set forth on
Schedule 11.5.4 annexed hereto, (b)
those activities in which a
Meditrust/Emeritus Transaction Affiliate
is permitted to engage by the provisions
of the Meditrust/Emeritus Transaction
Documents which relate to any such
facility, center, unit or program and
(c) the acquisition of an ownership
interest in any such facility, center,
unit or program which is part of a
single transaction in which an ownership
interest in at least four (4) other
facilities, centers, units or programs
(provided, however, that if such
acquisition occurs within the last
twelve month period of the Initial Term
or any of the Extended Terms, Lessee
shall have the
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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.
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
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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 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.
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12.1.1 Types and Amounts of
Insurance. Lessee's insurance shall
include the following:
(a) property loss and
physical damage insurance on an all-
risk basis (with only such
exceptions as Lessor may in its
reasonable discretion approve)
covering the Leased Property
(exclusive of Land) for its full
replacement cost, which cost shall
be reset once a year at Lessor's
option, with an agreed-amount
endorsement and a deductible not in
excess of TWENTY FIVE THOUSAND
DOLLARS ($25,000). Such insurance
shall include, without limitation,
the following coverages: (i)
increased cost of construction,
(ii) cost of demolition, (iii) the
value of the undamaged portion of
the Facility and (iv) contingent
liability from the operation of
building laws, less exclusions
provided in the normal "All Risk"
insurance policy. During any
period of construction, such
insurance shall be on a builder's-
risk, completed value, non-
reporting form (including all risk
and extended coverage, collapse,
cost of demolition, increased cost
of construction and value of
undamaged portion of the
improvements protection) with
permission to occupy;
(b) flood insurance (if the
Leased Property or any portion
thereof is situated in an area
which is considered a flood risk
area by the U.S. Department of
Housing and Urban Development or
any future governmental authority
charged with such flood risk
analysis in the future) in limits
reasonably acceptable to Lessor and
subject to the availability of such
flood insurance;
(c) boiler and machinery
insurance (including related
electrical apparatus and
components) under a standard
comprehensive form, providing
coverage against loss or damage
caused by explosion of steam
boilers, pressure vessels or
similar vessels, now or hereafter
installed on the Leased Property,
in limits acceptable to Lessor;
(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
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occurrence with respect to bodily
injury and death and THREE MILLION
DOLLARS ($3,000,000) for property
damage and with all limits based
solely upon occurrences at the
Leased Property without any other
impairment;
(h) professional liability
insurance in an amount not less
than TEN MILLION DOLLARS
($10,000,000) for each medical
incident;
(i) physical damage insurance
on an all-risk basis (with only
such exceptions as Lessor in its
reasonable discretion shall
approve) covering the Tangible
Personal Property for the full
replacement cost thereof and with a
deductible not in excess of one
percent (1%) of the full
replacement cost thereof;
(j) "Workers' Compensation
and Employers' Liability Insurance
providing protection against all
claims arising out of injuries to
all employees of Lessee or of any
Sublessee (employed on the Leased
Property or any portion thereof) in
amounts equal for Workers'
Compensation, to the statutory
benefits payable to employees in
the State and for Employers'
Liability, to limits of not less
than ONE HUNDRED THOUSAND DOLLARS
($100,000) for injury by accident,
ONE HUNDRED THOUSAND DOLLARS
($100,000) per employee for disease
and FIVE HUNDRED THOUSAND DOLLARS
($500,000) disease policy limit;
(k) subsidence insurance (if
deemed necessary by Lessor) in
limits acceptable to Lessor; and
(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;
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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 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
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and expenses incurred in connection
therewith (including, without
limitation, reasonable attorneys' fees
and expenses and court costs), shall be
a demand obligation of Lessee to Lessor,
payable as an Additional Charge.
12.1.6 Payment of Proceeds. All
insurance policies required hereunder
(except for general public liability,
professional liability and workers'
compensation and employers liability
insurance) shall provide that in the
event of loss, injury or damage, subject
to the rights of any Fee Mortgagee, all
proceeds shall be paid to Lessor alone
(rather than jointly to Lessee and
Lessor). Lessor is hereby authorized to
adjust and compromise any such loss with
the consent of Lessee or, following any
Lease Default, whether or not cured,
without the consent of Lessee, and to
collect and receive such proceeds in the
name of Lessor and Lessee, and Lessee
appoints Lessor (or any agent designated
by Lessor) as Lessee's attorney-in-fact
with full power of substitution, to
endorse Lessee's name upon any check in
payment thereof. Subject to the
provisions of Article 13, such insurance
proceeds shall be applied first toward
reimbursement of all costs and expenses
reasonably incurred by Lessor in
collecting said insurance proceeds, then
toward payment of the Lease Obligations
or any portion thereof, which have not
been paid when due and payable or within
any applicable cure period, in such
order as Lessor determines, and then in
whole or in part toward restoration,
repair or reconstruction of the Leased
Property for which such insurance
proceeds shall have been paid.
12.1.7 Irrevocable Power of
Attorney. The power of attorney
conferred on Lessor pursuant to the
provisions of Section 12.1, being
coupled with an interest, shall be
irrevocable for as long as this Lease is
in effect or any Lease Obligations are
outstanding, shall not be affected by
any disability or incapacity which
Lessee may suffer and shall survive the
same. Such power of attorney, is
provided solely to protect the interests
of Lessor and shall not impose any duty
on Lessor to exercise any such power,
and neither Lessor nor such attorney-in-
fact shall be liable for any act,
omission, error in judgment or mistake
of law, except as the same may result
from its gross negligence or wilful
misconduct.
12.1.8 Blanket Policies.
Notwithstanding anything to the contrary
contained herein, Lessee's obligations
to carry the insurance provided for
herein may be brought within the
coverage of a so-called blanket policy
or policies of 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
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(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.
12.1.10Assignment 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.
12.2Indemnity.
12.2.1 Indemnification. Except
with respect to the gross negligence or
wilful misconduct of Lessor or any of
the other Indemnified Parties, as to
which no indemnity is provided, Lessee
hereby agrees to defend with counsel
reasonably acceptable to Lessor, against
all claims and causes of action and to
indemnify and hold harmless Lessor and
each of the other Indemnified Parties
from and against all damages, losses,
liabilities, obligations, penalties,
costs and expenses (including, without
limitation, reasonable attorneys' fees,
court costs and other expenses of
litigation) suffered by, or claimed or
asserted against, Lessor or any of the
other Indemnified Parties, directly or
indirectly, by any Person other than a
member of the Leasing Group who prevails
in such claim or action based on,
arising out of or resulting from (a) the
use and occupancy of the Leased Property
or any business conducted therein, (b)
any act, fault, omission to act or
misconduct by (i) any member of the
Leasing Group, (ii) any Affiliate of
Lessee or (iii) any employee, agent,
licensee, business invitee, guest,
customer, contractor or sublessee of any
of the foregoing parties, relating to,
directly or indirectly, the Leased
Property, (c) any accident, injury or
damage whatsoever caused to any Person,
including, without limitation, any claim
of malpractice, or to the property of
any Person in or about the Leased
Property or outside of the Leased
Property where such accident, injury or
damage results or is claimed to have
resulted from any act, fault, omission
to act or misconduct by any member of
the Leasing Group or any Affiliate of
Lessee or any employee, agent, licensee,
contractor or sublessee of any of the
foregoing parties, (d) any Lease
Default, (e) any claim brought or
threatened against Lessor by any member
of the Leasing Group or by any other
Person on account of (i) Lessor's
relationship with any member of the
Leasing Group pertaining in any way to
the Leased Property and/or the
transaction evidenced by the Lease
Documents and/or (ii) Lessor's
negotiation of, entering into and/or
performing any of its obligations and/or
exercising any of its right and remedies
under any of the Lease Documents, (f)
any attempt by any member of the Leasing
Group or any Affiliate of Lessee
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to transfer or relocate any of the
Permits to any location other than the
Leased Property and/or (g) the
enforcement of this indemnity. Any
amounts which become payable by Lessee
under this Section 12.2.1 shall be a
demand obligation of Lessee to Lessor,
payable as an Additional Charge. The
indemnity provided for in this Section
12.2.1 shall survive any termination of
this Lease.
12.2.2 Indemnified Parties. As
used in this Lease the term "Indemnified
Parties" shall mean the Meditrust
Entities, any Fee Mortgagee and their
respective successors, assigns,
employees, servants, agents, attorneys,
officers, directors, shareholders,
partners and owners.
12.2.3 Limitation on Lessor
Liability. Neither Lessor nor any
Affiliate of Lessor shall be liable to
any member of the Leasing Group or any
Affiliate of any member of the Leasing
Group, or to any other Person whatsoever
for any damage, injury, loss,
compensation, or claim (including, but
not limited to, any claim for the
interruption of or loss to any business
conducted on the Leased Property) based
on, arising out of or resulting from any
cause whatsoever, including, but not
limited to, the following: (a) repairs
to the Leased Property, (b) interruption
in use of the Leased Property; (c) any
accident or damage resulting from the
use or operation of the Leased Property
or any business conducted thereon; (d)
the termination of this Lease by reason
of Casualty or Condemnation, (e) any
fire, theft or other casualty or crime,
(f) the actions, omissions or misconduct
of any other Person, (g) damage to any
property, or (h) any damage from the
flow or leaking of water, rain or snow.
All Tangible Personal Property and the
personal property of any other Person on
the Leased Property shall be at the sole
risk of Lessee and Lessor shall not in
any manner be held responsible therefor
(except in the event of loss caused by
the gross negligence or willful
misconduct of Lessor). Notwithstanding
the foregoing, Lessor shall not be
released from liability for any injury,
loss, damage or liability suffered by
Lessee to the extent caused directly by
the gross negligence or willful
misconduct of Lessor, its servants,
employees or agents acting within the
scope of their authority on or about the
Leased Property or in regards to the
Lease; provided, however, that in no
event shall Lessor, its servants,
employees or agents have any liability
based on any loss for any indirect or
consequential damages. or
12.2.4 Risk of Loss. During the
Term of this Lease, the risk of loss or
of decrease in the enjoyment and
beneficial use of the Leased Property in
consequence of any damage or destruction
thereof by fire, the elements,
casualties, thefts, riots, wars or
otherwise, or in consequence of
foreclosures, levies or executions of
Liens (other than those created by
Lessor in accordance with the provisions
of Article 20) is assumed by Lessee and,
in the absence of the gross negligence
or willful misconduct as set forth in
Section 12.2.3, Lessor shall in no event
be answerable or accountable therefor
(except for the obligation to account
for insurance proceeds and Awards to the
extent provided for in Articles 13 and
14) nor shall any of the events
mentioned in this Section entitle Lessee
to any abatement of Rent (except for an
abatement, if any, as specifically
provided for in Section 3.7).
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ARTICLE 13
FIRE AND CASUALTY
13.1Restoration Following Fire or Other
Casualty.
13.1.1 Following Fire or Casualty.
In the event of any damage or
destruction to the Leased Property by
reason of fire or other hazard or
casualty (a "Casualty"), Lessee shall
give immediate written notice thereof to
Lessor and, subject to the terms of this
Article 13 and any applicable Legal
Requirements, Lessee shall proceed with
reasonable diligence, in full compliance
with all applicable Legal Requirements,
to perform such repairs, replacement and
reconstruction work (referred to herein
as the "Work") to restore the Leased
Property to the condition it was in
immediately prior to such damage or
destruction and to a condition adequate
to operate the Facility for the Primary
Intended Use and, if applicable, the
Other Permitted Uses and in compliance
with applicable Legal Requirements. All
Work shall be performed and completed in
accordance with all applicable Legal
Requirements and the other requirements
of this Lease within one hundred and
twenty (120) days following the
occurrence of the damage or destruction
plus a reasonable time to compensate for
Unavoidable Delays (including for the
purposes of this Section, delays in
obtaining Permits and in adjusting
insurance losses), but in no event
beyond two-hundred and seventy (270)
days following the occurrence of the
Casualty.
13.1.2 Procedures. In the event
that any Casualty results in
non-structural damage to the Leased
Property in excess of FIFTY THOUSAND
DOLLARS ($50,000) or in any structural
damage to the Leased Property,
regardless of the extent of such
structural damage, prior to commencing
the Work, Lessee shall comply with the
following requirements:
(a) Lessee shall furnish to
Lessor complete plans and
specifications for the Work
(collectively and as the same may
be modified and amended from time
to time pursuant to the terms
hereof, the "Plans and
Specifications"), for Lessor's
approval, in each instance, which
approval shall not be unreasonably
withheld. The Plans and
Specifications shall bear the
signed approval thereof by an
architect, licensed to do business
in the State, reasonably
satisfactory to Lessor (in the
event Lessor reasonably determines
that the Work is of a nature for
which the involvement of an
architect is appropriate) and shall
be accompanied by a written
estimate from the architect,
bearing the architect's seal, of
the entire cost of completing the
Work, and to the extent feasible,
the Plans and Specifications shall
provide for Work of such nature,
quality and extent, that, upon the
completion thereof, the Leased
Property shall be at least equal in
value and general utility to its
value and general utility prior to
the Casualty and shall be adequate
to operate the Leased Property for
the Primary Intended Use and, if
applicable, the Other Permitted
Uses;
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(b) Lessee shall furnish to
Lessor certified or photostatic
copies of all Permits and Contracts
required by all applicable Legal
Requirements in connection with the
commencement and conduct of the
Work to the extent the same can be
secured in the ordinary course
prior to the commencement of
construction;
(c) Lessee shall furnish to
Lessor a cash deposit or a payment
and performance bond sufficient to
pay for completion of and payment
for the Work in an amount not less
than the architect's estimate of
the entire cost of completing the
Work, less the amount of property
insurance proceeds (net of costs
and expenses incurred by Lessor in
collecting the same), if any, then
held by Lessor and which Lessor
shall be required to apply toward
restoration of the Leased Property
as provided in Section 13.2;
(d) Lessee shall furnish to
Lessor such insurance with respect
to the Work (in addition to the
insurance required under Section
12.1 hereof) in such amounts and in
such forms as is reasonably
required by Lessee; and
(e) Lessee shall not commence
any of the Work until Lessee shall
have complied with the requirements
set forth in clauses (a) through
(d) immediately above, as
applicable, and, thereafter, Lessee
shall perform the Work diligently,
in a good and workmanlike fashion
and in good faith in accordance
with (i) the Plans and
Specifications referred to in
clause (a) immediately above, (ii)
the Permits and Contracts referred
to in clause (b) immediately above
and (iii) all applicable Legal
Requirements and other requirements
of this Lease; provided, however,
that in the event of a bona fide
emergency during which Lessee is
unable to contact the appropriate
representatives of Lessor, Lessee
may commence such Work as may be
necessary in order to address such
emergency without Lessor's prior
approval, as long as Lessee
immediately thereafter advises
Lessor of such emergency and the
nature and scope of the Work
performed and obtains Lessor's
approval of the remaining Work to
be completed.
13.1.3 Disbursement of Insurance
Proceeds. If, as provided in Section
13.2, Lessor is required to apply any
property insurance proceeds toward
repair or restoration of the Leased
Property, then as long as the Work is
being diligently performed by Lessee in
accordance with the terms and conditions
of this Lease, Lessor shall disburse
such insurance proceeds from time to
time during the course of the Work in
accordance with and subject to
satisfaction of the following provisions
and conditions. Lessor shall not be
required to make disbursements more
often than at thirty (30) day intervals.
Lessee shall submit a written request
for each disbursement at least ten (10)
Business Days in advance and shall
comply with the following requirements
in connection with each disbursement:
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(a) Prior to the commencement
of any Work, Lessee shall have
received Lessor's written approval
of the Plans and Specifications
(which approval shall not be
unreasonably withheld) and the Work
shall be supervised by an
experienced construction manager
with the consultation of an
architect or engineer qualified and
licensed to do business in the
State (in the event Lessor
reasonably determines that the Work
is of a nature for which the
involvement of such architect or
engineer is appropriate). Lessee
shall not make any changes in, and
shall not permit any changes in,
the quality of the materials to be
used in the Work, the Plans and
Specifications or the Work, whether
by change order or otherwise,
without the prior written consent
of Lessor, in each instance (which
consent may be withheld in Lessor's
sole and absolute discretion);
provided, however, that such
consent shall not be required for
any individual change which has
been approved by the architect,
which does not materially affect
the structure or exterior of the
Facility, and the cost of which
does not exceed TEN THOUSAND
DOLLARS ($10,000) or which changes,
in the aggregate, do not exceed ONE
HUNDRED THOUSAND DOLLARS ($100,000)
in cost. Notwithstanding the
foregoing, prior to making any
change in Plans and Specifications,
copies of all change orders shall
be submitted by Lessee to Lessor
and Lessee shall also deliver to
Lessor evidence satisfactory to
Lessor, in its reasonable
discretion, that all necessary
Permits and/or Contracts required
by any Governmental Authority in
connection therewith have been
obtained or entered into, as the
case may be.
(b) Each request for payment
shall be accompanied by (x) a
certificate of the architect or
engineer, bearing the architect's
or engineer's seal, and (y) a
certificate of the general
contractor, qualified and licensed
to do business in the State, that
is performing the Work
(collectively, the "Work
Certificates"), each dated not more
than ten (10) days prior to the
application for withdrawal of
funds, and each stating:
(i) that all of the Work
performed as of the date
of the certificates has
been completed in
compliance with the
approved Plans and
Specifications,
applicable Contracts and
all applicable Legal
Requirements;
(ii) that the sum then
requested to be withdrawn
has been paid by Lessee
or is justly due to
contractors,
subcontractors,
materialmen, 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
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thereof and stating
the progress of the Work
up to the date of said
certificate;
(iii) that the sum
then requested to be
withdrawn, plus all sums
previously withdrawn,
does not exceed the cost
of the Work insofar as
actually accomplished up
to the date of such
certificate;
(iv) that the remainder
of the funds held by
Lessor will be sufficient
to pay for the full
completion of the Work in
accordance with the Plans
and Specifications;
(v) that no part of the
cost of the services and
materials described in
the applicable Work
Certificate has been or
is being made the basis
of the withdrawal of any
funds in any previous or
then pending application;
and
(vi) that, except for the
amounts, if any,
specified in the
applicable Work
Certificate to be due
for services and
materials, there is no
outstanding indebtedness
known, after due inquiry,
which is then due and
payable for work, labor,
services or materials in
connection with the Work
which, if unpaid, might
become the basis of a
vendor's, mechanic's,
laborer's or
materialman's statutory
or other similar Lien
upon the Leased Property.
(c) Lessee shall deliver to
Lessor satisfactory evidence that
the Leased Property and all
materials and all property
described in the Work Certificates
are free and clear of Liens, except
(i) Liens, if any, securing
indebtedness due to Persons (whose
names and addresses and the several
amounts due them shall be stated
therein) specified in an applicable
Work Certificate, which Liens shall
be discharged upon disbursement of
the funds then being requested or
duly contested in accordance with
the terms of this Lease 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
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the making of the first and final
advances (or revised to a date
within ten (10) days prior to each
such advance) showing no
encroachments other than such
encroachments, if any, by the
Leased Improvements upon or over
the Permitted Encumbrances as are
in existence as of the date hereof.
(e) Lessee shall deliver to
Lessor (i) an opinion of counsel
(satisfactory to Lessor both as to
counsel and as to the form of
opinion) prior to the first advance
opining that all necessary Permits
for the repair, replacement and/or
restoration of the Leased Property
which can be obtained in the
ordinary course as of said date
have been obtained and that the
Leased Property, if repaired,
replaced or rebuilt in accordance,
in all material respects, with the
approved Plans and Specifications
and such Permits, shall comply with
all applicable Legal Requirements
subject to such limitations as may
be imposed on such opinion under
local law and (ii) if applicable,
an architect's certificate
(satisfactory to Lessor both as to
the architect and as to the form of
the certificate) prior to the final
advance, certifying that the Leased
Property was repaired, replaced or
rebuilt in accordance, in all
material respects, with the
approved Plans and Specifications
and complies with all applicable
Legal Requirements, including,
without limitation, all Permits
referenced in the foregoing clause
(i).
(f) There shall be no Lease
Default or any state of facts or
circumstance existing which, with
the giving of notice and/or the
passage of time, would constitute
any Lease Default.
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
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has been fully completed
in a good and workmanlike
manner in material compliance
with the Plans and
Specifications and all
applicable Legal Requirements;
(ii) an endorsement of its
title insurance policy
(relating to the Leased
Property) in form reasonably
acceptable to Lessor insuring
the Leased Property against
all mechanic's and
materialman's liens
accompanied by the final lien
waivers from the general
contractor and all
subcontractors;
(iii) a certificate by
Lessee in form and substance
reasonably satisfactory to
Lessor, listing all costs and
expenses in connection with
the completion of the Work and
the amount paid by Lessee with
respect to the Work; and
(iv) a temporary certificate
of occupancy (if obtainable)
and all other applicable
Permits and Contracts issued
by or entered into with any
Governmental Authority with
respect to the Primary
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.
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13.2Disposition of Insurance Proceeds.
13.2.1 Proceeds To Be Released to
Pay For Work. In the event of any
Casualty, except as provided for in
Section 13.2.2, Lessor shall release
proceeds of property insurance held by
it to pay for the Work in accordance
with the provisions and procedures set
forth in this Article 13, only if:
(a) all of the terms,
conditions and provisions of
Sections 13.1 and 13.2.1 are
satisfied;
(b) Lessee demonstrates to
Lessor's satisfaction that Lessee
has the financial ability to
satisfy the Lease Obligations
during such repair or restoration;
and
(c) no Sublease material to
the operation of the Facility
immediately prior to such damage or
taking shall have been cancelled or
terminated, nor contain any still
exercisable right to cancel or
terminate, due to such Casualty if
and to the extent that the income
from such Sublease is necessary in
order to avoid the violation of any
of the financial covenants set
forth in this Lease or otherwise to
avoid the creation of an Event of
Default.
If a Fee Mortgagee prevents Lessor from
releasing proceeds of property insurance
notwithstanding the satisfaction of the
foregoing requirements, Lessee shall
have no obligation to restore the
Casualty to which such proceeds pertain.
13.2.2 Proceeds Not To Be Released.
If, as the result of any Casualty, the
Leased Property is damaged to the extent
it is rendered Unsuitable For Its
Primary Intended Use and if either: (a)
Lessee, after exercise of diligent
efforts, cannot within a reasonable time
(not in excess of ninety (90) days)
obtain all necessary Permits in order to
be able to perform all required Work and
to again operate the Facility for its
Primary Intended Use and, if applicable,
the Other Permitted Uses within two
hundred and seventy (270) days from the
occurrence of the damage or destruction
in substantially the manner as
immediately prior to such damage or
destruction or (b) such Casualty occurs
during the last twenty-four (24) months
of the Term and would reasonably require
more than nine (9) months to obtain all
Permits and complete the Work, then
Lessee may either (i) acquire the Leased
Property from Lessor for a purchase
price equal to the greater of (x) the
Meditrust Investment or (y) the Fair
Market Value of the Leased Property
minus the Fair Market Added Value, with
the Fair Market Value and the Fair
Market Added Value to be determined as
of the day immediately prior to such
Casualty and prior to any other Casualty
which has not been fully repaired,
restored or replaced, in which event,
Lessee shall be entitled upon payment of
the full purchase price to receive all
property insurance proceeds (less any
costs and expenses incurred by Lessor in
collecting the same), or (ii) terminate
this Lease, in which event (subject to
the provisions of the last sentence of
this Section 13.2.2) Lessor shall be
entitled to receive and retain the
insurance proceeds; provided, however,
that Lessee shall only have
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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
13.2.2(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 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.
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13.3Tangible 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.
13.4Restoration 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.
13.5No Abatement of Rent. In no event
shall any Rent abate as a result of any
Casualty except as expressly provided in
Section 3.7.
13.6Termination of Certain Rights. Any
termination of this Lease pursuant to this
Article 13 shall cause any right of Lessee to
extend the Term of this Lease granted to
Lessee herein and any right of Lessee to
purchase the Leased Property contained in
this Lease to be terminated and to be without
further force or effect.
13.7Waiver. 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.
13.8Application 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.
13.9Obligation To Account. Upon
Lessee's written request, which may not be
made not more than once in any three (3)
month period, Lessor shall provide Lessee
with a written accounting of the application
of all insurance proceeds received by Lessor.
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ARTICLE 14
CONDEMNATION
14.1Parties' 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.
14.2Total Taking. If there is a
permanent Taking of all or substantially all
of the Leased Property, this Lease shall
terminate on the Date of Taking. In the
event this Lease is terminated pursuant to
the provisions of this Section 14.2 and the
Award received by Lessor in connection
therewith (net of costs and expenses incurred
in obtaining such Award) exceeds one hundred
fifteen percent (115%) of the Fair Market
Value of the Leased Premises at the time of
such termination, Lessor shall pay to Lessee
fifty percent (50%) of the amount of such
excess.
14.3Partial or Temporary Taking. If
there is a Permanent Taking of a portion of
the Leased Property, or if there is a
temporary Taking of all or a portion of the
Leased Property, this Lease shall remain in
effect so long as the Leased Property is not
thereby rendered permanently Unsuitable For
Its Primary Intended Use or temporarily
Unsuitable For Its Primary Intended Use for a
period not likely to, or which does not,
exceed two hundred and seventy (270) days.
If, however, the Leased Property is thereby
so rendered permanently or temporarily
Unsuitable For Its Primary Intended Use: (a)
if only rendered temporarily Unsuitable For
Its Primary Intended Use, Lessee shall have
the right to restore the Leased Property, at
its own expense (subject to the right under
certain circumstances as provided for in
Section 14.5 to receive the net proceeds of
an Award for reimbursement), to the extent
possible, to substantially the same condition
as existed immediately before the partial or
temporary Taking or (b) Lessee shall have the
right to acquire the Leased Property from
Lessor (i) upon payment of all Rent due
through the date that the purchase price is
paid, for a purchase price equal to the
greater of (x) the Meditrust Investment or
(y) the Fair Market Value of the Leased
Property minus the Fair Market Added Value,
with the Fair Market Value of the Leased
Property and the Fair Market Added Value to
be determined as of the day immediately prior
to such partial or temporary Taking and (ii)
in accordance with the terms and conditions
set forth in Article 18; in which event, this
Lease shall terminate upon payment of such
purchase price and the consummation of such
acquisition. Notwithstanding the foregoing,
Lessor may overrule Lessee's election under
clause (a) or (b) and instead either (1)
terminate this Lease (with no obligation on
the part of Lessee to acquire the Leased
Property as a result thereof) as of the date
when Lessee is required to surrender
possession of the portion of the Leased
Property so taken if (X) such portion
comprises more than thirty percent (30%) of
the Leased Property or of the residential
building(s) located thereon or (Y) possession
thereof is to be surrendered within two years
of the expiration of the Term or (2) compel
Lessee to keep the Lease in full force and
effect and to restore the Leased Property as
provided in clause (a) above, but only if the
Leased Property may be operated for at least
eighty percent (80%) of the licensed unit
capacity of the Facility in effect prior to
the Taking. Lessee shall exercise its
election under this Section 14.3 by giving
Lessor notice thereof ("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
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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.
14.4Restoration. 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.
14.5Award 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.
14.6Control 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
15.1Lessee'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
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proceedings conducted in good faith and with
due diligence (until the resolution thereof),
the amount, validity or application, in whole
or in part, of any Imposition, Legal
Requirement, the decision of any Governmental
Authority related to the operation of the
Leased Property for its Primary Intended Use
and/or, if applicable, any of the Other
Permitted Uses or any Lien or claim relating
to the Leased Property not otherwise
permitted by this Agreement; provided, that
(a) prior written notice of such contest is
given to Lessor, (b) in the case of an unpaid
Imposition, Lien or claim, the commencement
and continuation of such proceedings shall
suspend the collection thereof from Lessor
and/or compliance by any applicable member of
the Leasing Group with the contested Legal
Requirement or other matter may be legally
delayed pending the prosecution of any such
proceeding without the occurrence or creation
of any Lien, charge or liability of any kind
against the Leased Property, (c) neither the
Leased Property nor any rent therefrom would
be in any immediate danger of being sold,
forfeited, attached or lost as a result of
such proceeding, (d) in the case of a Legal
Requirement, neither Lessor nor any member of
the Leasing Group would be in any immediate
danger of civil or criminal liability for
failure to comply therewith pending the
outcome of such proceedings, (e) in the event
that any such contest shall involve a sum of
money or potential loss in excess of TWENTY
FIVE THOUSAND DOLLARS ($25,000), Lessee shall
deliver to Lessor an Officer's Certificate
and opinion of counsel, if Lessor deems the
delivery of an opinion to be appropriate,
certifying or opining, as the case may be, as
to the validity of the statements set forth
to the effect set forth in clauses (b), (c)
and (d), to the extent applicable, (f) Lessee
shall give such cash security as may be
demanded in good faith by Lessor to insure
ultimate payment of any fine, penalty,
interest or cost and to prevent any sale or
forfeiture of the affected portion of the
Leased Property 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.
15.2Lessor's Cooperation. Lessor, at
Lessee's sole cost and expense, shall execute
and deliver to Lessee such authorizations and
other documents as may reasonably be required
in any such contest, so long as the same does
not expose Lessor to any civil or criminal
liability, and, if reasonably requested by
Lessee or if Lessor so desires, Lessor shall
join as a party therein.
15.3Lessee's Indemnity. Lessee, as more
particularly provided for in Section 12.2,
shall indemnify, defend (with counsel
acceptable to Lessor) and save Lessor
harmless against any liability, cost or
expense of any kind, including, without
limitation, attorneys' fees and expenses that
may be imposed upon Lessor in connection with
any such contest and any loss resulting
therefrom and in the enforcement of this
indemnification.
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ARTICLE 16
DEFAULT
16.1Events of Default. Each of the
following shall constitute an "Event of
Default" hereunder and shall entitle Lessor
to exercise its remedies hereunder and under
any of the other Lease Documents:
(a) any failure of Lessee to pay
any amount due hereunder or under any of
the other Lease Documents within ten
(10) days following the date when such
payment was due;
(b) any failure in the
observance or performance of any other
covenant, term, condition or warranty
provided in this Lease or any of the
other Lease Documents, other than the
payment of any monetary obligation and
other than as specified in subsections
(c) through (v) below (a "Failure to
Perform"), continuing for thirty (30)
days after the giving of notice by
Lessor to Lessee specifying the nature
of the Failure to Perform; except as to
matters not susceptible to cure within
thirty (30) days, provided that with
respect to such matters, (i) Lessee
commences the cure thereof within thirty
(30) days after the giving of such
notice by Lessor to Lessee, (ii) Lessee
continuously prosecutes such cure to
completion, (iii) such cure is completed
within one hundred twenty (120) days
after the giving of such notice by
Lessor to Lessee and (iv) such Failure
to Perform does not impair the value of,
or Lessor's rights with respect to, the
Leased Property or otherwise impair the
Collateral or Lessor's security interest
therein;
(c) the occurrence of any
default or breach of condition
continuing beyond the expiration of the
applicable notice and grace periods, if
any, under any of the other Lease
Documents, including, without
limitation, the Agreement Regarding
Related Transactions;
(d) if any representation,
warranty or statement contained herein
or in any of the other Lease Documents
proves to be untrue in any material
respect as of the date when made or at
any time during the Term if such
representation or warranty is a
continuing representation or warranty
pursuant to Section 10.2;
(e) if any member of the Leasing
Group shall (i) voluntarily be
adjudicated a bankrupt or insolvent,
(ii) seek or consent to the appointment
of a receiver or trustee for itself or
for the Leased Property, (iii) file a
petition seeking relief under the
bankruptcy or other similar laws of the
United States, any state or any
jurisdiction, (iv) make a general
assignment for the benefit of creditors,
(v) make or offer a composition of its
debts with its creditors or (vi) be
unable to pay its debts as such debts
mature;
(f) if any court shall enter an
order, judgment or decree appointing,
without the consent of any member of the
Leasing Group, a receiver or trustee for
such member or for any of its property
and such order, judgment or decree shall
remain in force, undischarged or
unstayed, ninety (90) days after it is
entered;
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(g) if a petition is filed
against any member of the Leasing Group
which seeks relief under the bankruptcy
or other similar laws of the United
States, any state or any other
jurisdiction, and such petition is not
dismissed within ninety (90) days after
it is filed;
(h) in the event that:
i. all or any portion of the
interest of any partner,
shareholder, member in any
member of the Leasing Group
(other than Guarantor)
shall be, on any one or
more occasions, directly or
indirectly, sold, assigned,
hypothecated or otherwise
transferred (whether by
operation of law or
otherwise), if such member
of the Leasing Group shall
be a partnership, joint
venture, syndicate or other
group, without the prior
written consent of Lessor,
in each instance, which
consent may be withheld by
Lessor in its reasonable
discretion with respect to
a sale, assignment,
hypothecation or other
transfer to a
Meditrust/Emeritus
Transaction Affiliate and
in all other cases, in its
sole and absolute
discretion;
ii. the shares of the issued
and outstanding capital
stock of any member of the
Leasing Group (other than
Guarantor) shall be, on any
one or more occasions,
directly or indirectly,
sold, assigned,
hypothecated or otherwise
transferred (whether by
operation of law or
otherwise), if such member
of the Leasing Group shall
be a corporation, without
the prior written consent
of Lessor, in each
instance, which consent may
be withheld by Lessor in
its reasonable discretion
with respect to a sale,
assignment, hypothecation
or other transfer to a
Meditrust/Emeritus
Transaction Affiliate and
in all other cases, in its
sole and absolute
discretion; or
iii. all or any portion of the
beneficial interest in any
member of the Leasing Group
(other than Guarantor)
shall be, directly or
indirectly, sold or
otherwise transferred
(whether by operation of
law or otherwise), if such
member of the Leasing Group
shall be a trust, without
the prior written consent
of Lessor, in each
instance, which consent may
be withheld by Lessor in
its reasonable discretion
with respect to a sale,
assignment, hypothecation
or 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").
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(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
or otherwise transferred (whether by
operation of law or otherwise);
(k) the occurrence of a default
or breach of condition continuing beyond
the expiration of the applicable notice
and grace periods, if any, in connection
with the payment or performance of any
other material obligation of Lessee or
any Sublessee which is an Affiliate of
Lessee, if the applicable creditor or
obligee elects to declare the
obligations of Lessee or the applicable
Sublessee under the applicable agreement
due and payable or to exercise any other
right or remedy available to such
creditor or obligee, or, whether or not
such creditor or obligee has so elected
or exercised, such creditor's or
obligee's rights and remedies, if
exercised, may involve or result in the
taking of possession of, or the creation
of a Lien on, the Leased Property;
provided, however, that in any event,
the election by the applicable creditor
or obligee to declare the obligations of
Lessee under the applicable agreement
due and payable or to exercise any other
right or remedy available to such
creditor or obligee shall be an Event of
Default hereunder only if such
obligations, individually or in the
aggregate, are in excess of TWO HUNDRED
FIFTY THOUSAND DOLLARS ($250,000);
(l) the occurrence of a Related
Party Default;
(m) the occurrence of any
default or breach of condition which is
not cured within any applicable cure
period under a Working Capital Loan
secured by a Working Capital Stock
Pledge (or any documents executed in
connection therewith) or the exercise of
any ownership rights by the lender of a
Working Capital Loan secured by a
Working Capital Stock Pledge;
(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
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with the operation of the Facility,
remain unpaid, unstayed on appeal,
undischarged, unbonded or undismissed
for a period of thirty (30) days;
(p) if any malpractice award or
judgment exceeding any applicable
professional liability insurance
coverage by more than FIVE HUNDRED
THOUSAND DOLLARS ($500,000) shall be
rendered against any member of the
Leasing Group and either (i) enforcement
proceedings shall have been commenced by
any creditor upon such award or judgment
or (ii) such award or judgment shall
continue unsatisfied and in effect for a
period of ten (10) consecutive days
without an insurance company
satisfactory to Lessor (in its sole and
absolute discretion) having agreed to
fund such award or judgment in a manner
satisfactory to Lessor (in its sole and
absolute discretion) and in either case
such award or judgment shall, in the
reasonable opinion of Lessor, have a
material adverse affect on the ability
of Lessee or any Sublessee to operate
the Facility;
(q) if any Provider Agreement
material to the operation or financial
condition of the Leased Property shall
be terminated prior to the expiration of
the term thereof or, without the prior
written consent of Lessor, in each
instance, which consent may be withheld
in Lessor's reasonable discretion, shall
not be renewed or extended upon the
expiration of the stated term thereof;
(r) if, after Lessee or any
Sublessee has obtained approval for
Medicare and/or Medicaid funding, a
final unappealable determination is made
by the applicable Governmental Authority
that Lessee or any Sublessee shall have
failed to comply with applicable
Medicare and/or Medicaid regulations in
the operation of the Facility, as a
result of which failure Lessee or such
Sublessee is declared ineligible to
continue its participation in the
Medicare and/or Medicaid programs and
such determination could reasonably be
expected to have a material adverse
effect on the operation or financial
condition of the Leased Property;
(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
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to take any action to eliminate an
emergency situation then existing at the
Facility, if such order has not been
stayed pending appeal within ten (10)
following such entry; or
(w) the occurrence of any
default or breach of condition
continuing for more than thirty (30)
days under any credit agreement, loan
agreement or other agreement
establishing a major line of credit
(including, without limitation, a major
line of credit or a Working Capital Loan
which is not secured by a Working
Capital Stock Pledge)(or any documents
executed in connection with such lines
of credit) on behalf of Guarantor
without regard to whether the applicable
creditor has elected to declare the
indebtedness due and payable under such
line of credit or to exercise any other
right or remedy available to it or the
occurrence of any such default or breach
of condition if the applicable creditor
has elected to declare the indebtedness
due and payable under such line of
credit or to exercise any other right or
remedy available to it. For the purpose
of this provision, a major line of
credit shall mean and include any line
of credit established in an amount equal
to or greater than ONE MILLION DOLLARS
($1,000,000) with respect to a line of
credit for which Guarantor is an
obligor, endorser, surety or guarantor.
16.2Remedies.
(a) If any Lease Default shall have
occurred, Lessor may at its option terminate
this Lease by giving Lessee not less than ten
(10) days' notice of such termination, or
exercise any one or more of its rights and
remedies under this Lease or any of the other
Lease Documents, or as available at law or in
equity and upon the expiration of the time
fixed in such notice, the Term shall
terminate (but only if Lessor shall have
specifically elected by a written notice to
so terminate the Lease) and all rights of
Lessee under this Lease shall cease.
Notwithstanding the foregoing, in the event
of Lessee's failure to pay Rent, if such Rent
remains unpaid beyond ten (10) days from the
due date thereof, Lessor shall not be
obligated to give ten (10) days notice of
such termination or exercise of any of its
other rights and remedies under this Lease,
or the other Lease Documents, or otherwise
available at law or in equity, and Lessor
shall be at liberty to pursue any one or more
of such rights or remedies without further
notice. No taking of possession of the
Leased Property by or on behalf of Lessor,
and no other act done by or on behalf of
Lessor, shall constitute an acceptance of
surrender of the Leased Property by Lessee or
reduce Lessee's obligations under this Lease
or the other Lease Documents, unless
otherwise expressly agreed to in a written
document signed by an authorized officer or
agent of Lessor.
(b) To the extent permitted under
applicable law, Lessee shall pay as
Additional Charges all costs and expenses
(including, without limitation, attorneys'
fee and expenses) reasonably incurred by or
on behalf of Lessor as a result of any Lease
Default.
(c) If any Lease Default shall have
occurred, whether or not this Lease has been
terminated pursuant to Paragraph (a) of this
Section, Lessee shall, to the extent
permitted under applicable law, if required
by Lessor so to do, upon not less than ten
(10) days' prior notice from Lessor,
immediately surrender to Lessor the Leased
Property pursuant to the provisions of
Paragraph (a) of this Section and quit the
same, and Lessor may enter upon and repossess
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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.
16.3Damages. None of (a) the
termination of this Lease pursuant to Section
16.2, (b) the eviction of Lessee or the
repossession of the Leased Property, (c) the
inability after reasonable diligence of
Lessor, notwithstanding reasonable good faith
efforts, to relet the Leased Property, (d)
the reletting of the Leased Property or (e)
the failure of Lessor to collect or receive
any rentals due upon any such reletting,
shall relieve Lessee of its liability and
obligations hereunder, all of which shall
survive any such termination, repossession or
reletting. In any such event, Lessee shall
forthwith pay to Lessor all Rent due and
payable with respect to the Leased Property
to and including the date of such
termination, repossession or eviction.
Thereafter, Lessee shall forthwith pay to
Lessor, at Lessor's option, either:
(i) the sum of: (x) all Rent
that is due and unpaid at later to
occur of termination, repossession
or eviction, together with interest
thereon at the Overdue Rate to the
date of payment, plus (y) the worth
(calculated in the manner stated
below) of the amount by which the
unpaid Rent for the balance of the
Term after the later to occur of
the termination, repossession or
eviction exceeds the fair market
rental value of the Leased Property
for the balance of the Term, plus
(z) any other amount necessary to
compensate Lessor for all damage
proximately caused by Lessee's
failure to perform the Lease
Obligations or which in 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
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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.
16.4Lessee 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.
16.5Application 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.
16.6Failure 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.
16.7Lessor'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
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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.
16.8No Waiver By Lessor. Lessor shall
not by any act, delay, omission or otherwise
(including, without limitation, the exercise
of any right or remedy hereunder) be deemed
to have waived any of its rights or remedies
hereunder or under any of the other Lease
Documents unless such waiver is in writing
and signed by Lessor, and then, only to the
extent specifically set forth therein. No
waiver at any time of any of the terms,
conditions, covenants, representations or
warranties set forth in any of the Lease
Documents (including, without limitation, any
of the time periods set forth therein for the
performance of the Lease Obligations) shall
be construed as a waiver of any other term,
condition, covenant, representation or
warranty of any of the Lease Documents, nor
shall such a waiver in any one instance or
circumstances be construed as a waiver of the
same term, condition, covenant,
representation or warranty in any subsequent
instance or circumstance. No such failure,
delay or waiver shall be construed as
creating a requirement that Lessor must
thereafter, as a result of such failure,
delay or waiver, give notice to Lessee or any
Guarantor, or any other Person that Lessor
does not intend to, or may not, give a
further waiver or to refrain from insisting
upon the strict performance of the terms,
conditions, covenants, representations and
warranties set forth in the Lease Documents
before Lessor can exercise any of its rights
or remedies under any of the Lease Documents
or before any Lease Default can occur, or as
establishing a course of 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.
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16.9Right of Forbearance. Whether or
not for consideration paid or payable to
Lessor and, except as may be otherwise
specifically agreed to by Lessor in writing,
no forbearance on the part of Lessor, no
extension of the time for the payment of the
whole or any part of the Obligations, and no
other indulgence given by Lessor to Lessee or
any other Person, shall operate to release or
in any manner affect the original liability
of Lessee or such other Persons, or to limit,
prejudice or impair any right of Lessor,
including, without limitation, the right to
realize upon any collateral, or any part
thereof, for any of the Obligations evidenced
or secured by the Lease Documents; notice of
any such extension, forbearance or indulgence
being hereby waived by Lessee and all those
claiming by, through or under Lessee.
16.10 Cumulative Remedies. The
rights and remedies set forth under this
Lease are in addition to all other rights and
remedies afforded to Lessor under any of the
other Lease Documents or at law or in equity,
all of which are hereby reserved by Lessor,
and this Lease is made and accepted without
prejudice to any such rights and remedies.
All of the rights and remedies of Lessor
under each of the Lease Documents shall be
separate and cumulative and may be exercised
concurrently or successively in Lessor's sole
and absolute discretion.
ARTICLE 17
SURRENDER OF LEASED PROPERTY OR LEASE;
HOLDING OVER
17.1Surrender. 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.
17.2Transfer 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
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appropriate Governmental Authorities and
Third Party Payors of any applications,
petitions, statements, notices, requests,
assignments and other documents or
instruments requested by Lessor.
Furthermore, Lessee shall not take any action
or refrain from taking any action which would
defer, delay or jeopardize the process of
Lessor or its designee obtaining said Permits
and Contracts (whether by transfer,
assignment or otherwise). Without limiting
the foregoing, Lessee shall not seek to
transfer or relocate any of said Permits or
Contracts to any location other than the
Leased Property. The provisions of this
Section 17.2 shall survive the expiration or
earlier termination of this Lease.
Lessee hereby appoints Lessor as its
attorney-in-fact, with full power of
substitution to take such actions, in the
event that Lessee fails to comply with any
request made by Lessor hereunder, as Lessor
(in its sole absolute discretion) may deem
necessary or desirable to effectuate the
intent of this Section 17.2. The power of
attorney conferred on Lessor by the
provisions of this Section 17.2, being
coupled with an interest, shall be
irrevocable until the Obligations are fully
paid and performed and shall not be affected
by any disability or incapacity which Lessee
may suffer and shall survive the same. Such
power of attorney is provided solely to
protect the interests of Lessor and shall not
impose any duty on the Lender to exercise any
such power and neither Lessor nor such
attorney-in-fact shall be liable for any act,
omission, error in judgment or mistake of
law, except as the same may result from its
gross negligence or willful misconduct.
17.3No 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.
17.4Holding 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
18.1Purchase 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,
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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.
18.2Appraisal.
18.2.1Designation 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.
18.2.2Appraisal 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
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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.
18.2.3Specific Enforcement and
Costs. This provision for determination
by appraisal shall be specifically
enforceable to the extent such remedy is
available under applicable law, and any
determination hereunder shall be final
and binding upon the parties except as
otherwise provided by applicable law.
Lessor and Lessee shall each pay the
fees and expenses of the appraiser
appointed by it and each shall pay one-
half of the fees and expenses of the
third appraiser and one-half of all
other cost and expenses incurred in
connection with each appraisal.
18.3 Lessee's Right of First
Refusal.
18.3.1Right 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
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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.
18.3.2Condition of Leased Property.
The Leased Property is to be purchased
"AS IS" and "WHERE IS" as of the Closing
Date.
18.3.3Quality 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 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."
18.3.4Lessor'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 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, that, 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
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the applicable Closing Date, Lessor
shall assign to Lessee all its rights
with respect to any claim therefor.
18.3.5Use 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.
18.3.6Lessee'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
19.1Subletting and Assignment. Lessee
may not, without the prior written consent of
Lessor, which consent may be withheld in
Lessor's sole and absolute discretion, assign
or pledge all or any portion of its interest
in this Lease or any of the other Lease
Documents (whether by operation of law or
otherwise) or sublet all or any part of the
Leased Property. For purposes of this
Section 19.1, the term "assign" shall be
deemed to include, but not be limited to, any
one or more sales, pledges, hypothecations or
other transfers (including, without
limitation, any transfer by operation of law)
of any of the capital stock of or partnership
interest in Lessee or sales, pledges,
hypothecations or other transfers (including,
without limitation, any transfer by operation
of law) of the capital or the assets of
Lessee. Any such assignment, pledge, sale,
hypothecation or other transfer made without
Lessor's consent shall be void and of no
force and effect. Notwithstanding the
foregoing, Lessors consent shall not be
unreasonably withheld with respect to an
assignment or pledge of an interest of Lessee
in this Lease or a sublet of all or a part of
the Leased Property to a Meditrust/Emeritus
Transaction Affiliate.
19.2Attornment. 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 TRANSFERS AND LIENS GRANTED BY LESSOR
20.1No 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.
20.2Transfers 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.
20.3Lessor 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".
20.4Subordination and Non-Disturbance.
Concurrently with the execution and delivery
of any Fee Mortgage entered into after the
date hereof, provided that the Lessee
executes and delivers an agreement of the
type described in the following paragraph,
Lessor shall obtain and deliver to Lessee an
agreement by the holder of such Fee Mortgage,
pursuant to which, (a) the applicable Fee
Mortgagee consents to this Lease and (b)
agrees that, notwithstanding the terms of the
applicable Fee Mortgage held by such Fee
Mortgagee, or any default, expiration,
termination, foreclosure, sale, entry or
other act or omission under or pursuant to
such Fee Mortgage or a transfer in lieu of
foreclosure, (i) Lessee shall not be
disturbed in peaceful enjoyment of the Leased
Property nor shall this Lease be terminated
or cancelled at any time, except in the event
that Lessor shall have the right to terminate
this Lease under the terms and provisions
expressly set forth herein, (ii) Lessee's
option to purchase the Leased Property shall
remain in force and effect pursuant to the
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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
21.1Quiet Enjoyment. As long as Lessee
shall pay all Rent and all other sums due
under any of the Lease Documents as the same
become due and shall fully comply with all of
the terms of this Lease and the other Lease
Documents and fully perform its obligations
thereunder, Lessee shall peaceably and
quietly have, hold and enjoy the Leased
Property throughout the Term, free of any
claim or other action by Lessor or anyone
claiming by, through or under Lessor, but
subject to all the Permitted Encumbrances and
such Liens as may hereafter be consented to
by Lessee. No failure by Lessor to comply
with the foregoing covenant shall give Lessee
any right to cancel or terminate this Lease,
or to fail to perform any other sum payable
under this Lease, or to fail to perform any
other obligation of Lessee hereunder.
Notwithstanding the foregoing, Lessee shall
have the right by separate and independent
action to pursue any claim it may have
against Lessor as a result of a breach by
Lessor of the covenant of quiet enjoyment
contained in this Article 21.
21.2Memorandum 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.
21.3Default 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
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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:
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
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,
Esquire
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or such other address as Lessor, Lessee or
the Guarantor shall hereinafter from time to
time designate by a written notice to the
others given in such manner. Any notice
given to Lessee or the Guarantor by Lessor at
any time shall not imply that such notice or
any further or similar notice was or is
required.
ARTICLE 23
LIMITATION OF MEDITRUST LIABILITY
The Declaration of Trust establishing
the sole shareholder of Lessor, Meditrust, a
Massachusetts business trust ("Meditrust"),
dated August 6, 1985 (the "Declaration"), as
amended, a copy of which is duly filed in the
office of the Secretary of State of the
Commonwealth of Massachusetts, provides that
the name "Meditrust" refers to the trustees
under the Declaration collectively as
trustees, but not individually or personally;
and that no trustee, officer, shareholder,
employee or agent of Meditrust or any of its
Subsidiaries shall be held to any personal
liability, jointly, or severally, for any
obligation of, or claim against Meditrust or
any of its Subsidiaries. All Persons dealing
with Meditrust or Lessor, in any way, shall
look only to the assets of Meditrust or
Lessor, as applicable, for the payment of any
sum or the performance of any obligation.
Furthermore, in no event shall Meditrust or
Lessor ever be liable to Lessee or any other
Person for any indirect or consequential
damages incurred by Lessee or such other
Person resulting from any cause whatsoever.
Notwithstanding the foregoing, Lessee hereby
acknowledges and agrees that Meditrust is not
a party to this Lease and that Lessee shall
look only to the assets of Lessor for the
payment of any sum or performance of any
obligation due by or from Lessor pursuant to
the terms and provisions of the Lease
Documents.
ARTICLE 24
MISCELLANEOUS PROVISIONS
24.1Broker'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.
24.2No 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.
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24.3Amendments, 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.
24.4Captions 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.
24.5Time 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.
24.6Counterparts. 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.
24.7Entire 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 letters of intent, dated
January 31, 1996 and August 13, 1996 (and all
prior iterations thereof), from Meditrust to
Lessee.
24.8WAIVER OF JURY TRIAL. TO THE
MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
LESSOR AND LESSEE HEREBY MUTUALLY, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY
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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.
24.9Successors and Assigns. This Lease
and the other Lease Documents shall be
binding upon and inure to the benefit of (a)
Lessee and Lessee's legal representatives and
permitted successors and assigns and (b)
Lessor and any other Person who may now or
hereafter hold the interest of Lessor under
this Lease and their respective successors
and assigns.
24.10 No Third Party Beneficiaries.
This Lease and the other Lease Documents are
solely for the benefit of Lessor, its
successors, assigns and participants (if
any), the Meditrust Entities, Lessee, the
Guarantor, the other members of the Leasing
Group and their respective permitted
successors and assigns, and, except as
otherwise expressly set forth in any of the
Lease Documents, nothing contained therein
shall confer upon any Person other than such
parties any right to insist upon or to
enforce the performance or observance of any
of the obligations contained therein. All
conditions to the obligations of Lessor to
advance or make available proceeds of
insurance or Awards, or to release any
deposits held for Impositions or insurance
premiums are imposed solely and exclusively
for the benefit of Lessor, its successors and
assigns. No other Person shall have standing
to require satisfaction of such conditions in
accordance with their terms, and no other
Person shall, under any circumstances, be a
beneficiary of such conditions, any or all of
which may be freely waived in whole or in
part by Lessor at any time, if, in Lessor's
sole and absolute discretion, Lessor deems it
advisable or desirable to do so.
24.11 Governing Law. This Lease
shall be construed and the rights and
obligations of Lessor and Lessee shall be
determined in accordance with the laws of the
State.
Lessee hereby consents to personal
jurisdiction in the courts of the State and
the United States District Court for the
District in which the Leased Property is
situated as well as to the jurisdiction of
all courts from which an appeal may be taken
from the aforesaid courts, for the purpose of
any suit, action or other proceeding arising
out of or with respect to any of the Lease
Documents, the negotiation and/or
consummation of the transactions evidenced by
the Lease Documents, the Lessor's
relationship of any member of the Leasing
Group in connection with the transactions
evidenced by the Lease Documents and/or the
performance of any obligation or the exercise
of any remedy under any of the Lease
Documents and expressly waives any and all
objections Lessee may have as to venue in any
of such courts.
98
<PAGE>
24.12 General. Anything contained
in this Lease to the contrary
notwithstanding, all claims against, and
liabilities of, Lessee or Lessor arising
prior to any date of termination of this
Lease or any of the other Lease Documents
shall survive such termination.
If any provision of this Lease or any of
the other Lease Documents or any application
thereof shall be invalid or unenforceable,
the remainder of this Lease or the other
applicable Lease Document, as the case may
be, and any other application of such term or
provision shall not be affected thereby.
Notwithstanding the foregoing, it is the
intention of the parties hereto that if any
provision of any of this Lease is capable of
two (2) constructions, one of which
would render the provision void and the other
of which would render the provision valid,
then such provision shall be construed in
accordance with the construction which
renders such provision valid.
If any late charges provided for in any
provision of this Lease or any of the other
Lease Documents are based upon a rate in
excess of the maximum rate permitted by
applicable law, the parties agree that such
charges shall be fixed at the maximum
permissible rate.
Lessee waives all presentments, demands
for performance, notices of nonperformance,
protests, notices of protest, notices of
dishonor, and notices of acceptance and
waives all notices of the existence,
creation, or incurring of new or additional
obligations, except as to all of the
foregoing as expressly provided for herein.
ARTICLE 25
SUBSTITUTION OF PROPERTY
25.1Substitution of Property for the
Leased Property. Provided that no Event of
Default has occurred under this Lease
(excluding any Event of Default which has
been waived, in writing, by the Lessor), nor
any event which, with the giving of notice or
the passage of time or both, would constitute
such an Event of Default, Lessee shall have
the right from time to time (referred to
herein as the "Substitution Right"),
exercisable upon not less than ninety (90)
days' prior written notice to Lessor
(referred to herein as a "Substitution
Notice") to substitute, on a date specified
in such Substitution Notice (such date, as
the same may be extended by express written
agreement of lessor, shall be referred to
herein as a "Substitution Date"), the Leased
Property with a Comparable Facility. As used
herein, the term "Comparable Facility" shall
be defined as a health care facility or
facilities which Lessor determines (a) has an
appraised Fair Market Value greater than or
equal to the greater of (i) the appraised
Fair Market Value of the Leased Property at
the Commencement Date or (ii) the appraised
Fair Market Value of the Leased Property at
the time that the applicable Substitution
Notice is furnished to Lessor (based on
appraisal criteria then in effect), (b) has a
Facility Debt Coverage Ratio greater than or
equal to the greater of (i) the Facility Debt
Coverage Ratio of the Leased Property as of
the second anniversary of the Commencement
Date (ii) the Facility Debt Coverage Ratio of
the Leased Property at the time that the
applicable Substitution Notice is furnished
to Lessor, (c) provides a mix of services
similar to the Leased Property and (d) is
otherwise reasonably acceptable, in all
respects, to Lessor (based on Lessor's usual
and customary property evaluation criteria
then in effect). Lessee may not exercise its
Substitution Right more than once in any
calendar year.
99
<PAGE>
25.2Conditions to Substitution. Without
limiting the foregoing, as conditions
precedent to the consummation of any proposed
substitution:
(a) as of the applicable Substitution
Date, no Event of Default shall have occurred
under the Lease (excluding any Event of
Default which has been waived, in writing, by
Lessor), nor any event which with the giving
of notice or the passage of time or both
would constitute such an Event of Default;
(b) Lessor shall have received
engineering and inspection reports relating
to the assisted living facility identified by
Lessee in the applicable Substitution Notice
(referred to herein as a "Proposed
Facility"), reasonably satisfactory in all
respects to Lessor;
(c) Lessee shall have delivered to
Lessor (i) an MAI appraisal of the Proposed
Facility (prepared by an appraiser selected
by Lessee and approved by Lessor), in form
and substance reasonably satisfactory to
Lessor and (ii) an instrument survey of the
premises upon which the Proposed Facility is
located acceptable to Lessor and the title
insurance company providing insurance with
respect to the Proposed Facility;
(d) Lessor shall be satisfied as to
compliance of Lessee, the Proposed Facility,
the owner of the Proposed Facility (to the
extent such owner is not Lessee as provided
in subsection (l) below) and/or the proposed
substitution, as the case may be, with (i)
all applicable land use, zoning, subdivision
and environmental laws and regulations, (ii)
all applicable assisted living licensure laws
and regulations and (iii) such other matters
as Lessor reasonably deems relevant
(including, without limitation, whether the
conveyance of the property to Lessor in
connection with the proposed substitution may
be avoided under the Bankruptcy Code);
(e) Lessee shall have delivered to
Lessor a valid and binding owner's or
lessee's (as applicable) title insurance
commitment issued by a title insurer
reasonably acceptable to Lessor (the "Title
Company"), in an amount equal to the Fair
Market Value of the Proposed Facility, with
such endorsements and affirmative coverages,
and in such form, as Lessor may reasonably
require insuring Lessor's fee title or
leasehold title to the 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
100
<PAGE>
Code Section 856(c)(2) or (3) and will not
result in income of the types described in
Code Section 856(c)(4) or result in the tax
imposed under Code Section 857(b)(6) and (iv)
the substitution or sale, together with all
other substitutions and sales made or
requested by Lessee or any Affiliate of
Lessee or of any Guarantor pursuant to any
other leases with Lessor (or any of its
Affiliates) or any other transfers of the
Leased Property or the properties leased
under other such leases, during the relevant
time period, will not jeopardize the
qualification of Lessor as a real estate
investment trust under Code Sections 856-860;
(h) Lessor shall have received opinions
of Lessee's counsel as to (i) the compliance
of the Proposed Facility with land use,
zoning, subdivision and environmental laws
and regulations, (ii) the compliance of
Lessee, the owner of the Proposed Facility
(to the extent such owner is not Lessee as
provided in subsection (l) below), the
proposed substitution and the Proposed
Facility with applicable assisted living laws
and regulations, (iii) the due authorization,
execution and enforceability of the
Substitution Documents and (iv) such other
matters as are reasonably requested; in form
and substance reasonably acceptable to
Lessor;
(i) Lessee and each Guarantor shall have
executed and delivered, or caused to be
executed and delivered, such documents as are
reasonably required by Lessor to effectuate
the substitution (collectively, the
"Substitution Documents"), including, without
limitation, (i) a deed with full warranties
or assignment of a leasehold estate with full
warranties (as applicable) conveying to
Lessor title to the Proposed Facility free
and clear of all Liens, except those approved
or assumed by Lessor, (ii) a facility lease
(the "Substitution Lease") duly executed,
acknowledged and delivered by Lessee,
containing the same terms and conditions as
are contained herein except that (1) the
legal description of the land shall refer to
the Proposed Facility, (2) the Minimum
Repurchase Price of the Proposed Facility
shall be an amount equal to the Minimum
Repurchase Price of the Leased Property
increased by any Cash Adjustment paid by
Lessor, (3) the Rent under the Substitution
Lease in all respects shall provide Lessor
with a substantially equivalent yield at the
time of the substitution (i.e., annual return
on its equity in such Proposed Facility) to
that received (and reasonably expected to be
received thereafter) from the Leased
Property, taking into account the Cash
Adjustment, if any, paid by Lessor and any
other relevant factors and (4) such other
changes therein as may be necessary or
appropriate under the circumstances shall be
made; (iii) a collateral assignment of
permits, licenses, approvals and contracts
relating to the Proposed Facility,
substantially in the form of the Permits
Assignment; (iv) UCC financing statements;
(v) a guaranty substantially in the form of
the Guaranty of Lease Obligations shall be
executed by Guarantor, (vi) an affiliated
party subordination agreement, substantially
in the form of the Affiliated Party
Subordination Agreement, shall be executed by
the Lessee, and such other Affiliates of the
Lessee as are deemed necessary or appropriate
by the Lessor and (vii) the Agreement
Regarding Related Transactions shall be
amended to reflect the substitution of the
Proposed Facility. The Substitution
Documents shall be based upon and contain the
same terms and conditions as are set forth in
Lessee Documents in effect prior to the
substitution, except that such changes shall
be made as may be necessary or reasonably
appropriate under the circumstances to
effectuate the substitution and secure the
protection and priority of the property and
security interests conveyed and/or granted to
Lessor;
101
<PAGE>
(j) without limiting any other provision
contained herein, Lessee shall have delivered
to Lessor such other information and
materials relating to Lessee, the owner of
the Proposed Facility (to the extent that
such owner is not Lessee as provided in
subsection (l) below) and the Proposed
Facility as Lessor may reasonably request,
including, without limitation, leases,
receipted bills, management agreements and
other Contracts, Provider Agreements, cost
reports, Permits, evidence of legal and
actual access to the Proposed Facility,
evidence of the availability and sufficiency
of utilities servicing the Proposed Facility,
historical and current operating statements,
detailed budgets and financial statements and
Lessor shall have found the same to be
satisfactory in all respects;
(k) Lessee or an Affiliate of Lessee
shall be the licensed operator of the
Proposed Facility as of the date of the
consummation of the substitution;
(l) the Proposed Facility shall be owned
or leased by Lessee or an Affiliate of
Lessee, or Lessee or an Affiliate of Lessee
shall have the right to acquire the Proposed
Facility pursuant to a valid, binding and
enforceable purchase agreement (and Lessee or
such Affiliate shall have assigned all of
such Person's rights thereunder to Lessor or
its nominee pursuant to Assignment in form
and substance acceptable to Lessor);
provided, however, that in the event that the
Proposed Facility is owned by any such
Affiliate or such Affiliate shall be the
Person having the right to acquire the
Proposed Facility, (i) said Affiliate shall
execute and deliver to Lessor such
Substitution Documents as may be reasonably
required by Lessor and (ii) Lessor shall be
provided with such evidence as it may require
to determine that the conveyance of the
Proposed Facility (or a leasehold interest
therein) to Lessor does not constitute a
fraudulent conveyance (under applicable
federal or state law);
(m) Lessee shall have delivered to
Lessor an insurance certificate evidencing
compliance with all of the insurance
requirements set forth in the Substitution
Documents;
(n) Lessee shall have delivered to
Lessor an Officer's Certificate certifying as
of the Substitution Date that (i) the
Proposed Facility has been accepted by Lessee
for all purposes of the Substitution Lease
and there has been no material damage to the
improvements located on the Proposed
Facility, nor is any condemnation or eminent
domain proceeding pending with respect
thereto; (ii) all Permits (including, but not
limited to, a permanent, unconditional
certificate of occupancy and all certificates
of need, licenses and Provider Agreements)
which are necessary to permit the use of the
Proposed Facility in accordance with the
provisions of the Substitution Lease have
been obtained and are in full force and
effect; (iii) under applicable zoning and use
laws, ordinances, rules and regulations, the
Proposed Facility may be used for the
purposes contemplated by Substitution
Documents and all necessary subdivision
approvals have been obtained; (iv) to the
best knowledge of Lessee, there exists no
Event of Default under this Lease, and no
defense, offset or claim exists with respect
to any sums to be paid by Lessee hereunder,
and (v) any exceptions to Lessor's title to
the Proposed Facility do not materially
interfere with the intended use of the
Proposed Facility by Lessee;
(o) Lessor shall have determined that
the Proposed Facility constitutes a
Comparable Facility, and
102
<PAGE>
(p) Lessor shall have received all Rent
due and payable hereunder through the
Substitution Date.
In the event that the equity value of
the Proposed Facility (i.e., the Fair Market
Value of the Proposed Facility minus the
Liens to which Lessor will take the Proposed
Facility subject) as of the Substitution Date
is greater than the equity value of the
Leased Property (i.e., the Fair Market Value
of the Leased Property minus the Liens to
which Lessee will take the Leased Property
subject other than those Liens which Lessee
is obligated to pay or discharge pursuant to
the terms of this Lease) as of the
Substitution Date, subject to the limitation
set forth below, Lessor shall pay an amount
equal to the difference to Lessee; provided,
however, that Lessor shall not be obligated
to consummate such substitution if Lessor
would be required to make a payment to Lessee
of an amount equal to or in excess of fifteen
percent (15%) of said Fair Market Value of
the Leased Property (the amount of cash paid
by Lessor to Lessee being referred to herein
as the "Cash Adjustment"). Without limiting
the generality or effect of the preceding
sentence, in the event that, on the
Substitution Date, Lessor is obligated to pay
a Cash Adjustment to Lessee and Lessor does
not have sufficient funds available, or
elects not to make such payment in cash,
Lessor shall provide Lessee with (and Lessee
shall accept) a purchase money note and
mortgage for a term not to exceed eighteen
(18) months from the Substitution Date and
bearing interest, payable monthly, at the
rate described in Section 10.2.
25.3Conveyance 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.
25.4Expenses. 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.
[INTENTIONALLY LEFT BLANK]
103
<PAGE>
IN WITNESS WHEREOF, the parties have
caused this Lease to be executed and attested
by their respective officers thereunto duly
authorized.
WITNESS: LESSEE:
EMERITUS
PROPERTIES
I, INC.,
a Washington corporation
/s/ Barbara Penton
By: /s/ Raymond R. Brandstrom
- -----------------------
- ---------------------------------------
Name: Barbara Penton Name:
Raymond R. Brandstrom
Title: President
WITNESS: LESSOR:
MEDITRUST
ACQUISITIO
N
CORPORATIO
N I,
a
Massachuse
tts
corporatio
n
By: /s/ Michael S. Benjamin
- -----------------------------------
Name: Michael S. Benjamin, ESQ.
Title: Senior Vice President
104
<PAGE>
U.S. BANK
PROMISSORY NOTE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan Call Collatera Accoun Office Initial
No l t r s
$3,500,000.0 04-22- 05-01- dh
0 1997 2000
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item
Borrower Emeritus Properties VI, LENDER U.S. Bank of Washington,
: Inc., :
a Washington corporation National Association Commercial
3131 Elliott Ave., Suite Real Estate Loan Administration
500
Seattle, WA 98121-1031 1301 Fifth Avenue, 20th Fl., WWW-
967
P.O. Box 720
Seattle, WA 98111-0720
</TABLE>
PRINCIPAL AMOUNT: $3,500,000.00
DATE OF NOTE: April 22, 1997
PROMISE TO PAY. EMERITUS PROPERTIES VI, INC., a
Washington corporation ("Borrower") promises to
pay to U. S. BANK OF WASHINGTON, National
Association ("Lender"), or order, in lawful money
of the United States of America, the principal
amount of Three Million Five Hundred Thousand &
00/100 Dollars ($3,500,000.00), together with
interest on the unpaid principal balance from May
1,1997, until paid In full.
PAYMENT. Borrower will pay this loan in one
principal payment of $3,500,000.00 plus Interest
on May 1, 2000. This payment due May 1, 2000, will
be for all principal and accrued interest not yet
paid. In addition, Borrower will pay regular
monthly payments of all accrued unpaid Interest
due as of each payment date, beginning June
1,1897, with all subsequent interest payments to
be due on the same day of each month after that.
Interest on this Note is computed on a 365/360
simple interest basis; that is, by applying the
ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days
the principal balance is outstanding. Borrower
will pay Lender at Lender's address shown above or
<PAGE>
at such other place as Lender may designate In
writing.
VARIABLE INTEREST RATE. The interest rate on this
Note is subject to change from time to time based
on changes In an index which is the Lender's Prime
Rate. This is the rate of interest which Lender
from time to time establishes as its Prime Rate
and is not, for example, the lowest rate or
interest which Lender collects from any borrower
or class of borrowers. (the "index"). The interest
rate shall be adjusted without notice effective on
the day Lender's Prime Rate changes. Lender will
tell Borrower the current Index rate upon
Borrower's request. Borrower understands the
Lender may make loans based on other rates as
well. The interest rate change will not occur more
often than each day. The Interest rate to be
applied to the unpaid principal balance of this
Note will be at a rate of 1.000 percentage point
over the Index. NOTICE: Under no circumstances
will the interest rate on this Note be more than
the maximum rate allowed by applicable law:
PREPAYMENT. Borrower may pay all or a portion of
the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation
to continue to make payments under the payment
schedule. Rather, they will reduce the principal
balance due.
LATE CHARGE. If a payment is 15 days or more late,
Borrower will be charged 5.00% of the regularly
scheduled payment.
DEFAULT. Borrower will be in default if any of the
following happens: (a) Borrower fails to make any
payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to
comply with or to perform when due any other term,
obligation, covenant, or condition contained in
this Note or any agreement related to this Note,
or in any other agreement or loan Borrower has
with Lender. (c) Borrower defaults under any loan,
extension of credit, security agreement, purchase
or sales agreement, or any other agreement, in
favor of any other creditor or person that may
materially affect any of Borrower's property or
Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of
the Related Documents. (d) Any representation or
<PAGE>
statement made or furnished to Lender by Borrower
or on Borrower's behalf is false or misleading in
any material respect either now or at the time
made or furnished. (e) Borrower becomes insolvent,
a receiver is appointed for any part of Borrower's
property, Borrower makes an assignment for the
benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower
under any bankruptcy or insolvency laws. (f)
Borrower is in default under any other note,
security agreement, lease agreement or lease
schedule, loan agreement or other agreement,
whether now existing or hereafter made, between
Borrower and U.S. Bancorp or any direct or
indirect subsidiary of U.S. Bancorp. (g) Any
creditor tries to take any of Borrower's property
on or in which Lender has a lien or security
interest. This includes a garnishment of any of
Borrower's accounts with Lender. (h) Any guarantor
dies or any of the other events described in this
default section occurs with respect to any
guarantor of this Note. (i) A material adverse
change occurs in Borrower's financial condition,
or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
If any default, other than a default in payment,
is curable and if Borrower has not been given a
notice of a breach of the same provision of this
Note within the preceding twelve (12) months, it
may be cured (and no event of default will have
occurred) if Borrower, after receiving written
notice from Lender demanding cure of such default:
(a) cures the default within fifteen (15) days; or
(b) if the cure requires more than fifteen (15)
days, immediately initiates steps which Lender
deems in Lender's sole discretion to be sufficient
to cure the default and thereafter continues and
completes ell reasonable and necessary steps
sufficient to produce compliance as soon as
reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare
the entire unpaid principal balance on this Note
and all accrued unpaid interest immediately due,
without notice, and then Borrower will pay that
amount. Upon default, including failure to pay
upon final maturity, Lender, at its option, may
also, it permitted under applicable law, increase
the variable interest rate on this Note to 6.000
percentage points over the Index. The interest
rate will not exceed the maximum rate permitted by
<PAGE>
applicable law. Lender may hire or pay someone
else to help collect this Note if Borrower does
not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and
Lenders legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-
judgment collection services. If not prohibited by
applicable law, Borrower also will pay any court
costs, in addition to all other sums provided by
law. This Note has been delivered to Lender and
accepted by Lender in the State of Washington. It
there Is a lawsuit, Borrower agrees upon Lender's
request to submit to the jurisdiction of the
courts of King County, the State of Washington.
Subject to the provisions on arbitration, this
Note shall be governed by and construed In
accordance with the laws of the State of
Washington.
COLLATERAL. This Note is secured by, in edition to
any other collateral, e Deed of Trust and an
Assignment of All Rents dated April 22, 1997, to a
trustee in favor of Lender on real property
located in Maricopa County, State of Arizona, all
the terms and conditions of which are hereby
incorporated and made a part of this Note.
ARBITRATION. Lender and Borrower agree that all
disputes, claims and controversies between them,
whether individual, joint, or class in nature,
arising from this Note or otherwise, including
without limitation contract and tort disputes,
shall be arbitrated pursuant to the Rules of the
American Arbitration Association, upon request of
either party. No act to take or dispose of any
collateral securing this Note shall constitute a
waiver of this arbitration agreement or be
prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive
relief or a temporary restraining order; invoking
a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or
Imposition of a receiver; or exercising any rights
relating to personal property, including taking or
disposing of such property with or without
judicial process pursuant to Article 9 of the
Uniform Commercial Code. Any disputes, claims, or
controversies
<PAGE>
concerning the lawfulness or reasonableness of any
act, or exercise of any right, concerning any
collateral securing this Note, including any claim
to rescind, reform, or otherwise modify any
agreement relating to the collateral securing this
Note, shall also be arbitrated, provided however
that no arbitrator shall have the right or the
power to enjoin or restrain any act of any party.
Judgment upon any award rendered by any arbitrator
may be entered in any court having jurisdiction.
Nothing in this Note shall preclude any party from
seeking equitable relief from a court of competent
jurisdiction. The statute of limitations,
estoppel, waiver, laches, and similar doctrines
which would otherwise be applicable in an action
brought by a party shall be applicable in any
arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the
commencement of an action for these purposes. The
Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of
this arbitration provision.
ORAL AGREEMENTS. ORAL AGREEMENTS OR ORAL
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
ADDENDUM. An addendum is attached to this document
which modifies certain of the documents terms. By
its attachment, it is made a part hereof.
GENERAL PROVISIONS. Lender may delay or forgo
enforcing any of Its rights or remedies under this
Note without losing them. Borrower and any other
person who signs, guarantees or endorses this
Note, to the extent allowed by law waive
presentment, demand for payment, protest and
notice of dishonor. Upon any change In the terms
of this Note, and unless otherwise expressly
stated in writing, no party who signs this Note,
whether as maker guarantor, accommodation maker or
endorser, shall be released from liability. All
such parties agree that Lender may renew or extend
(repeatedly and for any length of time) this loan,
or release any party or guarantor or collateral;
or Impair, fail to realize upon or perfect
Lender's security Interest In the collateral; and
take any other action deemed necessary by Lender
without the consent of or notice to anyone. All
<PAGE>
such parties also agree that Lender may modify
this loan without the consent of or notice to
anyone other than the party with whom the
modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND
UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE,
INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.
BORROWER AGREES TO THE TERMS OF THE NOTE AND
ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE
NOTE.
BORROWER:
EMERITUS PROPERTIES VI, INC., a Washington
corporation
By: /s/ Raymond R. Brandstrom, President
--------------------------------------
Raymond R. Brandstrom, President
By: /s/ Kelly J. Price, Vice President &
Secretary
--------------------------------------
Kelly J. Price, Vice President & Secretary
<PAGE>
ADDENDUM TO PROMISSORY NOTE
The Promissory Note attached hereto is hereby
amended as follows:
1. The "DEFAULT" section of the Promissory
Note is hereby amended in its entirety and
superseded by the following:
"DEFAULT. Borrower will be in default if any
of the following happens: (a) Borrower fails
to make any payment when due; (b) Borrower
fails to comply with or to perform when due
any other term, obligation, covenant or
condition contained in his Note or any
agreement related to this Note; (c) Borrower
defaults under any loan, extension of credit,
security agreement, purchase or. sales
agreement or any other agreement in favor of
any other creditor or person that may
materially affect Borrower's ability to repay
this Note or perform Borrower's obligations
under this Note or any of the Related
Documents; (d) any representation or
statement made or furnished to Lender by
Borrower or on Borrower's behalf is false or
misleading in any material respect either now
or at any time made or furnished; (e)
Borrower dissolves (regardless of whether
election to continue is made), Borrower
becomes insolvent, a receiver is appointed
for any part of Borrower's property, Borrower
makes an assignment for the benefit of
creditors or any proceeding is commenced
either by Borrower or against Borrower under
any bankruptcy or insolvency laws; (f) any
creditor tries to take any of Borrower's
property on or in which Lender has a lien or
security interest including a garnishment of
any of Borrower' s accounts with Lender; (g)
any of the events described in this default
Section occurs with respect to any guarantor
of this Note; (h) any guarantor dies;
provided that the death of any guarantor
shall not be an Event of Default if the
guarantor's estate unconditionally assumes
the obligations arising under the guaranty;
(i) any of the other events described in this
default section occurs with respect to any
guarantor of this Note; or (j) a material
adverse change occurs in Borrower's financial
<PAGE>
condition.
If any default, other than a default in
payment, is curable and if Borrower has not
been given a notice of a breach of the same
provision of this Note within the preceding
twelve (12) months, it may be cured (and no
event of default will have occurred) if
Borrower, after receiving written notice from
Lender demanding cure of such default: (a)
cures the default within fifteen (15) days;
or (b) if the cure requires more than fifteen
(15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to
be sufficient to cure the default and
thereafter continues and completes all
reasonable and necessary steps sufficient to
produce compliance as soon as reasonably
practical.
2. The following provision shall be included
in the Promissory Note:
"Upon payment of all amounts evidenced by
this Note, Lender shall deliver the original
Note to Borrower, marked `Paid In Full'."
By their signatures set forth below, Lender
and Borrower acknowledge and agree that this
Addendum shall be incorporated into and deemed to
be a part of the Promissory Note, and that in the
event of a conflict between the terms of this
Addendum and the attached Promissory Note, the
terms of this Addendum shall control.
Lender:
U.S. BANK OF WASHINGTON
National Association
By: /s/ Monica M. Rhule
-----------------------
Its: Loan Administrative Officer
Borrower:
EMERITUS PROPERTIES VI, INC.,
a Washington corporation
By: /s/ Raymond R. Brandstrom
--------------------------
Its: President
<PAGE>
SECOND ADDENDUM TO PROMISSORY NOTE
This Second Addendum to Promissory Note is in
addition to and an extension of that Addendum to
Promissory Note executed by Borrower, and this
Second Addendum to Promissory Note is signed by
Borrower and effective the date of the Promissory
Note to which it is attached.
3. The "Variable Interest Rate" section of the
Promissory Note is hereby amended in its entirety
and superseded by the following:
INTEREST RATE. The interest rate on this Note
may vary from time to time pursuant to the
provisions of this note. Subject to the provisions
of this note, Borrower shall have the option from
time to time of choosing to pay interest at the
rate or rates and for the applicable periods of
time based on the rate options provided herein;
provided, however, that once Borrower notifies
Lender of the rate option chosen in accordance
with the provisions of this note, such notice
shall be irrevocable. The rate options are the
Prime Borrowing Rate and the LIBOR Borrowing Rate,
each as defined herein. The term "Index" as used
in the Note shall mean one or both of the rates
defined herein.
(a) Definitions. The following terms shall have
the following meanings:
"Business Day" means any day other than
a Saturday, Sunday, or other day that commercial
banks in Portland, Oregon or New York City are
authorized or required by law to close; provided,
however that when used in connection with a LIBOR
Rate, LIBOR Amount or LIBOR Interest Period such
term shall also exclude any day on which dealings
in U.S. dollar deposits are not carried on in the
London interbank market.
"LIBOR Amount" means each principal
amount for which Borrower chooses to have the
LIBOR Borrowing Rate apply for any specified LIBOR
Interest Period.
"LIBOR Interest Period" means as to any
LIBOR Amount, a period of one, two, three, six or
twelve months commencing on the date the LIBOR
<PAGE>
Borrowing Rate becomes applicable thereto;
provided, however, that: (i) the first day of each
LIBOR Interest Period must be a Business Day; (ii)
no LIBOR Interest Period shall be selected which
would extend beyond the maturity date of this
Note; (iii) no LIBOR Interest Period shall extend
beyond the date of any principal payment required
under this note, unless the sum of the Prime Rate
Amount, plus LIBOR Amounts with LIBOR Interest
Periods ending on or before the scheduled date of
such principal payment, plus principal amounts
remaining unborrowed under a line of credit,
equals or exceeds the amount of such principal
payment; (iv) any LIBOR Interest Period which
would otherwise expire on a day which is not a
Business Day, shall be extended to the next
succeeding Business Day, unless the result of such
extension would be to extend such LIBOR Interest
Period into another calendar month, in which event
the LIBOR Interest Period shall end on the
immediately preceding Business Day; and (v) any
LIBOR Interest Period that begins on the last
Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in
the calendar month at the end of such LIBOR
Interest Period) shall end on the last Business
Day of a calendar month.
"LIBOR Rate" means, for any LIBOR
Interest Period, the rate per annum (computed on
the basis of a 360-day year and the actual number
of days elapsed and rounded upward to the nearest
1/16 of 1%) established by Lender as its LIBOR
Rate, based on Lender's determination, on the
basis of such factors as Lender deems relevant, of
the rate of interest at which U.S. dollar deposits
would be offered to United States National Bank of
Oregon in the London interbank market at
approximately 11 a.m. London time on the date
which is two Business Days prior to the first day
of such LIBOR Interest Period for delivery on the
first day of such LIBOR Interest Period for the
number of months therein; provided, however, that
the LIBOR Rate shall be adjusted to take into
account the maximum reserves required to be
maintained for Eurocurrency liabilities by banks
during each such LIBOR Interest Period as
specified in Regulation D of the Board of
Governors of the Federal Reserve System or any
successor regulation.
<PAGE>
"Prime Rate" means the rate of interest
which Lender from time to time establishes as
its prime rate and is not, for example, the
lowest rate of interest which Lender collects
from any borrower or class of borrowers. When
the Prime Rate is applicable, the interest rate
hereunder shall be adjusted without notice
effective on the day the Prime Rate changes, but
in no event shall the rate of interest be higher
than allowed by law.
"Prime Rate Amount" means any portion
of the Principal Balance bearing
interest at the Prime Borrowing Rate.
(b) The Prime Borrowing Rate.
(i) The Prime Borrowing Rate is a per annum
rate equal to the Prime Rate plus One
Percent (1%) per annum.
(ii) Whenever Borrower desires to use the
Prime Borrowing Rate option, Borrower shall give
Lender notice orally or in writing in accordance
with this note, which notice shall specify the
requested effective date (which must be a
Business Day) and principal amount of the
Advance or increase in the Prime Rate Amount,
and whether Borrower is requesting a new Advance
under a line of credit or conversion of a LIBOR
Amount to the Prime Borrowing Rate.
(iii) So long as Borrower is not in default
of this note, interest shall accrue on the
unpaid Principal Balance at the Prime Borrowing
Rate unless and except to the extent that the
LIBOR Borrowing Rate is in effect.
(c) The LIBOR Borrowing Rate.
(i) The LIBOR Borrowing Rate is the LIBOR
Rate plus Two and One Quarter Percent
(2.25%)per annum.
(ii) The LIBOR Rate shall be established
by Lender at approximately 8:00 a.m. (Portland,
Oregon time) on each Business Day. Borrower may
obtain LIBOR Borrowing Rate quotes from Lender
between 8:00 a.m. and 10:00 a.m. (Portland,
Oregon time) on any Business Day. Borrower may
request an Advance, conversion of any portion
<PAGE>
of the Prime Rate Amount to a LIBOR Amount or a
new LIBOR Interest Period for an existing LIBOR
Amount, at such rate only by giving Lender notice
in accordance with this Section 3 (c) (iii) before
10:00 a.m. (Portland, Oregon time) on such day.
(iii) Whenever Borrower desires to use the
LIBOR Borrowing Rate option, Borrower shall give
Lender irrevocable notice (either in writing or
orally and promptly confirmed in writing) between
8:00 a.m. and 10:00 a.m. (Portland, Oregon time)
two (2) Business Days prior to the desired
effective date of such rate. Any oral notice shall
be given by, and any written notice or
confirmation of an oral notice shall be signed by,
the person(s) on behalf of or authorized by
Borrower, and shall specify the requested
effective date of the rate, LIBOR Interest Period
and LIBOR Amount, and whether Borrower is
requesting a new Advance at the LIBOR Borrowing
Rate under a line of credit, conversion of all or
any portion of the Prime Rate Amount to a LIBOR
Amount, or a new LIBOR Interest Period for an
outstanding LIBOR Amount. Notwithstanding any
other term of this note, Borrower may elect the
LIBOR Borrowing Rate in the minimum principal
amount of $1,000,000.00 and in multiples of
$500,000.00 above such amount; provided, however,
that no more than two separate LIBOR Interest
Periods may be in effect at any one time.
(iv) If at any time the LIBOR Rate is
unascertainable or unavailable to Lender or if
LIBOR Rate loans become unlawful, the option to
select the LIBOR Borrowing Rate shall terminate
immediately. If the LIBOR Borrowing Rate is then
in effect, (A) it shall terminate automatically
with respect to all LIBOR Amounts (i) on the last
day of each then applicable LIBOR Interest Period,
if Lender may lawfully continue to maintain such
loans, or (ii) immediately if Lender may not
lawfully continue to maintain such loans through
such day, and (B) the Prime Borrowing Rate
automatically shall become effective as to such
amounts upon such termination.
(v) If at any time after the date hereof (A)
any revision in or adoption of any applicable law,
rule, or regulation or in the interpretation or
administration thereof (i) shall subject Lender or
its Eurodollar lending office to any tax, duty, or
<PAGE>
other charge, or change the basis of taxation of
payments to Lender with respect to any loans
bearing interest based on the LIBOR Rate, or (ii)
shall impose or modify any reserve, insurance,
special deposit, or similar requirements against
assets of, deposits with or for the account of, or
credit extended by Lender or its Eurodollar
lending office, or impose on Lender or its
Eurodollar lending office any other condition
affecting any such loans, and (B) the result of
any of the foregoing is (i) to increase the cost
to Lender of making or maintaining any such loans
or (ii) to reduce the amount of any sum receivable
under this note by Lender or its Eurodollar
lending office, Borrower shall pay Lender within
15 days after demand by Lender such additional
amount as will compensate Lender for such
increased cost or reduction. The determination
hereunder by Lender of such additional amount
shall be conclusive in the absence of manifest
error. If Lender demands compensation under this
Section 3(c)(v), Borrower may upon three (3)
Business Days' notice to Lender pay the accrued
interest on all LIBOR Amounts, together with any
additional amounts payable under Section 3(c)(vi).
Subject to Section 11, upon Borrower's paying such
accrued interest and additional costs, the Prime
Borrowing Rate immediately shall be effective
with respect to the unpaid principal balance of
such LIBOR Amounts.
(vi) Borrower shall pay to Lender, on demand,
such amount as Lender reasonably determines
(determined as though 100% of the applicable LIBOR
Amount had been funded in the London interbank
market) is necessary to compensate Lender for any
direct or indirect losses, expenses, liabilities,
costs, expenses or reductions in yield to Lender,
whether incurred in connection with liquidation or
re-employment of funds or otherwise, incurred or
sustained by Lender as a result of: (A) Any
payment or prepayment of a LIBOR Amount,
termination of the LIBOR Borrowing Rate or
conversion of a LIBOR Amount to the Prime
Borrowing Rate on a day other than the last day of
the applicable LIBOR Interest Period (including as
a result of acceleration or a notice pursuant to
Section 4(c)(v)); or (B) Any failure of Borrower
to borrow, continue or prepay any LIBOR Amount or
to convert any portion of the Prime Rate Amount to
a LIBOR Amount after Borrower has given a notice
thereof to Lender.
<PAGE>
(vii) If Borrower chooses the LI BOR
Borrowing Rate, Borrower shall pay interest based
on such rate, plus any other applicable taxes or
charges hereunder, even though Lender may have
obtained the funds loaned to Borrower from sources
other than the London interbank market. Lender's
determination of the LI BOR Borrowing Rate and any
such taxes or charges shall be conclusive in the
absence of manifest error.
(viii) Notwithstanding any other term of this
note, Borrower may not select the LIBOR Borrowing
Rate if an event of default hereunder has occurred
and is continuing.
(ix) Nothing contained in this note,
including without limitation the determination of
any LIBOR Interest Period or Lender's quotation of
any LIBOR Borrowing Rate, shall be construed to
prejudice Lender's right, if any, to decline to
make any requested Advance or to require payment
on demand.
(x) Prepayment is not permitted on funds
subject to the LIBOR Interest Rate. Should a
prepayment be made while funds of this Note are
subject to the LIBOR Interest Rate, a Yield
Maintenance premium shall be paid to Lender by
Borrower at the time of prepayment. The Yield
Maintenance premium will be calculated as shown on
attached Exhibit "A" attached hereto and made a
part hereof.
Dated as of May 22,1997.
LENDER:
U.S. BANK OF WASHINGTON
By : /s/ Monica Rhule
---------------------
Loan Administration Officer
BORROWER:
EMERITUS PROPERTIES VI, INC., a Washington
corporation
By: /s/ Kelly J. Price
--------------------------
Its: Chief Financial Officer
<PAGE>
OFFICIAL RECORDS OF
MARICOPA COUNTY RECORDER
HELEN PURCELL
97-0285322 04/30/97 10:58
CHRISTIA 7 OF 9
OLD REPUBLIC TITLE AGENCY
WHEN RECORDED MAIL TO:
U. S. BANK OF WASHINGTON, National Association
1301 Fifth Avenue, 20th FI., WWW-967
P.O. Box 720
Seattle, WA 98111-0720
FOR RECORDER'S USE ONLY
[U.S. BANK LOGO]
CONSTRUCTION DEED OF TRUST
THIS DEED OF TRUST IS DATED APRIL 22, 1997, among
EMERITUS PROPERTIES VI, INC., a Washington
corporation, whose address is 3131 Elliott Ave.,
Suite 500, Seattle, WA 98121-1031 (referred to
below as "Trustor"); U. S. BANK OF WASHINGTON,
National Association, whose address is 1301 Fifth
Avenue, 20th FI., WWW-967, P.O. Box 720, Seattle,
WA 98111-0720 (referred to below sometimes as
"Lender" and sometimes as "Beneficiary"); and
UNITED STATES NATIONAL BANK OF OREGON, whose
address is P. O. Box 720, Seattle, Washington
98111-0720 (referred to below as "Trustee").
CONVEYANCE AND GRANT. For valuable consideration,
Trustor conveys to Trustee in trust, with power of
sale, for the benefit of Lender as Beneficiary,
all of Trustor's right, title, and interest in and
to the following described real property, together
with all existing or subsequently erected or
affixed buildings, improvements and fixtures; all
easements, rights of way, and appurtenances; all
water and water rights flowing through, belonging
or in anyway appertaining to the Real Property,
and all of Trustor's water rights that are
personal property under Arizona law, including
without limitation all type 2 nonirrigation
grandfathered rights (if applicable), all
irrigation rights, all ditch rights, rights to
irrigation district stock, all contracts for
<PAGE>
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04-22-97 DEED OF TRUST Page 2
(Continued)
effluent, all contracts for Central Arizona
Project water, and all other contractual rights to
water, and together with all rights (but none of
the duties) of Trustor as declarant under any
presently recorded declaration of covenants,
conditions and restrictions affecting real
property; and all other rights, royalties, and
profits relating to the real property, including
without limitation all minerals, oil, gas,
geothermal and similar matters, located in
Maricopa County, State of Arizona (the "Real
Property"):
See Exhibit "A" attached hereto and incorporated
herein.
The Real Property or its address is commonly known
as 2935 North l8th Place, Phoenix, AZ 98121-1031.
Trustor presently assigns to Lender (also known as
Beneficiary in this Deed of Trust) all of
Trustor's right, title, and interest in and to all
present and future leases of the Property and all
Rents from the Property. In addition, Trustor
grants Lender a Uniform Commercial Code security
interest in the Rents and the Personal Property
defined below.
DEFINITIONS. The following words shall have the
following meanings when used in this Deed of
Trust. Terms not otherwise defined in this Deed of
Trust shall have the meanings attributed to such
terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in
lawful money of the United States of America.
BENEFICIARY. The word "Beneficiary" means U. S.
BANK OF WASHINGTON, National Association, its
successors and assigns. U. S. BANK OF WASHINGTON,
National Association also is referred to as
"Lender" in this Deed of Trust.
DEED OF TRUST. The words "Deed of Trust" mean this
Deed of Trust among Trustor, Lender, and Trustee,
and includes without limitation all assignment and
security interest provisions relating to the
Personal Property and Rents.
<PAGE>
==================================================
04-22-97 DEED OF TRUST Page 3
(Continued)
GUARANTOR. The word "Guarantor" means and includes
without limitation any and all guarantors,
sureties, and accommodation parties in connection
with the Indebtedness.
IMPROVEMENTS. The word "Improvements" means and
includes without limitation all existing and
future improvements, buildings, structures, mobile
homes affixed on the Real Property, facilities,
additions, replacements and other construction on
the Real Property.
INDEBTEDNESS. The word "Indebtedness" means all
principal and interest payable under the Note and
any amounts expended or advanced by Lender to
discharge obligations of Trustor or expenses
incurred by Trustee or Lender to enforce
obligations of Trustor under this Deed of Trust,
together with interest on such amounts as provided
in this Deed of Trust.
LENDER. The word "Lender" means U. S. BANK OF
WASHINGTON, National Association, its successors
and assigns.
NOTE. The word "Note" means the Note dated April
22, 1997, in the original principal amount of
$3,500,000.00 from Trustor to Lender, together
with all renewals, extensions, modifications,
refinancings, and substitutions for the Note.
NOTICE TO TRUSTOR: THE NOTE CONTAINS A VARIABLE
INTEREST RATE.
PERSONAL PROPERTY. The words "Personal Property"
mean all equipment, fixtures, and other articles
of personal property now or hereafter owned by
Trustor, and now or hereafter attached or affixed
to the Real Property; together with all
accessions, parts, and additions to, all
replacements of, and all substitutions or, any of
such property; and together with all proceeds
(including without limitation all insurance
proceeds and refunds of premiums) from any sale or
other disposition of the Property.
<PAGE>
==================================================
04-22-97 DEED OF TRUST Page 4
(Continued)
PROPERTY. The word "Property" means collectively
the Real Property and the Personal Property.
REAL PROPERTY. The words "Real Property" mean the
property, interests and rights described above in
the "Conveyance and Grant" section.
RELATED DOCUMENTS. The words "Related Documents"
mean and include without limitation all promissory
notes, credit agreements, loan agreements,
environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all
other instruments, agreements and documents,
whether now or hereafter existing, executed in
connection with the Indebtedness.
RENTS. The word "Rents" means all present and
future rents, revenues, income, issues, royalties,
profits, and other benefits derived from the
Property.
TRUSTEE. The word "Trustee" means UNITED STATES
NATIONAL BANK OF OREGON and any substitute or
successor trustees.
TRUSTOR. The word "Trustor" means any and all
persons and entities executing this Deed of Trust,
including without limitation all Trustors named
above.
THIS DEED OF TRUST, INCLUDING THE ASSIGNMENT OF
RENTS AND THE SECURITY INTEREST IN THE RENTS AND
PERSONAL PROPERTY, IS GIVEN TO SECURE (1) PAYMENT
OF THE INDEBTEDNESS AND (2) PERFORMANCE OF ANY AND
ALL OBLIGATIONS OF TRUSTOR UNDER THE NOTE, THE
RELATED DOCUMENTS, AND THIS DEED OF TRUST. THIS
DEED OF TRUST, INCLUDING THE ASSIGNMENT OF RENTS
AND THE SECURITY INTEREST IN THE RENTS AND
PERSONAL PROPERTY, IS ALSO GIVEN TO SECURE ANY AND
ALL OBLIGATIONS OF TRUSTOR UNDER THAT CERTAIN
CONSTRUCTION LOAN AGREEMENT BETWEEN TRUSTOR AND
LENDER OF EVEN DATE HEREWITH. ANY EVENT OF DEFAULT
UNDER THE CONSTRUCTION LOAN AGREEMENT, OR ANY OF
THE RELATED DOCUMENTS REFERRED TO THEREIN, SHALL
ALSO BE AN EVENT OF DEFAULT UNDER THIS DEED OF
TRUST. THE NOTE AND THIS DEED OF TRUST ARE GIVEN
AND ACCEPTED ON THE FOLLOWING TERMS:
<PAGE>
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04-22-97 DEED OF TRUST Page 5
(Continued)
PAYMENT AND PERFORMANCE. Except as otherwise
provided in this Deed of Trust, Trustor shall pay
to Lender all amounts secured by this Deed of
Trust as they become due, and shall strictly and
in a timely manner perform all of Trustor's
obligations under the Note, this Deed of Trust,
and the Related Documents.
POSSESSION AND MAINTENANCE OF THE PROPERTY.
Trustor agrees that Trustor's possession and use
of the Property shall be governed by the following
provisions:
POSSESSION AND USE. Until the occurrence of an
Event of Default or until Lender exercises its
right to collect Rents as provided for in the
Assignment of Rents form executed by Grantor in
connection with the Property, Trustor may a)
remain in possession and control of the
Property, (b) use, operate or manage the
Property, and (c) collect any Rents from the
Property.
DUTY TO MAINTAIN. Trustor shall maintain the
Property in tenantable condition and promptly
perform all repairs, replacements, and
maintenance necessary to preserve its value.
HAZARDOUS SUBSTANCES. The terms "hazardous
waste," "hazardous substance," "disposal,"
"release," and "threatened release,." as used
in this Deed of Trust, shall have the same
meanings as set forth in the Comprehensive
Environmental Response, Compensation and
Liability Act of 1980, as amended 42 U.S C.
Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986,
Pub. L. No. 99-499 ("SARA"), the Hazardous
Materials Transportation Act, 49 U.S.C Section
1801, et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq.,
or other applicable state or Federal laws rules
or regulations adopted pursuant to any of the
foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include,
without limitation, petroleum and petroleum by-
products or any fraction thereof and asbestos.
<PAGE>
==================================================
04-22-97 DEED OF TRUST Page 6
(Continued)
Trustor represents and warrants to Lender that:
(a) During the period of Trustor's ownership of
the Property, there has been no use, generation,
manufacture, storage, treatment, disposal, release
or threatened release of any hazardous waste or
substance by any person on, under, about or from
the Property; (b) Trustor has no knowledge of, or
reason to believe that there has been, except as
previously disclosed to and acknowledged by Lender
in writing, (i)any use, generation, manufacture,
storage, treatment, disposal, release, or
threatened release of any hazardous waste or
substance on, under, about or from the Property by
any prior owners or occupants of the Property or
(ii any actual or threatened litigation or claims
of any kind by any person relating to such
matters; and (c) except as previously disclosed to
and acknowledged by Lender in writing, (i) neither
Trustor nor any tenant contractor, agent or other
authorized user of the Property shall use,
generate manufacture, store, treat, dispose of, or
release any hazardous waste or substance on under,
about or from the Property and (ii) any such
activity shall be conducted in compliance with all
applicable federal, state, and local laws,
regulations and ordinances, including without
limitation those laws regulations, and ordinances
described above. Trustor authorizes Lender and its
agents to enter upon the Property to make such
inspections and tests, at Trustor's expense, as
Lender may deem appropriate to determine
compliance of the Property with this section of
the Deed of Trust. Beneficiary, at its option, but
without obligation to do so, may correct any
condition violating any applicable environmental
law affecting the Property, and in doing so shall
conclusively be deemed to be acting reasonably and
for the purpose of protecting the value of its
collateral, and all costs of correcting a
condition or violation shall be payable to
Beneficiary by Trustor as provided in the
Expenditures by Lender section of this Deed of
Trust. Any inspections or tests made by Lender
shall be for Lender s purposes only and shall not
be construed to create any responsibility or
liability on the part of Lender to Trustor or to
any other person The representations and
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04-22-97 DEED OF TRUST Page 7
(Continued)
warranties contained herein are based on Trustor s
due diligence in investigating the Property for
hazardous waste and hazardous substances Trustor
hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in
the event Trustor becomes liable for cleanup or
other costs under any such laws, and . agrees to
indemnify and hold harmless Lender against any and
all claims, losses,. liabilities, damages
penalties, and expenses which Lender may directly
or indirectly sustain or suffer resulting from a
breach of this section of the Deed of Trust or as
a consequence of any use, generation, manufacture,
storage, disposal, release or threatened release
occurring prior to Trustors ownership or interest
in the Property, whether or not the same was or
should have been known to Trustor. The provisions
of this section of the Deed of Trust, including
the obligation to indemnify, shall survive the
payment of the Indebtedness and the satisfaction
and reconveyance of the lien of this Deed of Trust
and shall not be affected by Lender's acquisition
of any interest in the Property, whether by
foreclosure or otherwise.
NUISANCE, WASTE. Trustor shall not cause, conduct
or permit any nuisance nor commit, permit, or
suffer any stripping of or waste on or to the
Property or any portion of the Property. Without
limiting the generality of the foregoing, Trustor
will not remove, or grant to any other party the
right to remove, any timber, minerals (including
oil and gas), soil, gravel or rock products
without the prior written consent of Lender.
Removal of Improvements. Trustor shall not
demolish or remove any Improvements from the Real
Property without the prior written consent of
Lender As a condition to the removal of any
Improvements, Lender may require Trustor to make
arrangements satisfactory to Lender to replace
such Improvements with Improvements of at least
equal value.
LENDER'S RIGHT TO ENTER. Lender and its agents and
representatives may enter upon the Real Property
at all reasonable times to attend to Lender s
interests and to inspect the Property for purposes
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04-22-97 DEED OF TRUST Page 8
(Continued)
of Trustor's compliance with the terms and
conditions of this Deed of Trust.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Trustor
shall promptly comply with all laws, ordinances
and regulations, now or hereafter in effect, of
all governmental authorities applicable to the use
or occupancy of the Property, including without
limitation, the Americans With Disabilities Act.
Trustor may contest in good faith any such law,
ordinance, or regulation and withhold compliance
during any proceeding, including appropriate
appeals, so long as Trustor has notified Lender in
writing prior to doing so and so long as, in
Lender s sole opinion, Lender s interests in the
Property are not jeopardized. Lender may require
Trustor to post adequate security or a surety
bond, reasonably satisfactory to Lender, to
protect Lender's interest.
DUTY TO PROTECT. Trustor agrees neither to abandon
nor leave unattended the Property. Trustor shall
do all other acts, in addition to those acts set
forth above in this section, which from the
character and use of the Property are reasonably
necessary to protect and preserve the Property.
DUE ON SALE - CONSENT BY LENDER. Lender may, at
its option, declare immediately due and payable
all sums secured by this Deed of Trust upon the
sale or transfer, without the Lender's prior
written consent, of all or any part of the Real
Property, or any interest in the Real Property. A
"sale or transfer" means the conveyance of Real
Property or any right, title or interest therein;
whether legal, beneficial or equitable; whether
voluntary or involuntary; whether by outright
sale, deed, installment sale contract, land
contract, contract for deed, leasehold interest
with a term greater than three (9) years, lease-
option contract, or by sale, assignment, or
transfer of any beneficial interest in or to any
land trust holding title to the Real Property, or
by any other method of conveyance of Real Property
interest. If any Trustor is a corporation,
partnership or limited liability company, transfer
also includes any change in ownership of more than
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04-22-97 DEED OF TRUST Page 9
(Continued)
twenty-five percent (25%) of the voting stock,
partnership interests or limited liability company
interests, as the case may be, of Trustor.
However, this option shall not be exercised by
Lender if such exercise is prohibited by federal
law or by Arizona law.
TAXES AND LIENS. The following provisions relating
to the taxes and liens on the Property are a part
of this Deed of Trust.
PAYMENT. Trustor shall pay when due (and in all
events prior to delinquency) all taxes and
assessments including without limitation sales or
use taxes in any state, local privilege or excise
taxes based on gross revenues, special taxes,
charges including water and sewer), fines and
impositions levied against Trustor or on account
of the Property, and shall pay when due all claims
for work done on or for services rendered or
material furnished to the Property Trustor shall
maintain the Property free of all liens having
priority over or equal to the interest of Lender
under this Deed of Trust, except for the lien of
taxes and assessments not due and except as
otherwise provided in this Deed of Trust.
Beneficiary shall have the right, but not the duty
or obligation, to charge Trustor for any such
taxes or assessments in advance of payment. In no
event does exercise or non-exercise by Beneficiary
of this right relieve Trustor from Trustor's
obligation under this Deed of Trust or impose any
liability whatsoever on Beneficiary.
RIGHT TO CONTEST. Trustor may withhold payment of
any tax, assessment or claim in connection with a
good faith dispute over the obligation to pay, so
long as Lender s interest in the property is not
jeopardized. If a lien arises or is filed as a
result of nonpayment, Trustor shall within fifteen
(15) days after the lien arises or if a lien is
filed, within fifteen (15) days af er Trustor has
notice of the filing, secure the discharge of the
lien, or if requested by Lender, deposit with
Lender cash or a sufficient corporate surety bond
or other security satisfactory to Lender in an
amount sufficient to discharge the lien plus any
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04-22-97 DEED OF TRUST Page 10
(Continued)
costs and attorneys' fees or other charges that
could accrue as a result of a foreclosure or sale
under the lien. In any contest, Trustor shall
defend itself and Lender and shall satisfy. Any
adverse judgment before enforcement against the
Property. Trustor shall name Lender as an
additional obligee under any surety bond furnished
in the contest proceedings.
EVIDENCE OF PAYMENT. Trustor shall upon demand
furnish to Lender satisfactory evidence of payment
of the taxes or assessments and shall authorize
the appropriate governmental official to deliver
to Lender at any time a written statement of the
taxes and assessments against the Property.
NOTICE OF CONSTRUCTION. Trustor shall notify
Lender at least fifteen (15) days before any work
is commenced, any services are furnished, or any
materials are supplied to the Property, if any
mechanic's lien materialmen's lien or other lien
could be asserted on account of the work services,
or materials. Trustor will upon request of Lender
furnish to Lender advance assurances satisfactory
to Lender that Trustor can and will pay the cost
of such improvements.
PROPERTY DAMAGE INSURANCE. The following
provisions relating to insuring the Property are a
part of this Deed of Trust.
MAINTENANCE OF INSURANCE. Trustor shall procure
and maintain policies of fire insurance with
standard extended coverage endorsements on a
replacement basis for the full insurable value
covering all Improvements on the Real Property
in an amount sufficient to avoid application of
any coinsurance clause, and with a standard
mortgagee clause in favor of Lender. Trustor
shall also procure and maintain comprehensive
general liability insurance in such coverage
amounts as Lender may request with trustee and
Lender being named as additional insureds in
such liability insurance policies. Additionally
Trustor shall maintain such other insurance,
including but not limited to hazard, business
interruption, and boiler insurance, as Lender
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04-22-97 DEED OF TRUST Page 11
(Continued)
may reasonably require Policies shall be
written in form, amounts, coverages and basis
reasonably acceptable to Lender and issued by a
company or companies reasonably acceptable to
Lender. Trustor, upon request of Lender, will
deliver to Lender from time to time the
policies or certificates of insurance in form
satisfactory to Lender, including stipulations
that coverages will not be cancelled or
diminished without at least ten (10) days'
prior written notice to Lender. Each insurance
policy also shall include an endorsement
providing that coverage in favor of Lender will
not be impaired in any way by any act, omission
or default of Trustor or any other person
Should the Real Property at any time become
located in an area designated by the Director
of the Federal Emergency Management Agency as a
special flood hazard area, Trustor agrees to
obtain and maintain Federal Flood Insurance for
the full unpaid principal balance of the loan,
up to the maximum policy limits set under the
National Flood Insurance Program, or as
otherwise required by Lender, and to maintain
such insurance for the term of the loan.
APPLICATION OF PROCEEDS. Trustor shall promptly
notify Lender of any loss or damage to the
Property if the estimated cost of replacement
or repair exceeds $1,000.00. Lender may make
proof of loss if Trustor fails to do so within
fifteen (15) days of the casualty. Whether or
not Lender's security is impaired, Lender may,
at its election, receive and retain the
proceeds of any insurance and apply the
proceeds to the reduction of the Indebtedness,
payment of any lien affecting the Property, or
the restoration and repair of the Property If
Lender elects to apply the proceeds to
restoration and repair, Trustor shall repair or
replace the damaged or destroyed Improvements
in a manner satisfactory to Lender. Lender
shall, upon satisfactory proof of such
expenditure, pay or reimburse Trustor from the
proceeds for the reasonable cost of repair or
restoration if Trustor is not in default under
this Deed of Trust. Any proceeds which have not
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04-22-97 DEED OF TRUST Page 12
(Continued)
been disbursed within 180 days after their
receipt and which Lender has not committed to
the repair or-restoration of the Property shall
be used first to pay any amount owing to Lender
under this Deed of Trust, then to pay accrued
interest, and the remainder, if any, shall be
applied to the principal balance of the
Indebtedness. If Lender holds any proceeds
after payment in full of the Indebtedness, such
proceeds shall be paid to Trustor as Trustor's
interests may appear.
UNEXPIRED INSURANCE AT SALE. Any unexpired
insurance shall inure to the benefit of, and
pass to, the purchaser of the Property covered
by this Deed of Trust at any trustee's sale or
other sale held under the provisions of this
Deed of Trust, or at any foreclosure sale of
such Property.
TRUSTOR'S REPORT ON INSURANCE. Upon request of
Lender, however not more than once a year,
Trustor shall furnish to Lender a report on
each existing policy of insurance showing: (a)
the name of the insurer; (b) the risks insured;
(c) the amount of the policy: (d the property
insured, the then current replacement value of
such property, and the manner of determining
that value; and (e) the expiration date of the
policy. Trustor shall, upon request of Lender,
have an independent appraiser satisfactory to
Lender determine the cash value replacement
cost of the Property.
TAX AND INSURANCE RESERVES Subject to any
limitations set by applicable law, Lender may
require Trustor to maintain with Lender reserves
for payment of annual taxes, assessments, and
insurance premiums, which reserves shall be
created by advance payment or monthly payments of
a sum estimated by Lender to be sufficient to
produce amounts at least equal to the taxes,
assessments, and insurance premiums to be paid.
The reserve funds shall be held by Lender as a
general deposit from Trustor, which Lender may
satisfy by payment of the taxes assessments, and
insurance premiums required to be paid by Trustor
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04-22-97 DEED OF TRUST Page 13
(Continued)
as they become due. Lender shall have the right to
draw upon the reserve funds to pay such items, and
Lender shall not be required to determine the
validity or accuracy of any item before paying it.
Nothing in the Deed of Trust shall -be construed
as requiring Lender to advance other monies for
such purposes, and Lender shall not incur any
liability for anything it may do or omit to do
with respect to the reserve account. All amounts
in the reserve account are hereby pledged to
further secure the Indebtedness, and Lender is
hereby authorized to withdraw and apply such
amounts on the Indebtedness upon the occurrence of
an Event of Default. Lender shall not be required
to pay any interest or earnings on the reserve
funds unless required by law or agreed to by
Lender in writing Lender does not hold the reserve
funds in trust for Trustor, and Lender is not
Trustor s agent for payment of the taxes and
assessments required to be paid by Trustor.
EXPENDITURES BY LENDER. If Trustor fails to comply
with any provision of this Deed of Trust, or if
any action or proceeding is commenced that would
materially affect Lender s interests in the
Property, Lender on Trustor's behalf may but shall
not be required to, take any action that Lender
deems appropriate to the extent permitted by
applicable raw. Any amount that Lender expends in
so doing will bear interest at the rate provided
for in the Note from the date incurred or paid by
Lender to the date of repayment by Trustor. All
such expenses, at Lender's option will (a) be
payable on demand, (b) be added to the balance of
the Note and be apportioned among and be payable
with any installment payments to become due during
either (i) the term of and applicable insurance
policy or (ii) the remaining term of the Note, or
(c) be treated as a balloon payment which will be
due and payable at the Note s maturity This Deed
of Trust also will secure payment of these
amounts. The rights provided for in this paragraph
shall be in addition to any other rights or any
remedies to which Lender may be entitled on
account of the default and shall be exercisable by
Lender to the extent permitted by applicable law.
Any such action by Lender shall not be construed
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04-22-97 DEED OF TRUST Page 14
(Continued)
as curing the default so as to bar Lender from any
remedy that it otherwise would have had.
WARRANTY; DEFENSE OF TITLE. The following
provisions relating to ownership of the Property
are a part of this Deed of Trust.
TITLE. Trustor warrants that: (a) Trustor holds
good and marketable title of record to the
Property in fee simple, free and clear of all
liens and encumbrances other than those set
forth in the Real Property description or in
any title insurance policy, title report, or
final title opinion issued in favor of, and
accepted by, Lender, or have otherwise been
previously disclosed to and accepted by Lender
in writing in connection with this Deed of
Trust, and (b) Trustor has the full right,
power, and authority to execute and deliver
this Deed of Trust to Lender.
DEFENSE OF TITLE. Subject to the exception in
the paragraph above, Trustor warrants and will
forever defend the title to the Property
against the lawful claims of all persons. In
the event any action or proceeding is commenced
that questions Trustor's title or the interest
of Trustee or Lender under this Deed of Trust
Trustor shall defend the action at Trustor's
expense. Trustor maybe the nominal party in
such proceeding, but Lender shall be entitled
to participate in the proceeding and to be
represented in the proceeding by counsel of
Lender's own choice, and Trustor will deliver,
or cause to be delivered, to Lender such
instruments as Lender may request from time to
time to permit such participation.
COMPLIANCE WITH LAWS. Trustor warrants that the
Property and Trustor's use of the Property
complies with all existing applicable laws,
ordinances, and regulations of governmental
authorities.
CONDEMNATION. The following provisions relating to
condemnation proceedings are a part of this
Deed of Trust.
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04-22-97 DEED OF TRUST Page 15
(Continued)
APPLICATION OF NET PROCEEDS. If all or any part
of the Property is condemned by eminent domain
proceedings or by any proceeding or purchase in
lieu of condemnation, Lender may at its
election require that all or any portion of the
net proceeds of the award be applied to the
Indebtedness or the repair or restoration of
the Property. The net proceeds of the award
shall mean the award after payment of all
reasonable costs, expenses, and attorneys fees
incurred by Trustee or Lender in connection
with the condemnation.
PROCEEDINGS. If any proceeding in condemnation
is filed, Trustor shall promptly notify Lender
in writing, and Trustor shall promptly take
such steps as may be necessary to defend the
action and obtain the award. Trustor may be the
nominal party in such proceeding, but Lender
shall be entitled to participate in the
proceeding and to be represented in the
proceeding by counsel of its own choice, and
Trustor will deliver or cause to be delivered
to Lender such instruments as may be requested
by it from time to time to permit such
participation,
IMPOSITION OF TAXES, FEES AND CHARGES BY
GOVERNMENTAL AUTHORITIES. The following provisions
relating to governmental taxes, fees and charges
are a part of this Deed of Trust:
CURRENT TAXES, FEES AND CHARGES. Upon request
by Lender, Trustor shall execute such documents
in addition to this Deed of Trust and take
whatever other action is requested by Lender to
perfect and continue Lender's lien on the Real
Property Trustor shall reimburse Lender for all
taxes, as described below, together with all
expenses incurred in recording, perfecting or
continuing this Deed of Trust, including
without limitation all taxes, fees, documentary
stamps, and other charges for recording or
registering this Deed of Trust.
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04-22-97 DEED OF TRUST Page 16
(Continued)
TAXES. The following shall constitute taxes to
which this section applies: (a) a specific tax
upon this type of Deed of Trust or upon all or
any part of the Indebtedness secured by this
Deed of Trust; (b) a specific tax on Trustor
which Trustor is authorized or required to
deduct from payments on the Indebtedness
secured by this type of Deed of Trust; (c) a
tax on this type of Deed of Trust chargeable
against the Lender or the holder of the Note;
and (d a specific tax on all or any portion of
the Inde6tedness or on payments of principal
and interest made by Trustor.
SUBSEQUENT TAXES. If any tax to which this
section applies is enacted subsequent to the
date of this Deed of Trust, this event shall
have the same effect as an Event of Default (as
defined below), and Lender ma exercise any or
all of its available remedies for an Event of
Default as provided below unless Trustor either
(a) pays the tax before it becomes delinquent,
or (b) contests the tax as provided above in
the Taxes and Liens Lender and deposits with
Lender cash or a sufficient corporate surety
bond or other security satisfactory to Lender.
SECURITY AGREEMENT; FINANCING STATEMENTS. The
following provisions relating to this Deed of
Trust as a security agreement are a part of this
Deed of Trust.
SECURITY AGREEMENT. This instrument shall
constitute a security agreement to the extent
any of the Property constitutes fixtures or
other personal property, and Lender shall have
all of the rights of a secured party under the
Uniform Commercial Code as amended from time to
time.
SECURITY INTEREST. Upon request by Lender,
Trustor shall execute financing statements and
take whatever other action is requested by
Lender to perfect and continue Lender's
security interest in the Rents and Personal
Property In addition to recording this Deed of
Trust in the real property records, Lender may,
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04-22-97 DEED OF TRUST Page 17
(Continued)
at any time and without further authorization
from Trustor, file executed counterparts,
copies or reproductions of this Deed of Trust
as a financing statement. Trustor shall
reimburse Lender for all expenses incurred in
perfecting or continuing this security
interest. Upon default, Trustor shall assemble
the Personal Property in a manner and at a
place reasonably convenient to Trustor and
Lender and make it available to Lender within
three (3) days after receipt of written demand
from Lender.
ADDRESSES. The mailing addresses of Trustor
(debtor) and Lender (secured the security
interest granted by this Deed of Trust may be
obtain e Uniform Commercial Code), are as
stated on the first page of this Deed of Trust.
FURTHER ASSURANCES; ATTORNEY-IN-FACT. The
following provisions relating to further
assurances and attorney-in-fact are a part of this
Deed of Trust.
FURTHER ASSURANCES. At any time, and from time
to time, upon request of Lender, Trustor will
make, execute and deliver, or will cause to be
made, executed or delivered, to Lender or to
Lender's designee, and when requested by
Lender, cause to be tiled, recorded, refiled,
or rerecorded, as the case may be, at such
times and in such offices and places as Lender
may deem appropriate, any and all such
mortgages, deeds of trust security deeds,
security agreements, financing statements,
continuation statements, instruments of
further, assurance, certificates, and other
documents as may, in the sole opinion of the
Lender, be necessary or desirable in order to
effectuate, complete, perfect, continue, or
preserve (a) the obligations of Trustor under
the Note this Deed of Trust, and the Related
Documents, and b the liens and security
interests created by this Deed of Trust as
first and prior liens on the Property, whether
now owned or hereafter acquired by Trustor.
Unless prohibited by law or agreed to the
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04-22-97 DEED OF TRUST Page 18
(Continued)
contrary by Lender in writing, Trustor shall
reimburse Lender for all costs and expenses
incurred in connection with the matters
referred to in this paragraph.
ATTORNEY-IN-FACT. If Trustor fails to do any of
the things referred to in the preceding
paragraph, Lender may do so for and in the name
of Trustor and at Trustor s expense. For such
purposes Trustor hereby irrevocably appoints
Lender as Trustors attorney-in-fact for the
purpose of making, executing, delivering,
filing, recording, and doing all other things
as may be necessary or desirable, in Lenders
sole opinion, to accomplish the matters
referred to in the preceding paragraph.
FULL PERFORMANCE. If Trustor pays all the
Indebtedness when due, and otherwise performs all
the obligations imposed upon Trustor under this
Deed of Trust, Lender shall execute and deliver to
Trustee a request for full reconveyance without
warranty and shall execute and deliver to Trustor
suitable statements of termination of any
financing statement on file evidencing Lender's
security interest in the Rents and the Personal
Property. Any reconveyance fee required by law
shall be paid by Trustor, if permitted by
applicable law.
DEFAULT. Each of the following, at the option of
Lender, shall constitute an event of default
("Event of Default") under this Deed of Trust:
DEFAULT ON INDEBTEDNESS. Failure of Trustor to
make any payment when due on the Indebtedness.
DEFAULT ON OTHER PAYMENTS. Failure of Trustor
within the time required by this Deed of Trust
to make any payment for taxes or insurance, or
any other payment necessary to prevent filing
of or to effect discharge of any lien.
DEFAULT IN FAVOR OF THIRD PARTIES. Should
Borrower or any Trustor default under any loan,
extension of credit, security agreement,
purchase or sales agreement, or any other
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04-22-97 DEED OF TRUST Page 19
(Continued)
agreement, in favor of any other creditor or
person that may materially affect any of
Borrower's property or Borrower's or any
Trustor's ability to repay the Loans or perform
their respective obligations under this Deed of
Trust or any of the Related Documents.
COMPLIANCE DEFAULT. Failure of Trustor to comply
with any other term, obligation, covenant or
condition contained in this Deed of Trust, the
Note or in any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation
or statement made or furnished to Lender by, or
on behalf of Trustor under this Deed of Trust,
the Note or the Related Documents is false or
misleading in any material respect, either now
or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Deed of Trust
or any of the Related Documents ceases to be in
full force and effect (including failure of any
collateral documents to create a valid and
perfected security interest or lien) at any time
and for any reason.
INSOLVENCY. The dissolution or termination of
Trustor's existence as a going business, the
insolvency of Trustor, the appointment of a
receiver for any part of Trustor's property, any
assignment for the benefit of creditors, any
type of creditor workout, or the commencement of
any proceeding under any bankruptcy or
insolvency laws by or against Trustor.
FORECLOSURE, FORFEITURE, ETC. Commencement of
foreclosure or forfeiture proceedings whether by
judicial proceeding, self-help, repossession or
any other method, by any creditor of Trustor or
by any governmental agency against any of the
Property. However, this subsection shall not
applying the event of a good faith dispute by
Trustor as to the validity or reasonableness of
the claim which is the basis of the foreclosure
or forfeiture proceeding, provided that Trustor
gives Lender written notice of such claim and
furnishes reserves or a surety bond for the
<PAGE>
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04-22-97 DEED OF TRUST Page 20
(Continued)
claim satisfactory to Lender.
BREACH OF OTHER AGREEMENT. Any breach by
Trustor under the terms of any other agreement
between Trustor and Lender that is not remedied
within any grace period provided therein,
including without limitation any agreement
concerning any indebtedness or other obligation
of Trustor to Lender, whether existing now or
later.
EVENTS AFFECTING GUARANTOR. Any of the
preceding events occurs with respect to any
Guarantor of any of the Indebtedness or any
Guarantor dies or becomes incompetent, or
revokes or disputes the validity of, or
liability under, and Guaranty of the
Indebtedness. Lender, at its option, may, but
shall not be required to, permit the Guarantors
estate to assume unconditionally the
obligations arising under the guaranty in a
manner satisfactory to Lender, and, in doing
so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change
occurs in Trustor's financial condition, or
Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
RIGHT TO CURE. If such a failure is curable and
if Trustor has not been given a notice of a
breach of the same provision of this Deed of
Trust within the preceding twelve (12) months,
it maybe cured (and no Event of Default will
have occurred) if Trustor, after Lender sends
written notice demanding cure of such failure;
(a) cures the failure within fifteen (15) days;
or (b) if the cure requires more than fifteen
(15) days, immediately initiates steps
sufficient to cure the failure and thereafter
continues and completes all reasonable and
necessary steps sufficient to produce
compliance as soon as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. Upon the
occurrence of any Event of Default and at any time
thereafter, Trustee or Lender, at its option, may
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04-22-97 DEED OF TRUST Page 21
(Continued)
exercise any one or more of the following rights
and remedies, in addition to any other rights or
remedies provided by law:
ACCELERATE INDEBTEDNESS. Lender shall have the
right at its option without notice to Trustor
to declare the entire Indebtedness immediately
due and payable, including any prepayment
penalty which Trustor would be required to pay.
FORECLOSURE. With respect to all or any part of
the Real Property, the Trustee shall have the
right to foreclose by notice and sale, and
Lender shall have the right to foreclose by
judicial foreclosure, in either case in
accordance with and to the full extent provided
by applicable law. To the extent permitted by
law Trustor shall be and remain liable for any
deficiency remaining after sale, either
pursuant to the power of sale or judicial
proceedings.
UCC REMEDIES. With respect to all or any part
of the Personal Property, Lender shall have all
the rights and remedies of a secured party
under the Uniform Commercial Code.
COLLECT RENTS. Lender shall have the right,
without notice to Trustor, to take possession
of and manage the Property and collect the
Rents; including amounts past due and unpaid,
and apply the net proceeds, over and above
Lender s costs, against the Indebtedness. In
furtherance of this right, Lender may require
any tenant or other user of the Property to
make payments of rent or use fees directly to
Lender. If the rents are collected by Lender,
then Trustor irrevocably designates Lender as
Trustor's attorney-in-fact to endorse
instruments received in payment thereof in the
name of Trustor and to negotiate the same and
collect the proceeds. Payments by tenants or
other users to Lender in response to Lender's
demand shall satisfy the obligations for which
the payments are made, whether or not any
proper grounds for the demand existed. Lender
may exercise its rights under this subparagraph
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04-22-97 DEED OF TRUST Page 22
(Continued)
either in person, by agent, or through a
receiver.
APPOINT RECEIVER. Lender shall have the right
to have a receiver appointed to take possession
of all or any p art of the Property, with
the power to protect and preserve the Property,
to operate the Property preceding foreclosure
or sale, and to collect the Rents from the
Property and apply the proceeds, over and above
the cost of the receivership, against the
Indebtedness The receiver may serve without
bond if permitted by law. Lender s right to the
appointment of a receiver shall exist whether
or not the apparent value of the Property
exceeds the Indebtedness by a substantial
amount. Employment by Lender shall not
disqualify a person from serving as a receiver.
TENANCY AT SUFFERANCE. If Trustor remains in
possession of the Property after the Property
is sold as provided above or Lender otherwise
becomes entitled to possession of the Property
upon default of Trustor, Trustor shall become a
tenant at sufferance of Lender or the purchaser
of the Property and shall, at Lender's option,
either (a) pay a reasonable rental for the use
of the Property, or (b) vacate the Property
immediately upon the demand of the Lender.
OTHER REMEDIES. Trustee or Lender shall have
any other right or remedy provided in this Deed
of Trust or the Note or by law or in equity or
by other rights and remedies afforded by
Arizona law.
NOTICE OF SALE. Lender shall give Trustor
reasonable notice of the time and place of any
public sale of the Personal Property or of the
time after which any private sale or other
intended disposition of the Personal Property
is to be made. Reasonable notice shall mean
notice given at least ten (10) days before the
time of the sale or disposition. Any sale of
Personal Property may be made in conjunction
with any sale of the Real Property.
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04-22-97 DEED OF TRUST Page 23
(Continued)
SALE OF THE PROPERTY. To the extent permitted
by applicable law, Trustor hereby waives any
and all rights to have the Property marshalled.
In exercising its rights and remedies, the
Trustee or Lender shall be free to sell all or
any part of the Property together or separately
in one sale or by separate sales. Lender shall
be entitled to bid at any public sale on all or
any portion of the Property.
INSURANCE POLICIES. Beneficiary shall have the
right upon an Event of Default, but not the
obligation, to assign all of Trustor s right,
title and interest in and to all policies of
insurance on the Property and any unearned
premiums paid on such insurance to any receiver
or any purchaser of the Property at a
foreclosure sale, and Trustor hereby appoints
Beneficiary as attorney in fact to assign and
transfer such policies.
WAIVER; ELECTION OF REMEDIES. A waiver by any
party of a breach of a provision of this Deed
of Trust shall not constitute a waiver of or
prejudice the party's rights otherwise to
demand strict compliance with that provision or
any other provision. Election by Lender to
pursue any remedy provided in this Deed of
Trust, the Note, in any Related Document, or
provided by law shall not exclude pursuit of
any other remedy, and an election to make
expenditures or to take action to perform an
obligation of Trustor under this Deed of Trust
after failure of Trustor to perform shall not
affect Lender's right to declare a default and
to exercise any of its remedies.
ATTORNEYS' FEES; EXPENSES. If Lender institutes
any suit or action to enforce any of the terms
of this Deed of Trust, Lender shall be entitled
to recover such sum as the court may adjudge
reasonable as attorneys' fees at trial and on
any appeal. Whether or not any court action is
involved, all reasonable expenses incurred by
Lender which in Lender s opinion are necessary
at any time for the protection of its interest
or the enforcement of its rights shall become a
<PAGE>
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04-22-97 DEED OF TRUST Page 24
(Continued)
part of the Indebtedness payable on demand and
shall bear interest at the Note rate from the
date of expenditure until repaid Expenses
covered by this paragraph include, without
limitation, however subject to any limits under
applicable law, Lender s attorneys fees whether
or not there is a lawsuit, including attorneys
fees for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay
or injunction), appeals and any anticipated
post-judgment collection services, the cost of
searching records obtaining title reports
(including foreclosure reports), surveyors'
reports, appraisal fees, title insurance, and
fees for the Trustee to the extent permitted by
applicable law. Trustor also will pay any court
costs, in addition to all other sums provided
by law.
RIGHTS OF TRUSTEE. Trustee shall have all of
the rights and duties of Lender as set forth in
this section.
POWERS AND OBLIGATIONS OF TRUSTEE. The following
provisions relating to the powers and obligations
of Trustee are part of this Deed of Trust.
POWERS OF TRUSTEE. In addition to all powers of
Trustee arising as a matter of law, Trustee
shall have the power to take the following
actions with respect to the Property upon the
written request of Lender and Trustor: (a join
in preparing and filing a map or plat of the
Real Property, including the dedication of
streets or other rights to the public; (b) join
in granting any easement or creating any
restriction on the Real Property; and (c) join
in any subordination or other agreement
affecting this Deed of Trust or the interest of
Lender under this Deed of Trust.
OBLIGATIONS TO NOTIFY. Trustee shall not be
obligated to notify any other party of a
pending sale under any other trust deed or
lien, or of any action or proceeding in which
Trustor, Lender, or Trustee shall be a party,
<PAGE>
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04-22-97 DEED OF TRUST Page 25
(Continued)
unless the action or proceeding is brought by
Trustee.
TRUSTEE. Trustee shall meet all qualifications
required for Trustee under applicable law. In
addition to the rights and remedies set forth
above, with respect to all or any part of the
Property, the Trustee shall have the right to
foreclose by notice and sale, and Lender shall
have the right to foreclose by judicial
foreclosure, in either case in accordance with
and to the full extent provided by applicable
law.
SUCCESSOR TRUSTEE. Lender, at Lender's option,
may from time to time appoint a successor
Trustee to any Trustee appointed hereunder by
an instrument executed and acknowledged by
Lender and recorded in the office of the
recorder of Maricopa County, Arizona. The
instrument shall contain, in addition to all
other matters required by state law, the names
of the original Lender, Trustee, and Trustor,
the book and page where this Deed of Trust is
recorded and the name and address of the
successor trustee, and the instrument shall be
executed and acknowledge by Lender or its
successors in interest. The successor trustee,
without conveyance of the Property, shall
succeed to all the title, power, and duties
conferred upon the Trustee in this Deed of
Trust and by applicable law. This procedure for
substitution of trustee shall govern to the
exclusion of all other provisions for
substitution.
NOTICES TO TRUSTOR AND OTHER PARTIES. Any notice
under this Deed of Trust shall be in writing, may
be sent by telefacsimile, and shall be effective
when actually delivered, or when deposited with a
nationally recognized overnight courier, or, if
mailed, shall be deemed effective when deposited
in the United States mail first class, certified
or registered mail postage prepaid, directed to
the addresses shown near the beginning of this
Deed of Trust. Any party may change its address
for notices under this Deed of Trust by giving
<PAGE>
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04-22-97 DEED OF TRUST Page 26
(Continued)
formal written notice to the other parties,
specifying that the purpose of the notice is to
change the party's address. All copies of notices
of foreclosure from the holder of any lien which
has priority over this Deed of Trust shall be sent
to Lender's address, as shown near the beginning
of this Deed of Trust. For notice purposes,
Trustor agrees to keep Lender and Trustee informed
at all times of Trustor's current address.
APPRAISALS. Grantor agrees to ay the cost of all
appraisals and appraisal reviews required by
Lender in its sole discretion (a) to comply with
(i) any applicable statute or regulation or (ii)
the request or directive (whether or not having
the force of law of any regulatory authority with
jurisdiction over Lender, or (b) at any time after
the occurrence of an event of default. All such
appraisal costs shall become a part of the
indebtedness secured hereby and payable on demand,
together with interest thereon at the highest rate
applicable to any such Indebtedness.
FINANCIAL INFORMATION. From time to time, upon
request by Lender, Grantor shall provide, and
shall cause any Guarantor of the Indebtedness to
provide, such financial information concerning
such person or the Property as Lender may require.
Such information may include without limitation
financial statements, tax returns and operating
statements regarding the Property.
ADDITIONAL COLLATERAL. In addition to the Property
identified on page 1 of the Deed of Trust, the
Property shall also include and Grantor hereby
grants to Lender a security interest in, all of
Grantor s now owned and hereafter acquired (a)
equipment and inventory which is at any time
located on and used in connection with the real
property described in this Deed of Trust or any
business operated thereon; (b) accounts general
intangibles, instruments money, cash equivalents
and income or revenues of any nature which arise
from or relate to the operation of such property
or any such business; and (c) all proceeds of any
of the foregoing. All of the foregoing collateral
shall be part of the personal property as that
<PAGE>
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04-22-97 DEED OF TRUST Page 27
(Continued)
term is used in this Deed of Trust.
ORAL AGREEMENTS. ORAL AGREEMENTS OR ORAL
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
ACCESS LAWS. (a Grantor agrees that Grantor and
the Property shall at all times strictly comply
with the requirements of the Americans with
Disabilities Act of 1990. the Fair Housing
Amendments Act of 1988; and other federal, state,
or local laws or ordinances related to disabled
access; or any statute, rule, regulation,
ordinance, order of governmental bodies and
regulatory agencies, or order or decree of any
court adopted or enacted with respect thereto, as
now existing or hereafter amended or adopted
(collectively, the "Access Laws"). At any time,
Lender may require a certificate of compliance
with the Access Laws and indemnification agreement
in a form reasonably acceptable to Lender. Lender
may also require a certificate of compliance with
the Access Laws from an architect, engineer, or
other third party acceptable to Lender.
(b) Notwithstanding any provisions set forth
herein or in any other document, Grantor shall not
alter or permit any tenant or other person to
alter the Property in any manner which would
increase Grantor's responsibilities for compliance
with the Access Laws without the prior written
approval of Lender. In connection with such
approval, Lender may require a certificate of
compliance with the Access Laws from an architect,
engineer, or other person acceptable to Lender.
(c) Grantor agrees to give prompt written notice
to Lender of the receipt by Grantor of any claims
of violation of any of the Access Laws and of the
commencement of any proceedings or investigations
which relate to compliance with any of the Access
Laws.
(d) Grantor shall indemnify, defend, and hold
harmless Lender from and against any and all
claims, demands, damages, costs, expenses, losses,
liabilities,. penalties, fines, and other
proceedings including without limitation
<PAGE>
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04-22-97 DEED OF TRUST Page 28
(Continued)
reasonable attorneys fees and expenses arising
directly or indirectly from or out of or in anyway
connected with any failure of the Property to
comply with any of the Access Laws. The
obligations and liabilities of Grantor under this
section shall survive any termination,
satisfaction, assignment, judicial or nonjudicial
foreclosure proceeding, or delivery of a deed in
lieu of foreclosure.
MISCELLANEOUS PROVISIONS. The following
miscellaneous provisions are a part of this Deed
of Trust:
AMENDMENTS. This Deed of Trust, together with
any Related Documents constitutes the entire
understanding and agreement of the parties as to
the matters set forth in this Deed of Trust. No
alteration of or amendment to this Deed of Trust
shall be effective unless given in writing and
signed by the party or parties sought to be
charged or bound by the alteration or amendment.
ANNUAL REPORTS. If the Property is used for
purposes other than Trustor's residence,
Trustor shall furnish to Lender upon request, a
certified statement of net operating income
received from the Property during Trustor's
previous fiscal year in such form and detail as
Lender shall require. Net operating income"
shall mean all cash receipts from the Property
less all cash expenditures made in connection
with he operation of the Property.
ARBITRATION. Lender and Trustor agree that all
disputes, claims and controversies between
them, whether individual, joint, or class in
nature, arising from this Deed of Trust or
otherwise, including without limitation
contract and tort disputes, shall be arbitrated
pursuant to the Rules of the American
Arbitration Association, upon request of either
party. No act to take or dispose of any
Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this
arbitration agreement. This includes, without
limitation, obtaining injunctive relief or a
<PAGE>
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04-22-97 DEED OF TRUST Page 29
(Continued)
temporary restraining order; invoking a power
of sale under any deed of trust or mortgage;
obtaining a writ of attachment or imposition of
a receiver; or exercising any rights relating
to personal property, including taking or
disposing of such property with or without
judicial process pursuant to Article 9 of the
Uniform Commercial Code. Any disputes, claims,
or controversies concerning the lawfulness or
reasonableness of any act, or exercise of any
right, concerning any Collateral, including any
claim to rescind, reform, or otherwise modified
any agreement relating to the Collateral, shall
also be arbitrated, provided however that no
arbitrator shall have the right or the power to
enjoin or restrain any act of any party.
Judgment upon any award rendered by any
arbitrator may be entered in any court having
jurisdiction. Nothing in this Deed of Trust
shall preclude any party from seeking equitable
relief from a court of competent jurisdiction
The statute of limitations, estoppel, waiver,
laches, and similar doctrines which would
otherwise be applicable in an action brought by
a party shall be applicable in any arbitration
proceeding, and the commencement of an
arbitration proceeding shall be deemed the
commencement if an action for these purposes.
The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement
of this arbitration provision.
APPLICABLE LAW. This Deed of Trust has been
delivered to Lender and accepted by Lender in the
State of Washington. Except as set forth
hereinafter, this Deed of Trust shall be governed
by, construed and enforced in accordance with the
laws of the State of Washington, except and only
to the extent of procedural matters related to the
perfection and enforcement by Lender of its rights
and remedies against the Property, which matters
shall be governed by the laws of the State of
Arizona. However, in the event that the
enforceability or validity of any provision of
this Deed of Trust is challenged or questioned,
such provision shall be governed by whichever
applicable state or federal law would uphold or
<PAGE>
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04-22-97 DEED OF TRUST Page 30
(Continued)
would enforce such challenged or questioned
provision. The loan transaction which is evidenced
by the Note and this Deed of Trust (which secures
the Note) has been applied for, considered,
approved and made in the State of Washington.
Caption Headings. Caption headings in this Deed of
Trust are for convenience purposes only and are
not to be used to interpret or define the
provisions of this Deed of Trust.
MERGER. There shall be no merger of the interest
or estate created by this Deed of Trust with any
other interest or estate in the Property at any
time held by or for the benefit of Lender in any
capacity, without the written consent of Lender.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All
obligations of Trustor under this Deed of Trust
shall be joint and several, and all references to
Trustor shall mean each and every Trustor. This
means that each of the persons signing below is
responsible for all obligations in this Deed of
Trust.
SEVERABILITY. If a court of competent jurisdiction
finds any provision of this Deed of Trust to be
invalid or unenforceable as to any person or
circumstance, such finding shall not render that
provision invalid or unenforceable as to any other
persons or circumstances. If feasible, any such
offending provision shall be deemed to be modified
to be within the limits of enforceability or
validity; however, if the pending provision cannot
be so modified, it shall be stricken and all other
provisions of this Deed of Trust in all other
respects shall remain valid and enforceable.
SUCCESSORS AND ASSIGNS. Subject to the limitations
stated in this Deed of Trust or transfer of
Trustor's interest, this Deed of Trust shall be
binding upon and inure to the benefit of the
parties, their successors and assigns. If
ownership of the Property becomes vested in a
person other than Trustor, Lender, without notice
to Trustor may deal with Trustor s successors with
<PAGE>
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04-22-97 DEED OF TRUST Page 31
(Continued)
reference to this Deed of Trust and the
Indebtedness by way of forbearance or extension
without releasing Trustor from the obligations of
this Deed of Trust or liability under the
Indebtedness.
TIME IS OF THE ESSENCE. Time is of the essence in
the performance of this Deed of Trust.
WAIVERS AND CONSENTS. Lender shall not be deemed
to have waived any rights under this Deed of Trust
(or under the Related Documents) unless such
waiver is in writing and signed by Lender. No
delay or omission on the part of Lender in
exercising any right shall operate. as a waiver of
such right or any other right. A waiver by any
party of a provision of this Deed of Trust shall
not constitute a waiver of or prejudice the
party's right otherwise to demand strict
compliance with that provision or any other
provision. No prior waiver by Lender nor any
course of dealing between Lender and Trustor,
shall constitute a waiver of and of Lender's
rights or any of Trustor's obligations as to any
future transactions. Whenever consent by Lender is
required in this Deed of Trust the granting of
such consent by Lender in any instance shall not
constitute continuing consent to subsequent
instances where such consent is required.
WAIVER OF HOMESTEAD EXEMPTION. Trustor hereby
releases and waives all rights and benefits of the
homestead exemption laws of the State of Arizona
as to all Indebtedness secured by this Deed of
Trust.
Unless you provide us with evidence of the
insurance coverage as required by our contract or
loan agreement, we may purchase insurance at your
expense to protect our interest. This insurance
may, but need not, also protect your interest. If
the collateral becomes damaged, the coverage we
purchase may not pay any claim you make or any
claim made against you. You may later cancel this
coverage by providing evidence that you have
obtained property coverage elsewhere.
<PAGE>
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04-22-97 DEED OF TRUST Page 32
(Continued)
You are responsible for the cost of any insurance
purchased by us. The cost of this insurance may be
added to your contract or loan balance. If the
cost is added to your contract or loan balance,
the interest rate on the underlying contract or
loan will apply to this added amount. The
effective date of coverage may be the date your
prior coverage lapsed or the date you failed to
provide proof of coverage.
The coverage we purchase may be considerably more
expensive than insurance you can obtain on your
own and may not satisfy any need for property
damage coverage or any mandatory liability
insurance requirements imposed by applicable law.
EACH TRUSTOR ACKNOWLEDGES HAVING READ ALL THE
PROVISIONS OF THIS DEED OF TRUST, AND EACH TRUSTOR
AGREES TO ITS TERMS.
TRUSTOR:
EMERITUS PROPERTIES VI, INC.,
a Washington corporation
By: /s/ Raymond R. Brandstrom
--------------------------
Raymond R. Brandstrom, President
By: /s/ Kelly J. Price
--------------------------
Kelly J. Price, Vice President & Secretary
<PAGE>
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04-22-97 DEED OF TRUST Page 33
(Continued)
CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss
COUNTY OF KING )
On this 22nd day of April, 1997, before me, the
undersigned Notary Public, personally appeared
Raymond R. Brandstrom, President; and Kelly Price,
Vice President & Secretary of EMERITUS PROPERTIES
VI, INC., a Washington corporation, and known to
me to be authorized agents of the corporation that
executed the Deed of Trust and acknowledged the
Deed of Trust to be the free and voluntary act and
deed of the corporation, by authority of its
Bylaws or by resolution of its board of directors,
for the uses and purposes therein mentioned, and
on oath stated that they are authorized to execute
this Deed of Trust and in fact executed the Deed
of Trust on behalf of the corporation.
By /s/Catherine L. Pasquan
Residing at Seattle, WA
Notary Public in and for the State of Washington
My commission expires 3-30-99
[NOTARY SEAL]
<PAGE>
ADDENDUM TO DEED OF TRUST
The Deed of Trust attached hereto is hereby
amended as follows:
1. Any and all references to "Grantor" shall
mean the Trustor, as defined in the Deed of Trust.
2. The paragraph in bold type immediately
following the definition of "Trustor" on page 2 of
the Deed of Trust is amended in its entirety and
superseded by the following:
THIS DEED OF TRUST, INCLUDING THE ASSIGNMENT
OF RENTS AND THE SECURITY INTEREST IN THE
RENTS AND PERSONAL PROPERTY, IS GIVEN TO
SECURE (1) PAYMENT OF THE INDEBTEDNESS AND
(2) PERFORMANCE OF ANY AND ALL OBLIGATIONS OF
TRUSTOR UNDER THE NOTE, THE RELATED
DOCUMENTS, AND THIS DEED OF TRUST. ANY EVENT
OF DEFAULT UNDER ANY OF THE RELATED DOCUMENTS
SHALL ALSO BE AN EVENT OF DEFAULT UNDER THIS
DEED OF TRUST. THE NOTE AND THIS DEED OF
TRUST ARE GIVEN AND ACCEPTED ON TIIE
FOLLOWING TERMS:
3. The subparagraph beginning on page 2 with
the heading "Hazardous Substances" is hereby
amended in its entirety and superseded by the
following:
Hazardous Substances. The terms "hazardous
waste," "hazardous substance," "disposal,"
"release," and "threatened release," as used
in this Deed of Trust, shall have the same
meanings as set forth in the Comprehensive
Environmental Response, Compensation, and
Liability Act of 1980, as amended 42 U.S.C.
Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act
of 1986, Pub. L. No. 99-499 ("SARA"), the
Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq., the Resource
Conservation and Recover Act, 42 U.S.C.
Section 6901, et seq., or other applicable
state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The
terms "hazardous waste" and "hazardous
1
<PAGE>
substance" shall also include, without
limitation , petroleum, and petroleum by-
products or any fraction thereof and
asbestos. Trustor represents and warrants to
Lender that: (a) During the period of
Trustor's ownership of the Property, there
has been no use, generation, manufacture,
storage, treatment, disposal, Release or
threatened Release of any hazardous waste or
substance by any person on, under, about or
from the Property, except as permitted by
applicable law; (b) Trustor has no knowledge
of, or reason to believe that there has been,
except as previously disclosed to and
acknowledged by Lender in writing or in any
environmental assessment or report provided
to Lender, (i) any use, generation,
manufacture, storage, treatment, disposal,
release, or threatened release of any
hazardous waste or substance on, under, about
or from the Property by any prior owners or
occupants of the Property or (ii) any actual
or threatened litigation or claims of any
kind by any person relating to such matters;
and (c) Except as previously disclosed to and
acknowledged by Lender in writing, (i)
neither Trustor nor any tenant, contractor,
agent or other authorized user of the
Property shall use, generate, manufacture,
store, treat, dispose of, or release any
hazardous waste or substance on, under, about
or from the Property and (ii) any such
activity shall be continued in compliance
with all applicable federal, state and local
laws, regulations and ordinances, including
without limitation those laws, regulations,
and ordinances described above. At reasonable
times and upon reasonable notice to Trustor,
Trustor authorizes Lender and its agents to
enter upon the Property to make such
inspections and tests, at Trustor's expense,
as Lender may deem appropriate to determine
compliance of the Property with this section
of the Deed of Trust; provided that said
reasonable time and notice requirements are
not applicable in the event: an emergency
situation exists which may either result in
damage to the Property and/or injury to
persons or property unless such inspection or
testing is conducted immediately.
2
<PAGE>
Beneficiary, at its option, but without
obligation to do so, may correct any
condition violating any applicable
environmental law affecting the Property, and
in doing so shall conclusively be deemed to
be acting reasonably and for the purpose of
protecting the value of its collateral, and
all costs of correcting a condition or
violation shall be payable to Beneficiary by
Trustor as provided in the Expenditures by
Lender section of this Deed of Trust. Any
inspections or tests made by Lender shall be
for Lender's purposes only and shall not be
construed to create any responsibility or
liability on the part of Lender to Trustor or
to any other person. The representations and
warranties contained herein are based on
Trustor's due diligence iii investigating the
Property for hazardous waste and hazardous
substances. Trustor hereby (a) releases and
waives any future claims against Lender for
indemnity or contribution in the event
Trustor becomes liable for cleanup or other
costs under any such laws, and (b) agrees to
identify and hold harmless Lender against any
and all claims, losses, liabilities, damages,
penalties, and expenses which Lender may
directly or indirectly sustain or suffer
resulting from a breach of this section of
the Deed of Trust or as a consequence of any
use, generation, manufacture, storage,
disposal, release or threatened release
occurring prior to Trustor's ownership or
interest in the Property, whether or not the
same was or should have been known to
Trustor. The provisions of this section of
the Deed of Trust, including the obligation
to indemnify, shall survive the payment of
the Indebtedness and the satisfaction and
reconveyance of the lien of this Deed of
Trust and shall not be affected by Lender's
acquisition of any interest in the Property,
whether by foreclosure or otherwise.
4. The subparagraph on page 3 with the
heading "Lender's Right to Enter" is hereby
amended in its entirety and superseded by the
following:
Lender's Right to Enter. Lender and its
3
<PAGE>
agents and representatives may enter upon the
Real Property at all reasonable times to
attend to Lender's interests and to inspect
the property for purposes of Trustor's
compliance with the terms and conditions of
this Deed of Trust, provided that Lender
shall provide Trustor reasonable notice of
such inspection provided that said reasonable
time and notice requirements are not
applicable in the event an emergency
situation exists which may either result in
damage to the Property and/or injury to
persons or property unless such inspection is
conducted immediately.
5. The paragraph on page 3 with the heading
"Due on Sale -- Consent by Lender" is amended in
its entirety and superseded by the following:
Due On Sale -- Consent By Lender. Lender
may, at its option, declare immediately due
and payable all sums secured by this Deed of
Trust upon the sale or transfer, without the
Lender's prior written consent, of all or
any part of the Real Property, or any
interest in the Real Property. A "sale or
transfer" means the conveyance of Real
Property or any right, title or interest
therein; whether legal, beneficial or
equitable; whether voluntary or involuntary;
whether by out right sale, deed, installment
sale contract, land contract, contract for
deed, leasehold interest with a term greater
than three (3) years, lease-option contract,
or by sale, assignment, or transfer of any
beneficial interest in or to any land trust
holding title to the Real Property, or by
any other method of conveyance of Real
Property interest. If any Trustor is a
corporation, partnership or limited
liability company, transfer also includes
any change in ownership of more than fifty
percent (50%) of the voting stock,
partnership interests or limited liability
company interests, as the case may be, of
Trustor. However, this option shall not be
exercised by Lender if such exercise is
prohibited by federal law or by Arizona law.
The foregoing provisions of this paragraph
shall not apply to any sale or transfer to
4
<PAGE>
any subsidiary or affiliate of Emeritus
Corporation, a Washington corporation.
6. The subparagraph on page 3 with the
heading "Payment" is hereby amended in its
entirety and superseded by the following:
Payment. Trustor shall pay when due (and in
all events prior to delinquency) all taxes
and assessments, including without limitation
sales or use taxes in any state, local
privilege or excise taxes based on gross
revenues, special taxes, charges (including
water and sewer), fines and impositions
levied against Trustor or on account of the
Property, and shall pay when due all claims
for work done on or for services rendered or
material furnished to the Property. Trustee
shall maintain the Property free of all liens
having priority over or equal to the interest
of Lender under this Deed of Trust, except
for the lien of taxes and assessments not due
and except as otherwise provided in this Deed
of Trust. Beneficiary shall have the right,
but not the duty or obligation, to charge
Trustor for any such taxes or assessments in
advance of payment. In the event that
Beneficiary exercises the foregoing right and
receives any amount from Trustor attributable
to such taxes, Beneficiary shall have the
obligation and responsibility to timely pay
the subject taxes.
7. The reference to $ 1,000.00 in the
subparagraph on page 4 with the heading
"Application of Proceeds" is replaced by
$25,000.00. In addition, the last sentence of this
subparagraph is amended in its entirety and
superseded by the following: "If Lender holds any
proceeds after payment in full of the
Indebtedness, Lender shall pay such proceeds to
Borrower."
8. The paragraph on page 4 with the heading
"Tax and Insurance Reserves" is hereby amended and
superseded by the following:
Tax and Insurance Reserves. Subject to any
limitations set by applicable law, Lender may
require Trustor to maintain with Lender
5
<PAGE>
reserves for payment of annual taxes,
assessments and insurance premiums, which
reserves shall be created by advance payment
or monthly payments of a sum estimated by
Lender to be sufficient to produce amounts
at. least equal to the taxes, assessments,.
and insurance premiums to be paid; provided
that Lender shall not have the right to
impose such reserve requirement upon Trustor
so long as Trustor pays said taxes,
assessments and insurance premiums as they
become due. The reserve funds shall be held
by Lender as a general deposit from Trustor,
which Lender may satisfy the payment of the
taxes, assessments, and insurance premiums
required to be paid by Trustor as they become
due. Lender shall have the right to draw upon
the reserve funds to pay such items. Nothing
in the Deed of Trust shall be construed as
requiring Lender to advance other monies for
such purposes, and Lender shall not incur any
liability for anything it may- do or omit to
do with respect to the reserve account. All
amounts in the reserve account are hereby
pledged to further secure the indebtedness,
and Lender is hereby authorized to withdraw
and apply such amounts on the indebtedness
upon the occurrence of any Event of Default.
Lender shall not be required to pay any
interest or earnings on the reserve funds
unless required by law or agreed to by Lender
in writing. Upon receipt by Beneficiary of
sufficient reserve funds to pay any of the
subject taxes or insurance premiums,
Beneficiary shall have the obligation and
responsibility to timely pay such taxes or
insurance premiums. Beneficiary, however,
does not hold such reserve funds in trust for
Trustor.
9. The subparagraph on page 5 with the
heading "Taxes" is hereby amended in its entirety
and superseded by the following:
Taxes. The following shall constitute taxes
to which this section applies (a) a specific
tax upon this type of Deed of Trust or upon
all or any part of the indebtedness secured
by this Deed of Trust; (b) a specific tax on
Trustor which Trustor is authorized or
6
<PAGE>
required to deduct from payments on the
indebtedness secured by this type of Deed of
Trust; (c:) a tax on this type of Deed of
Trust chargeable against the Lender or the
holder of the Note; and (d) a specific tax on
all or any portion of the indebtedness or on
payments of principal and interest made by
Trustor. Notwithstanding the foregoing, the
provisions of this paragraph shall not apply
to any income taxes attributable to the
payments of principal, interest or any
portion of the Indebtedness.
10. The subparagraph on page 5 with the
heading "Defective Collateralization" is
hereby deleted.
11. The subparagraph on page 6 with the
heading "Breach of Other Agreement" is hereby
amended in its entirety and superseded by the
following:
Breach of Other Agreement. Any breach by
Trustor under the terms of any of the Related
Documents that is not remedied within any
grace period provided therein.
12. The subparagraph on page 6 with the
heading "Events Affecting Guarantor" is hereby
amended in its entirety and superseded by the
following:
Events Affecting Guarantor. Any of the
preceding events occur with respect to any
Guarantor of any of the Indebtedness or any
(Guarantor dies or revokes or disputes the
validity of, or liability under, any Guaranty
of the Indebtedness; provided that the death
of any Guarantor shall not be an Event of
Default if the Guarantor's estate
unconditionally assumes the obligations
arising under the Guaranty.
13. The last sentence of the paragraph on
page 8 with the heading "Multiple Parties" is
hereby deleted.
7
<PAGE>
14. The following subparagraph shall be added
to the Deed of Trust after the subparagraph on
page 8 with the heading "Waiver of Homestead
Exemption":
Additional Documentation. In the event that
this Deed of Trust or any of the Related
Documents ceases to be in full force and
effect (including failure of any collateral
documents to create a valid and perfected
security interest or lien) at any time and
for any reason, Borrower agrees to execute
such documents which Lender may reasonably
require in order to make this Deed of Trust
or any of the Related Documents valid and
effective; provided that the Indebtedness or
any portion thereof, remains unpaid at such
time.
By their signatures set forth below, Lender
and Trustor acknowledge and agree that this
Addendum shall be incorporated into and deemed to
be a part of the Deed of Trust, and that in the
event of a conflict between the terms of this
Addendum and the attached Deed of Trust, the terms
of this Addendum shall control.
Lender:
U.S. BANK OF WASHINGTON
National Association
By: /s/ Monica Rhule
--------------------
Its: Loan Admin Officer
Trustor:
EMERITUS PROPERTIES VI, INC.,
a Washington corporation
By: /s/ Raymond R. Brandstrom
--------------------------
Its: President
8
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory
evidence that Monica M. Rhule is the person who
appeared before me, and said person
acknowledged that he/she signed this instrument,
on oath stated that he/she was authorized to
execute the instrument and acknowledge it as the
Loan Admin Officer of U.S. Bank of Washington to
be the free and voluntary act of such party for
the uses and purposes mentioned in the instrument.
Dated this 22 day of April, 1997.
[SEAL OF NOTARY] /s/ L.B. Day
-----------------------
Printed Name: L.B. Day
Notary Public in and for the
Sate of Washington, residing
at Seattle
My commission expires 3/26/98
STATE OF WASHINGTON )
9
<PAGE>
Loan No.____________
GUARANTY
"Continuing Guaranty"
For Valuable Consideration, receipt of
which is hereby acknowledged, and to induce U.S.
Bank of Washington, National Association (
"Lender" ) to make a loan (the "Loan" ) to
Emeritus Properties VI, Inc., a Washington
corporation ("Borrower"), which is evidenced by
various documents, including as applicable,
Promissory Note of even date herewith in the
principal amount of $3,500,000.00, Deed of Trust,
and other Documents (all jointly, and as
applicable severally, referred to as the "Loan
Documents"), which loan Lender would not extend
but for this Guaranty, the undersigned, and each
of them, (hereinafter "undersigned" or
"Guarantor") irrevocably and unconditionally
guarantees to Lender the full payment and prompt
performance of each and every obligation of
Borrower under the Loan Documents, and all
liabilities, direct or contingent, joint, several,
or independent arising in conjunction with the
Loan Documents, including all liabilities of any
assignee or successor in interest of Borrower,
whether at maturity or earlier by reason of
acceleration or otherwise, or whether extended,
together with interest, attorney fees, and other
costs and expenses paid or incurred by Lender in
enforcing its rights under the Loan Documents. The
undersigned waives notice and acceptance of this
Guaranty and of any liability to which it applies,
and waives presentment, demand of payment, notice
of dishonor or non-payment, protest, notice of
protest on any such liabilities, suit, or other
action by Lender, and tender of notices of default
on any Loan Documents.
In addition to but not in limitation of the
preceding, the undersigned agrees that Lender may,
at any time and from time to time, without the
consent of, or notice or responsibility to the
undersigned, and without impairing or releasing
the obligations of the undersigned, upon or
without any terms or conditions and in whole or in
part: (1) change the manner, place or terms of
payment, or change or extend the time of payment
of, renew, or alter any liability of Borrower
1
<PAGE>
hereby guaranteed, or any other liabilities
whether directly or indirectly relating to the
liabilities hereby guaranteed, and this Guaranty
shall apply to such liabilities of Borrower, as
changed, extended, renewed, or altered in any
manner; (2) exercise or refrain from exercising,
in any manner and in any order, any remedy it may
have with respect to any property securing the
liabilities hereby guaranteed, any liabilities
directly or indirectly relating to the liabilities
hereby guaranteed, or any offset against such
liabilities including but not limited to, judicial
foreclosure, exercise of power of sale or taking a
deed or assignment in lieu of foreclosure as to
any collateral, and Guarantor shall be liable to
Lender for any deficiency resulting from the
exercise by it of any such remedy, even though any
right which Guarantor may have against others
might be diminished or destroyed; (3) exercise or
refrain from exercising any rights against
Borrower or others, including the undersigned, or
otherwise in any way act or refrain from acting;
(4) settle or compromise any liabilities hereby
guaranteed or any liabilities due to Lender,
incurred directly or indirectly, and subordinate
the payment of all or any part thereof to the
payment of any liabilities which may be due to
Lender or others; (5) apply any sums received to
any liability or liabilities of Borrower to
Lender, regardless of what liability or
liabilities of Borrower to Lender remain unpaid.
No invalidity, irregularity, or
unenforceability of the liabilities hereby
guaranteed shall affect, impair, or be a defense
to this Guaranty, and this Guaranty is, and
remains until fully satisfied, a primary
obligation of the undersigned. Lender need not
inquire into the power of Borrower, and any credit
granted in reliance upon the purported exercise of
such power or authority is hereby guaranteed.
No segregation or specific allocation by
Lender of specified collateral against any
liability shall waive or affect any lien against
such collateral or against other property or any
right of Lender, including the rights accruing to
Lender under this Guaranty. No delay on the part
of Lender in exercising any of its rights under
this Guaranty or otherwise, and no partial or
2
<PAGE>
single exercise of such, and no action or failure
to act by Lender, with or without notice to the
undersigned or anyone else, shall constitute a
waiver of this right, or shall affect or impair
this Guaranty. Lender and the undersigned expect
and intend that this Guaranty be governed by the
laws of the state of Washington, which state bears
the most significant relation to the transaction.
Lender is not required to disclose any
information with respect to the credit, the
financial condition or character of Borrower, any
collateral, other guarantees, or any action or non-
action on the part of Lender, Borrower, or any
person connected with the credit or collateral
thereto. The undersigned hereby represents that
the undersigned is fully aware of the financial
condition of Borrower and is in such a position by
virtue of its relationship to Borrower to obtain
all necessary financial information concerning
Borrower's business.
Lender shall not be required to first resort
for payment to Borrower, other guarantors, if any,
or other persons or corporations, their properties
or estates, or to any collateral security,
property, liens, mortgages, or other rights or
remedies whatsoever, prior to requiring of the
undersigned full satisfaction of the liabilities
hereby guaranteed. Lender may exercise or refrain
from exercising, in any manner and in any order,
any remedy Lender may have with respect to any
property securing the liabilities hereby
guaranteed, including, but not limited to,
judicial foreclosure as to any collateral, and the
undersigned shall be liable to Lender for any
deficiency resulting from the exercise by Lender
of any such remedy, even though any right which
the undersigned may have against others might be
diminished or destroyed. The undersigned
specifically waives all antideficiency and one-
right-of-action protections, which may otherwise
be available to the undersigned.
Any indebtedness of Borrower now or hereafter
owed to undersigned is hereby subordinated to the
Loan, and such indebtedness of Borrower to the
undersigned, if Lender so requests, shall be
collected, enforced, and received by the
undersigned as trustee for Lender and be paid over
3
<PAGE>
to Lender on account of the Loan but without
reducing or affecting in any manner the liability
of the undersigned herein.
The failure of any entity or person to
guarantee Borrower's obligations shall not release
or affect the liability of any entity or person
signing this Guaranty.
The undersigned waives all rights of
subrogation to any collateral and remedies of
Lender against Borrower, and other persons, until
the entire indebtedness owed pursuant to the Loan
Documents is discharged.
Guarantor hereby expressly and irrevocably
releases and waives any and all "claims" (as now
or hereafter defined in the United States
Bankruptcy Code, 11 USC 101 et. seq.) of any
nature whatsoever, whether known or unknown and
whether now existing or hereafter acquired,
against any debtor or the estate in any existing
or future bankruptcy case in which the debtors
include Borrower or any person or entity with
respect to whom Guarantor is an "insider" (as now
or hereafter defined in such Bankruptcy Code), to
the extent such claims in any manner relate to or
arise out of this Guaranty or any indebtedness
guaranteed hereby (including but not limited to
fixed or contingent claims based on subrogation,
indemnity, reimbursement, contribution, or
contract). Guarantor authorizes and empowers
Lender to at any time exercise, in its sole
discretion, any right or remedy or any combination
thereof which may then be available to Lender;
Guarantor agrees that nothing contained herein
shall prevent Lender from suing on any note or
instrument or from exercising any right or remedy
available to Lender thereunder, or under any loan
or collateral documents by and between Lender and
Borrower. Guarantor further agrees that the
exercise of any such rights or remedies shall not
constitute a legal or equitable discharge of
Guarantor. It is Guarantor's intent and purpose
that the obligation hereunder shall be absolute,
independent, and unconditional under any and all
circumstances. Without limiting the generality of
the foregoing, Guarantor expressly waives any and
all rights, benefits, or defenses under:
4
<PAGE>
(a) Any applicable "one action" or
"antideficiency" law;
(b) Any defense other than payment in
full to any guaranteed indebtedness on the part of
any person or entity, including but not limited to
Borrower and any other Guarantor;
(c) Any claim based on any alleged
impairment of any collateral or any alleged
unjustified impairment of recourse against
Borrower or any other person or entity liable on
any indebtedness guaranteed hereby (whether such
impairment is alleged to be intentional, reckless,
negligent, or otherwise); and
(d) Any claim or circumstance which
constitutes a legal or equitable discharge of a
guarantor or surety.
Notwithstanding any foreclosure of any lien
on real or personal property securing any
indebtedness guaranteed hereby, whether by the
exercise of a power of sale, by an action for
judicial foreclosure, or by acceptance of a deed
in lieu of foreclosure, Guarantor shall remain
bound under this Guaranty.
If this Guaranty is executed by more than one
signer, all agreements and promises hereby
contained shall be construed`, and are hereby
declared to be, joint and several in each and
every particular, and shall be fully binding upon
and enforceable against either, any, or all of
such signers, and neither the death, release of or
revocation by one or more signers shall affect or
release the liability of any other signer. The
death of any of the undersigned shall not revoke
this Guaranty as to such decedent unless and until
written notice thereof is actually received by
Lender and until all indebtedness then existing is
fully paid and discharged.
The undersigned shall pay to Lender all costs
and expenses, including filing fees and attorney
fees incurred by Lender in arbitration, at trial,
on appeal, or in any bankruptcy proceeding in
connection with the custody, care, preservation,
or collection of any property of the undersigned
or in seeking to enforce any of the liabilities or
5
<PAGE>
obligations of the undersigned under this
Guaranty.
The term "undersigned" as used herein shall
mean the entity or person executing this Guaranty,
or any one or more of them. Anyone signing this
Guaranty shall be bound hereby, whether or not
anyone else signs this Guaranty at any time.
This Guaranty and each of its provisions
shall be binding upon the undersigned and upon the
heirs, legal representatives, successors and
assigns of the undersigned, and each of them,
respectively, and shall inure to the benefit of
Lender, its successors and assigns. Any married
person who signs this Guaranty expressly agrees
that recourse may be had against his/her separate
property for all of his/her obligations hereunder.
Should any one or more provisions of this Guaranty
be determined to be illegal or unenforceable, all
other provisions shall remain effective.
The liability of the undersigned pursuant to
this Guaranty shall not be affected in any way by
the institution of any proceedings involving
Borrower under the Federal Bankruptcy Code or by
any action taken in any such proceedings.
This Guaranty shall terminate upon payment in
full of Borrower's indebtedness under the Loan
Documents except that Guarantor's guarantee of the
obligations of Borrower under Certificate and
Indemnity Regarding Hazardous Substances and
Certificate of Compliance and Indemnification
Agreement of even date herewith shall survive
payment of Borrower's indebtedness and transfer of
the property pursuant to foreclosure proceedings
or otherwise. If payment is made by Borrower on a
debt guaranteed hereby and thereafter Lender is
forced to remit the amount of that payment to
Borrower's trustee in bankruptcy or similar person
under any federal or state bankruptcy law or law
for the relief of debtors, Borrower's debt shall
be considered unpaid for the purpose of
enforcement of this Guaranty. Guarantor will, at
Guarantor's own cost and expense, furnish to
Lender within ninety days after the end of each
fiscal year annual financial statements of
Guarantor for such year in reasonable detail and
in form and substance satisfactory to Lender.
6
<PAGE>
Either Lender or Guarantor may require that
all disputes, claims, counterclaims and defenses,
including those based on or arising from any
alleged tort ("Claims") relating in any way to
this Guaranty be settled by binding arbitration in
accordance with the Commercial Arbitration Rules
of the American Arbitration Association and Title
9 of the U.S. Code. All claims will be subject to
the statutes of limitation applicable if they were
litigated. This provision is void if the Guaranty,
at the time of the proposed submission to
arbitration, is secured by real property located
outside of Oregon or Washington, or if the effect
of the arbitration procedure (as opposed to any
claims of Guarantor) would be to materially impair
Lender's ability to realize on any collateral
securing the Guaranty. If arbitration occurs and
each party's claim is less than $100,000, one
neutral arbitrator will decide all issues; if any
party's Claim is $100,000 or more, three neutral
arbitrators will decide all issues. All
arbitrators will be active Washington State Bar
members in good standing. All arbitration hearings
will be held in Seattle, Washington. In addition
to all other powers, the arbitrator(s) shall have
the exclusive right to determine all issues of
arbitrability. Judgment on any arbitration award
may be entered in any court with jurisdiction. If
either party institutes any judicial proceeding
relating to the Guaranty, such action shall not be
a waiver of the right to submit any Claim to
arbitration. In addition, each has the right
before, during, and after any arbitration to
exercise any number of the following remedies, in
any order or concurrently: (i) setoff; (ii) self-
help repossession; (iii) judicial or non-judicial
foreclosure against real or personal property
collateral; and (iv) provisional remedies,
including injunction, appointment of receiver,
attachment, claim and delivery and replevin. This
arbitration clause cannot be modified or waived by
either party except in writing, which writing must
refer to this arbitration clause and be signed by
both Lender and Guarantor.
This writing constitutes the complete
understanding of the parties with respect to the
terms of this Guaranty. No parole or extrinsic
evidence of any nature shall be used to supplement
7
<PAGE>
or modify any term. There are no conditions to the
effectiveness of this Guaranty.
Receipt of a true copy of this Guaranty is
hereby acknowledged by the undersigned. The
undersigned understands and agrees that this
Guaranty shall not constitute a commitment of any
nature whatsoever by Lender to renew or hereafter
extend credit to Borrower.
ORAL AGREEMENTB OR ORAL COMMITMENTB TO LOAN
MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING
REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WABHINGTON LAW.
Dated : April 22, 1997
----------------
GUARANTOR:
/s/ Daniel R. Baty
----------------------
Daniel R. Baty
8
<PAGE>
STATES OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have
satisfactory evidence that Daniel R. Baty is
the person who appeared before me, and said
person acknowledged that he signed this
instrument and acknowledged it to be his free
and voluntary act for the uses and purposes
mentioned in the instrument.
Dated April 22, 1997.
/s/ Catherine L. Pasquan
--------------------------
[SEAL] Notary Public in and for
the State of Washington
residing at Seattle, WA
My commission expires: 3-30-99
9
<PAGE>
AGREEMENT TO PROVIDE MANAGEMENT SERVICES
TO
AN ASSISTED LIVING AND INDEPENDENT LIVING FACILITY
This Agreement to Provide Management Services
to an Assisted Living and Independent Living
Facility ("Agreement") dated as of June 1,1997, is
made and entered into by and between COLUMBIA
HOUSE, L.L.C., a Washington limited liability
company ("Owner") and Emeritus Corporation, a
Washington corporation ("Manager").
RECITALS
A. Owner is the owner of that certain real
property located at 300 Autumn Ridge Drive,
Herculaneum, Missouri (the "Real Property")
including the improvements on the Real Property
that constitute the 94 unit congregate care and
assisted living facility commonly known as "Autumn
Ridge Retirement Home" or "Autumn Ridge
Residential Care Apartments" and located in
Herculaneum, Missouri (the "Facility");
B. Owner desires to engage the services of a
person or entity to manage the Facility on Owner's
behalf and to provide certain consulting services
to Owner in connection therewith'
,
C. Manager is experienced and qualified in
the field of assisted living and congregate care
facility management;
D. Owner has determined that Manager's fee is
economical in light of the range of services which
Manager is willing to provide to Owner; and
E. Manager is willing to operate the Facility
on Owner's behalf and provide consulting services
to Owner in connection therewith, pursuant to the
terms and conditions set forth herein.
NOW THEREFORE, in consideration of the
foregoing premises and the mutual covenants herein
contained, IT IS AGREED AS FOLLOWS:
<PAGE>
l. MANAGEMENT AND CONSULTING RESPONSIBILITIES OF
MANAGER.
Owner hereby engages Manager to provide, and
Manager hereby accepts such engagement and agrees
to provide, management, consulting, advisory and
supervisory services to Owner in connection with
the operation of the Facility, upon the terms and
conditions set forth in this Agreement. By
entering into this Agreement, Owner does not
delegate to Manager any powers, duties, or
responsibilities which Owner is prohibited by law
from delegating. Owner also retains such other
authority as shall not have been expressly
delegated to Manager pursuant to this Agreement.
Subject to the foregoing, Manager shall provide
the following services to, or on behalf of, Owner:
1.1 OPERATIONAL POLICIES AND FORMS. Manager
shall implement operational policies and
procedures and develop such new policies and
procedures as Manager deems necessary to insure
the establishment and maintenance of operational
standards appropriate for the nature of the
Facility.
1.2 CHARGES. Manager shall establish the
schedules of recommended charges, including any
and all special charges for services rendered to
residents at the Facility. Owner shall have the
right to review and approve the charge schedules
established by Manager.
1.3 INFORMATION. Manager shall develop any
informational material, mass media releases, and
other related publicity materials, which Manager
deems necessary for the operation of the Facility.
1.4 REGULATORY COMPLIANCE. Manager, with the
assistance of Owner if requested by Manager, shall
use its best efforts to obtain and maintain all
licenses, permits, qualifications, and approvals
from any applicable governmental or regulatory
authority for the operation of the Facility and to
manage the operations of the Facility in full
compliance with all applicable laws and
regulations, and in accordance with all such
licenses, permits, qualifications, and approvals.
2
<PAGE>
1.5 EQUIPMENT AND IMPROVEMENTS. Manager
shall advise Owner as to equipment and
improvements which are needed to maintain or
upgrade the quality of the Facility, to replace
obsolete or run-down equipment, or to correct any
deficiencies (including, without limitation, any
survey deficiencies) which may be observed or
cited during the term of this Agreement. Owner
shall review and act upon Manager's
recommendations as expeditiously as possible.
Manager shall not be liable for any cost or
liability which Owner may incur in the event Owner
disregards Manager's recommendations. Manager
shall, as a Facility Expense, make all necessary
and approved repairs, replacements and maintenance
within the budgetary limits set forth in the
annual capital expenditure budget prepared by
Manager pursuant to Paragraph 1.12. hereof and in
a workmanlike and lien-free manner.
1.6 ACCOUNTING. Manager shall provide home
office and accounting support to the Facility. All
accounting procedures and systems utilized in
providing said support shall be in accordance with
the operating capital and cash programs developed
by Manager, which programs shall conform to
generally accepted accounting principles and shall
not materially distort income or loss. In
addition, if Owner so elects by notice to Manager,
Manager shall prepare or cause to be prepared all
tax returns required in connection with operation
of the Facility, including payroll tax returns
(but excluding Owner's income tax returns) and, at
Owner's sole cost and expense, Manager shall cause
all local, state and federal taxes to be timely
paid or contested, as appropriate. If Owner elects
to have Manager prepare such non-income tax
returns, the costs incurred by Manager in
preparing such non-income tax returns shall not be
included in the Base Management Fee (as that term
is defined in Subparagraph 9.3(a), below), but
shall be separately reimbursed by Owner as a
Facility Expense. Such taxes shall be deemed to be
Facility Expenses (as that term is defined in
Paragraph 8.2, below) and shall be paid out of the
revenues of the Facility or the working capital
for the Facility provided by Owner. Nothing herein
shall preclude Manager from delegating to a third
party a portion of the accounting duties provided
3
<PAGE>
for in this section; provided, that such
delegation shall not relieve Manager from
Manager's ultimate liability for the timely and
complete performance of the obligations provided
for herein.
1.7 REPORTS. Manager shall prepare and
provide to the Owner any reasonable operational
information which may from time to time be
specifically requested by Owner, including any
information needed to assist Owner in completing
its tax returns and in complying with any
reporting obligations imposed by any mortgagees of
the Facility. In addition: (i) within thirty (30)
days after the end of each calendar month, Manager
shall provide Owner with an unaudited balance
sheet of the Facility, dated the last day of such
month, and an unaudited statement of income and
expenses for such month relating to the operation
of the Facility; and (ii) within ninety (90) days
after the end of the fiscal year of the Facility,
Manager shall provide Owner with unaudited
financial statements including a balance sheet of
the Facility, dated the last day of said fiscal
year, and an unaudited statement of income and
expense for the fiscal year then-ended relating to
the operation of the Facility.
1.8 BANK ACCOUNTS. Manager shall open a new
checking account in the name of the facility
("Facility Checking Account") and shall deposit in
the Facility Checking Account a11 money received
during the term of this Agreement in the course of
the operation of the Facility; 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 Manager. Owner shall be
given notice as to the identity of said authorized
signatories. All Facility Expenses (as that term
is defined in Paragraph 8.2, below) incurred in
the operation of the Facility in accordance with
the terms of the Budgets submitted to Owner under
Paragraph 1.12 hereof, shall be paid by check
drawn on the Facility Checking Account.
Withdrawals from the Facility Checking Account
shall be made first to pay the Base Management Fee
(as that term is defined in Subparagraph 9.3(a),
below, and, thereafter, to pay Facility Expenses
4
<PAGE>
(as that term is defined in Paragraph 8.2, below)
in such order of priority as Manager deems
appropriate to the operation of the Facility, and
thereafter to pay the Supplemental Management Fee
and the Residual Management Fee (as those terms
are defined in Paragraph 9.3, below). In the event
the Gross Revenues (as defined in Subparagraph
9.3(a), below) generated by the Facility are at
any time insufficient to pay all of the Facility
Expenses, Owner shall, within five (5) days of
Owner's receipt of a written demand by Manager,
deposit in the Facility Checking Account
sufficient funds to satisfy the then working
capital needs of the Facility.
1.9 PERSONNEL. Manager shall: (i) recruit,
employ, train, promote, direct, discipline,
suspend, and discharge Facility personnel; (ii)
establish salary levels, personnel policies, and
employee benefits; and (iii) establish employee
performance standards, all as needed during the
term Management Fee (as that term is defined in
Subparagraph 9.3(a), below), but shall be
separately reimbursed by Owner as a Facility
Expense (as that term is defined in Paragraph 8.2,
below).
1.10 SUPPLIES AND EQUIPMENT. Manager shall
purchase, as a Facility Expense, supplies and non-
capital equipment needed to operate the Facility
within the budgetary limits set forth in the
annual operating budget prepared by Manager
pursuant to Paragraph 1.12 hereof. In purchasing
said supplies and equipment Manager shall, if
possible, take advantage of any national or group
purchasing agreements to which Manager may be a
party.
1.11 LEGAL PROCEEDINGS. Manager shall, as a
Facility Expense and through its legal counsel,
coordinate all legal matters and proceedings with
Owner's counsel.
1.12 BUDGETS. The Facility shall be operated
on a fiscal year of January 1 through December 31.
Within forty-five (45) days prior to the start of
each fiscal year, Manager shall prepare and submit
to Owner for Owner's review and agreement, which
agreement shall not be unreasonably withheld (i)
an annual operating budget, (ii) an annual capital
5
<PAGE>
expenditure budget, and (iii) an annual cash flow
projection. In the event the operating budget or
the capital expenditure budget (or both) have not
been agreed upon prior to the first day of the
then-current fiscal year, beginning in fiscal year
I 998, the operating budget or capital expenditure
budget in effect for the prior fiscal year, as
appropriate, shall continue in effect until the
new operating budget or capital expenditure
budget, as appropriate, is agreed upon by Owner
and Manager. Thereafter, any expenditures made
during the year pursuant to said agreed-upon
budgets and/or any expenditures on an item-by-item
basis exceeding by no more than 10"% the amounts
set forth therein for the applicable expense item
(the "Budget Threshold") may be made without
Owner's prior approval. Any unbudgeted
expenditures and/or any expenditures in excess of
the Budget Threshold shall be subject to Owner's
prior approval, which approval shall not be
unreasonably withheld.
1.13 COLLECTION OF ACCOUNTS. Manager shall
issue bills and collect accounts and monies owed
for goods and services furnished by the Facility,
including, but not limited to, enforcing the
rights of Owner and the Facility as creditor under
any contract or in connection with the rendering
of any services; provided, however, that any
expenses incurred by Manager shall not be included
in the Base Management Fee (as that term is
defined in Subparagraph 9.3(a), below), but shall
be separately reimbursed by Owner as a Facility
Expense (as that term is defined in Paragraph 8.2,
below). Notwithstanding any other provision of
this Agreement to the contrary, Manager does not
guaranty the collectability of such accounts or
monies and shall have no liability to Owner for
Manager's inability to so collect such accounts or
monies.
1.14 CONSTRUCTION SUPERVISION. Owner and
Manager may agree that Manager shall act as
construction supervisor with respect to any
construction work for the Facility or on the Real
Property after the Commencement Date (as defined
in Paragraph 3, below), in which event Manager
will supervise, oversee and administer each and
6
<PAGE>
every aspect of any such improvements and
construction work. For the purposes of this
Agreement, "construction work" shall include any
construction, reconstruction or alteration of any
improvements constituting part of the Real
Property, but shall not include usual maintenance
and repairs made to the Facility or the Real
Property. Without limitation of the foregoing, if
Owner and Manager agree that Manager shall act as
construction supervisor, and subject to Owner's
approval in each instance, Manager will: (a)
negotiate contracts for architectural, design,
engineering and construction services; (b) secure
any and all necessary consents and approvals; (c)
oversee the administration of construction
contracts; and (d) act as project manager with
respect to the construction work.
2. INSURANCE.
Upon request, Manager, at Owner's sole cost
and expense, shall arrange for and maintain all
necessary and proper hazard insurance covering the
Facility, the furniture, fixtures, and equipment
situated thereon, and all necessary and proper
malpractice and public liability insurance for
Owner's protection and for the protection of
Owner's officers, agents and employees. Until such
a request is made and/or in the event Manager is
unable to secure insurance coverage for the
Facility for any reason whatsoever, Owner shall be
responsible for obtaining and maintaining said
insurance. In addition, Manager shall provide
employee health and worker's compensation
insurance for all Manager employees at the
Facility in accordance with Manager's policies
therefor, and the costs thereof shall not be
included in the Base Management Fee (as that term
is defined in Subparagraph 9.3(a), below), but
shall be separately reimbursed by Owner as a
Facility Expense (as that term is defined in
Paragraph 8.2, below). Manager shall, at Manager's
sole cost and expense, arrange for and maintain
all necessary and proper malpractice and public
liability insurance for the protection of Manager,
and Manager's officers, agents, and employees. Any
insurance provided by Owner pursuant to this
Paragraph 2 shall comply with the requirements of
any mortgage or deed of trust encumbering the
Facility, and any insurance provided by Manager
7
<PAGE>
pursuant to this Paragraph 2 shall comply with
such requirements provided that Owner shall have
provided Manager with a copy of such mortgage or
deed of trust.
3. PROPRIETARY INTEREST.
The systems, methods, procedures, and
controls employed by Manager and any written
materials or brochures developed by Manager to
document the same are, and shall remain, the
property of Manager 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 Owner, except as
authorized by Manager.
4. TERM AND TERMINATION OF AGREEMENT.
4.1 TERM. The term of this Agreement ("Term")
shall commence on June I,1997 (the "Commencement
Date") and expire on May 3 I,1999; provided,
however, that the Term shall be extended
automatically for successive two (2) year periods,
ending on the 31st day of May thereafter, unless
terminated prior to such date (as the same may
have be extended) pursuant to this Paragraph 4.
4.2 TERMINATION. The Term (as the same may be
have been extended ) may be terminated by either
Manager or Owner
(a) at any time, with or without cause, by
giving notice of termination not less
than thirty (30) days prior to the
effective date of such termination;
(b) if fifty percent (50%) or more of the
Facility is either (i) damaged or
destroyed or (ii) taken by condemnation
proceedings or otherwise, whether or not
Owner elects to rebuild or repair the
Facility, by giving notice of
termination not less than ten (10) days
prior to the effective date of such
termination;
8
<PAGE>
(c) immediately upon the occurrence of an
Event of Default by the other party (as
defined in Paragraph 5, below), by
giving notice of termination, effective
the date of receipt (or deemed receipt)
by the defaulting party of such notice
of termination.
4.3 EFFECT OF TERMINATION. In the event of a
termination of Term pursuant to Subparagraphs
4.2(a) or 4.2(b), above, upon the effective date
of such termination, neither party shall have any
further obligations whatsoever under this
Agreement; provided, however, that Manager shall
be entitled to receive immediate payment of all
amounts theretofore unpaid by Owner but earned by
Manager as of the effective date of such
termination. In the event of a termination of the
Term pursuant to Subparagraph 4.2(c), above,
except as expressly provided in Paragraph 5.3,
below, neither party shall have any further
obligation whatsoever under this Agreement;
provided, however, that Manager shall be entitled
to receive immediate payment of all amounts
theretofore unpaid by Owner but earned by Manager
as of the effective date of such termination. In
the event that Owner desires Manager to leave any
equipment owned by Manager at the Facility upon
such termination, Owner shall pay to Manager the
fair market value of such equipment to be left at
the Facility and Manager shall transfer title
thereto to Owner upon such payment.
5. DEFAULT, REMEDIES UPON DEFAULT.
5.1 MANAGER'S EVENTS OF DEFAULT. With respect
to Manager, it shall be an "Event of Default"
under this Agreement:
(a) 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 Manager' s
receipt of notice of such default
from Owner, which notice shall
specify the event or events
constituting the default; or
9
<PAGE>
(b) If (i) Manager shall: (A) apply for, or
consent to, the appointment of a receiver,
trustee, or liquidator of Manager of all or a
substantial part of Manager's assets, (B) file a
voluntary petition in bankruptcy, or admit in
writing Manager's inability to pay Manager's debts
as they become due,
(c) (C) make a general assignment for the benefit
of creditors, or (D) file a petition or an answer
seeking reorganization or arrangement with
creditors or taking advantage of any insolvency
law; or (ii) an order, judgment or decree shall be
entered by a court of competent jurisdiction, on
the application of a creditor (A) adjudicating
Manager as bankrupt or insolvent, (B) approving a
petition seeking reorganization of Manager, or (C)
appointing a receiver, trustee, or liquidator for
Manager or for all or a substantial part of
Manager's assets.
5.2 OWNER'S EVENTS OF DEFAULT. With respect
to Owner, it shall be an Event of Default under
this Agreement:
(a) If Owner shall fail to make or
cause to be made any payment to
Manager required to be made
hereunder (other than Owner's
obligation, pursuant to Paragraph
1.8, above, to deposit working
capital into the Facility Checking
Account, which circumstance shall
be handled in accordance with
Subparagraph 5.2(b), below), and
such failure shall continue for a
period of thirty (30) days;
10
<PAGE>
(b) If Owner 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 Owner' s
receipt of notice of such default
from Manager, which notice shall
specify an event or events
constituting the default; provided,
however, that in the case of
Owner's failure to provide,
pursuant to Paragraph I.8, above,
necessary working capital upon
demand by Manager, it shall be
deemed to be an Event of Default
hereunder if the such necessary
working capital is not deposited in
the Facility Checking Account
within ten ( 10) days of Manager's
initial demand therefor without any
further notice from Manager being
required;
(c) If Owner shall fail to make
payments, or keep any covenants,
owing to any third party which are
beyond the control of Manager to
make or keep, and which would cause
Owner to lose possession of the
Facility or any personal property
required to operate the Facility in
the normal course of operation; or
(d) If: (i) Owner shall (A) be dissolved, (B)
apply for or consent to the appointment of a
receiver, trustee or liquidator for Owner or for
all or a substantial part of Owner's assets, (C)
file a voluntary petition in bankruptcy or admit
in writing its inability to pay Owner's debts as
they become due, (D) make a general assignment for
the benefit or creditors, or (E) file a petition
or an answer seeking reorganization or arrangement
with creditors or taking advantage of any
insolvency law; or (ii) an order,
11
<PAGE>
judgment or decree shall be entered
by a court of competent
jurisdiction, on the application of
a creditor (A) adjudicating Owner
as bankrupt or insolvent, (B)
approving a petition seeking
reorganization of Owner, or (C)
appointing a receiver, trustee or
liquidator for Owner or of all or a
substantial part of Owner's assets.
5.3 REMEDIES UPON DEFAULT BY OWNER. In
the event of an Event of Default by a party, the
non-defaulting party shall have, in addition to
the right to terminate the Term pursuant to
Subparagraph 4.2(c), above, all rights and
remedies available to such non-defaulting party at
law or in equity.
6. OWNER'S RIGHT TO INSPECT FACILITY/BOOKS AND
RECORDS.
During the Term, Owner shall have the right,
upon not less than forty-eight (48) hours prior
notice to Manager and at reasonable times during
normal business hours, to inspect the Facility and
to inspect and/or audit all books and records
pertaining to the operation thereof.
7. FACILITY OPERATIONS.
7.1 NO GUARANTEE OF PROFITABILITY. Manager
does not guarantee, and shall not be construed to
have guaranteed, to Owner or any third party
(including any mortgagee) that operation of the
Facility will be profitable, but Manager shall use
Manager's commercially reasonable, diligent, and
good faith efforts to operate the Facility in as
cost-efficient and profitable a manner as possible
in light of all of the circumstances then-
existing.
7.2 STANDARD OF PERFORMANCE. In performing
Manager's obligations under this Agreement,
Manager shall use Manager's commercially
reasonable, diligent, and good faith efforts, and
act with professionalism, in undertaking
management of the Facility, all in accordance with
accepted and prevailing standards of health care
12
<PAGE>
in the general location of the Facility and with
the policies adopted by, and resources available
to, the Facility.
7.3 FORCE MAJEURE. Manager will not be deemed
to be in violation of this Management Agreement if
Manager is prevented from performing any of
Manager's obligations hereunder for any reason
beyond Manager's reasonable control, including,
without limitation: strikes, sick-outs, or labor
disputes; material or supply shortages; war,
insurrection or civil unrest; fire, earthquakes,
severe weather, flooding; acts of God; Owner's
failure to perform Owner obligations under this
Agreement; or any law, statute, regulation,
ordinance, or rule of any federal, state or local
government or agency thereof, or any order,
decree, or judgment of any court with
jurisdiction.
8. WITHDRAWAL OF FUNDS BY OWNER; MINIMUM BANK
BALANCE.
8.1 WITHDRAWAL BY OWNER. From time to time,
Owner may withdraw the then accumulated operating
cash surplus (as determined by Manager) from the
Facility Checking Account subject to the right of
Manager to restrict withdrawal by Owner of any
Facility funds in accordance with the provisions
of Paragraph 8.2, below.
8.2. MINIMUM CASH BALANCE. At all times
(subject to Manager's right, pursuant to Paragraph
1.8, above, to demand working capital from Owner
in the event of a shortfall), Manager shall
maintain a minimum cash balance in the Facility
Checking Account equal to the sum of:
(a) All costs and expenses associated
with the ownership or operation of
the Facility, including, without
limitation, any principal and
interest payments due in connection
with any loan secured by a mortgage
on the Facility, payroll,
insurance, supplies, services,
taxes, the Base Management Fee, but
excluding all federal, state, and
local income taxes assessed against
Owner, and
13
<PAGE>
the Supplemental Management Fee and
the Residual Management Fee
("Facility Expenses"), all of which
Facility Expenses are unpaid but
will become due and payable within
the ensuing forty-five (45) days;
plus
(b) An amount deemed necessary by
Manager to be adequate for
unanticipated contingencies, which
amount initially shall be $5,000
and which amount shall be adjusted
as reasonably determined by
Manager.
9. MANAGEMENT FEES.
9.1 PRE-COMMENCEMENT DATE SERVICES FEE.
Manager shall be reimbursed for all of Manager's
out-of pocket expenses (including, without
limitation, attorneys' fees, professional
services) incurred in connection with any services
rendered or tasks performed by Manager with
respect to the Facility prior to the Commencement
Date, and in addition Manager shall receive a fee
in the amount of Five Thousand and No/Hundredths
Dollars ($5,000) with respect to such pre-
Commencement Date services. Such reimbursement and
fee shall be paid to Manager at the same time as
the first Base Management Fee payment, as defined
in Subparagraph 9.3(a), below.
9.2 CONSTRUCTION SUPERVISION FEE. For any
services performed by Manager pursuant to
Paragraph 1.14, above, Manager shall receive a
construction supervision fee equal to five percent
(5%)of the total amount of construction costs
approved by Owner, due payable concurrently with
the applicable payments to the construction
contractor(s) and materialmen.
14
<PAGE>
9.3 MANAGEMENT FEES. Throughout the Term,
Manager shall receive:
(a) a base management fee ("Base Management
Fee") equal to four percent (4%) of all
the revenues generated by or from the
Facility other than the proceeds from
the sale of any Facility equipment or
any insurance and condemnation proceeds
("Gross Revenues") generated each
calendar month by the Facility, which
Base Management Fee shall be due any
payable on or before the 10th day of
each calendar month with respect to the
prior calendar month's Gross Revenues;
(b) an additional management fee
("Supplemental Management Fee") equal to
two percent (2%) of Gross Revenues
generated each calendar month by the
Facility, which Supplemental Management
Fee shall be due and payable on or
before the 10th day of each calendar
month with respect to the prior calendar
month's Gross Revenues to the extent,
and only to the extent, that Gross
Revenues for such prior calendar month
exceed Facility Expenses for such prior
calendar month.
(c) a residual management fee ("Residual
Management Fee") equal to twenty-five
percent (25%) of the difference between
(x) Gross Revenues generated in a
calendar month and (y) all Facility
Expenses for such calendar month, which
Residual Management Fee shall be due and
payable on or before the 10th day of
each calendar month with respect to the
prior calendar month's Gross Revenues to
the extent, and only to the extent, that
Gross Revenues for such prior calendar
month exceed Facility Expenses plus the
Supplemental Management Fee, if any,
plus working capital repayment for such
prior calendar month; and
15
<PAGE>
(d) an incentive management fee ("Incentive
Management Fee") equal to twenty-five
percent (25%) of the difference between
(x) the greater of (1) the Sale Price
(as defined below) or (2) the Appraised
Value (as defined below), and (y) the
initial acquisition cost for the
Facility (which Owner and Manager hereby
agree is $2,330,000),plus (1) all
capital costs associated with the
initial acquisition of the Facility, (2)
the cost of all capital improvements
made to the Facility after its initial
acquisition (to the extent such costs
were capitalized in accordance with
generally accepted accounting principles
consistently applied), and (3) any
working capital deposits remaining to be
repaid to Owner at the time of the Sale
(as defined below), which Incentive
Management Fee shall be paid, if at all,
when Owner sells, transfers, conveys, or
leases ("Transfer") the Facility to
Manager or to a third party, or finances
or refinances the Facility, to Manager
or otherwise.
For the purposes of Subparagraph 9.3(d),
above, "Sale Price" shall mean the total amount to
be received by or on behalf of Owner in connection
with Owner's Transfer, financing or refinancing of
the Facility ("Sale"), and "Appraised Value" shall
mean the appraised value of the Facility at the
time of any Sale as determined by an appraiser
mutually acceptable to Owner and Manager.
9.4 PRORATION OF FEES. If the services of
Manager commence or terminate for any reason
(including, without limitation, those set forth in
Paragraph 5, hereof other than on the first day of
any calendar month, the Base Management Fee, the
Supplemental Management Fee (if any), and the
Residual Management Fee (if any) for such partial
month shall be prorated based upon the number of
days for which services are actually rendered by
Manager during such partial month.
16
<PAGE>
9.5 PAYMENT OF FEES. Notwithstanding any
other provision of this Agreement to the contrary:
(a) the Base Management Fee shall be
disbursed by Manager to itself out of
the Facility Checking Account prior to
the payment of any other Facility
Expenses and prior to the repayment to
Owner of any working capital deposits
made by Owner pursuant to the terms
hereof (without limiting the generality
of the foregoing, the Base Management
Fee shall be paid to Manager on a
priority basis, and Manager may disburse
the Base Management Fee to itself
without regard for the Minimum Cash
Balance requirement, or the need to
demand additional working capital from
Owner, pursuant to Paragraph 8.2,
above).
(b) the Supplemental Management Fee, if any,
shall be disbursed by Manager to itself
out of the Facility Checking Account
after payment of all Facility Expenses
but prior to the repayment to Owner of
any working capital deposits made by
Owner pursuant to the terms hereof.
(c) the Residual Management Fee, if any,
shall be disbursed by Manager to itself
out of the Facility Checking Account
after payment of all Facility Expenses
and after the repayment to Owner of any
working capital deposits made by Owner
pursuant to the terms hereof.
(d) the Incentive Management Fee, if any,
shall be disbursed to Manager out of the
proceeds of the closing of any Sale.
17
<PAGE>
10. INDEMNIFICATION.
10.1 BY MANAGER. Manager shall indemnify,
defend, and hold harmless Owner from and against
any loss incurred by or damage to Owner where such
loss or damage results from the negligent acts or
omissions or the willful misconduct of Manager in
performing Manager's obligations under this
Agreement.
10.2 BY OWNER. Owner 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 act or
omissions or the willful misconduct of Owner in
performing Owner's obligations under the
Agreement.
10.3 SURVIVAL OF INDEMNIFICATION OBLIGATIONS.
Notwithstanding any other provision of this
Agreement to the contrary (including, without
limitation, Paragraph 4.3, above), each party's
obligation to indemnify, defend and hold harmless
the other party shall survive the termination of
the Term and this Agreement with respect to the
negligent acts or omissions or willful misconduct
of the indemnifying party prior to the effective
date of such termination.
11. RIGHT OF FIRST REFUSAL
In the event Owner desires to Transfer the
Facility prior to the expiration of the Term, and
Owner receives a bona fide offer to effect a
Transfer of the Facility from a third party
capable of performing such offer ("Transfer
Offer") which Owner desires to accept, Owner shall
first give written notice of such Transfer Offer
to Manager. Such notice shall include all of the
material terms and conditions of the Transfer
Offer (e.g., purchase price or lease rate, terms
of payments, closing date, earnest money or other
deposits, documents required for Closing, options
to purchase). For a period of thirty (30) days
after Manager's receipt of such notice, Manager
shall have the right to elect to effect a Transfer
of the Facility upon the same terms and conditions
as are contained in the Transfer Offer, which
18
<PAGE>
election shall be made by giving written notice
thereof to Owner within such thirty (30) day
period. If Owner does not timely receive Manager's
written notice of Manager's election to effect a
Transfer on the terms and conditions of the
Transfer Offer, Owner shall have the right to
accept such Transfer Offer and Transfer the
Facility to such third party in accordance with
the terms of the Transfer Offer free and clear of
Manager' s right of first refusal hereunder.
Notwithstanding any other provision of this
Paragraph 11, in no event shall Owner be entitled
to Transfer the Facility to any third party on
terms or conditions materially different from
those set out in the notice of Transfer Offer
provided by Owner to Manager, unless Owner has
given Manager written notice of such materially
different terms and conditions and provided
Manager an additional thirty (30) days in which to
elect to effect a Transfer on such materially
different terms and conditions.
12. MISCELLANEOUS
12.1 NOTICES. All notices required or
permitted pursuant to this Agreement: (a) shall be
given in writing; and (b) delivered by (i) hand
delivery, (ii) registered or certified mail,
postage prepaid, (iii) nationally recognized
courier guaranteeing next-business day delivery),
or (iv) facsimile transmission (with receipt
confirmed telephonically by 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 by giving notice in
accordance with this Paragraph 12.1.
To Manager: Emeritus Corporation
3131 Elliott Avenue,
Suite 500
Seattle, WA 98121
Phone: 206-301-4495
Fax: 206-301-4500
19
<PAGE>
To Owner: Columbia House, L.L.C.
3131 Elliott Avenue
Suite 500
Seattle, WA 98121
Phone: 206-30l -4546
Fax: 206-30l-4545
Attn: Stan Baty
12.2 ASSIGNMENT. Except as otherwise
provided in Paragraph 1.6, above, this rent shall
not be assigned by either party without the prior
written consent of the non party, which consent
shall not be unreasonably withheld, conditioned,
delayed.
12.3 RELATIONSHIP OF THE PARTIES, The
relationship of the parties shall be that of and
independent contractor and a11 acts performed by
Manager during the term hereof as Owner of the
Facility shall be deemed to be performed by
Manager in Manager's capacity as a prudent
contractor. Nothing contained in this Agreement is
intended to, or shall be deemed to, give rise to
or create a partnership or joint venture or lease
between Owner, and it's successors and assigns on
the one hand, and Manager, and Manager's
successors and on the other hand.
12.4 ENTIRE AGREEMENT. This Agreement
contains the entire agreement between the and
shall be binding upon and inure to the benefit of
their successors and, to the extent hereby, their
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 by both of the parties hereto.
12.5 HEADINGS/CAPTIONS. The headings and
captions used in this Agreement are for of
reference only and shall not be construed in any
manner to limit or modify any of provisions hereof
12.6 ATTORNEYS' FEES. In the event either party
brings an action to enforce or interpret agreement
the prevailing party in such action shall be
entitled to recover from the other party costs
incurred in connection therewith, including
20
<PAGE>
reasonable attorneys' fees incurred in conduct,
and/or settlement thereof.
12.7 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, legality, and
enforceability of the remaining provisions hereof
shall not in any way thereby.
12.8 CUMULATIVE; NO WAIVER. No right or
remedy herein conferred upon or reserved party is
intended to be exclusive of any other right or
remedy, and each and every right remedy shall be
cumulative and in addition to any other right or
remedy given hereunder, or hereafter legally
existing upon the occurrence of an Event of
Default. The failure of either party 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
Event of Default. Each and every right and remedy
given by this Agreement to a party may be
exercised from time to time and as often as may be
deemed expedient by such party.
12.9 AUTHORIZATION FOR AGREEMENT. The
execution and performance of this Agreement by
Owner and Manager have been duly authorized by all
necessary laws, resolutions or corporate action,
and this Agreement constitutes the valid, binding
and enforceable obligations of Owner and Manager,
respectively, in accordance with its terms.
12.10 COUNTERPARTS. This Agreement may be
executed in any number of counterparts, each of
which shall be an original but collectively shall
constitute but one and the same Agreement.
21
<PAGE>
IN WITNESS WHEREOF, the parties have hereto
caused this Agreement to be duly executed, as of
the day and year first above written.
Owner: Columbia House, L.L.C.,
a Washington limited
liability company
By: /s/ Stan Baty
---------------------
Its: Manager
Manager: Emeritus Corporation
a Washington corporation
By: /s/ Raymond R. Brandstrom
----------------------------
Its: President
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<PAGE>
F A C I L I T Y L E A S E A G R E E M E N T
MEDITRUST ACQUISITION CORPORATION I
(A Massachusetts corporation)
as
Lessor
AND
EMERITUS PROPERTIES I, INC.
(A Washington corporation)
as
Lessee
April 30, 1997
For Premises Located In
Ogden, Weber County, Utah
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FACILITY LEASE AGREEMENT
This FACILITY LEASE AGREEMENT ("Lease")
is dated as of the 30th day of April, 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
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
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similar nature, which would be disclosed by
an inspection of the Leased Property or by an
accurate survey thereof.
1.2 TERM. The term of this Lease shall
consist of: the "Initial Term", which shall
commence on April 30, 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).
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.
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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) 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 Fourth Amended and
Restated Agreement Regarding Related
Transactions (Development) dated August 1,
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
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is the Price Index in effect as of the first
day of the Lease Year in which the Annual
Facility Upgrade Expenditure is to be made
and the denominator of which is the Price
Index in effect as of the date hereof. The
term "Price Index" means the Consumer Price
Index for Urban Wage Earners and Clerical
Workers, All Items-Series A (1982-84=100),
published by the Bureau of Labor Statistics,
U.S. Department of Labor. If the Bureau of
Labor Statistics should cease to publish such
Price Index in its present form and
calculated on the present basis, then the
most similar index published by the same
Bureau shall be used for the same purpose.
If there is no such similar index, a
substitute index which is then generally
recognized as being similar to such Price
Index, such substitute index to be reasonably
selected by Lessor.
APPURTENANT AGREEMENTS: Collectively,
all instruments, documents and other
agreements that now or hereafter create any
utility, access or other rights or
appurtenances benefiting or relating to the
Leased Property.
AWARD: All compensation, sums or
anything of value awarded, paid or received
on a total or partial Condemnation.
BASE GROSS REVENUES: The annualized
Gross Revenues of the Facility for the second
twelve month period following the Conversion
Date, initially as shown by Lessee's
certified Consolidated Financial Statements
and as later verified by Lessee's
Consolidated Financial Statements.
BASE RENT: Pre-Conversion Base Rent
and/or Post-Conversion Base Rent, as the
context permits.
BUSINESS DAY: Any day which is not a
Saturday or Sunday or a public holiday under
the laws of the United States of America, the
Commonwealth of Massachusetts, the State or
the state in which Lessor's depository bank
is located.
CAPITAL ADDITIONS: Collectively, all
new buildings and additional structures
annexed to any portion of any of the Leased
Improvements and material expansions of any
of the Leased Improvements which are
constructed on any portion of the Land during
the Term, including, without limitation, the
construction of a new wing or new story, the
renovation of any of the Leased Improvements
on the Leased Property and any expansion,
construction, renovation or conversion in
connection therewith (a) in order to provide
a functionally new facility that is needed or
used to provide services not previously
offered or (b) in order to (i) increase the
bed capacity of a Facility, (ii) change the
purpose for which such beds are utilized
and/or (iii) change the utilization of any
material portion of any of the Leased
Improvements, provided that for the purposes
of Article 9 hereof, the Project shall not be
treated as a Capital Addition.
CAPITAL ADDITION COST: The cost of any
Capital Addition made by Lessee whether paid
for by Lessee or Lessor. Such cost shall
include all costs and expenses of every
nature whatsoever incurred directly or
indirectly in connection with the
development, permitting, construction and
financing of a Capital Addition as reasonably
determined by, or to the reasonable
satisfaction of, Lessor.
CASH COLLATERAL: As defined in the
Deposit Pledge Agreement.
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CASH FLOW: The Consolidated Net Income
(or Consolidated Net Loss) before federal and
state income taxes for any period plus (i)
the amount of the provision for depreciation
and amortization actually deducted on the
books of the applicable Person for the
purposes of computing such Consolidated Net
Income (or Consolidated Net Loss) for the
period involved, plus (ii) Rent and interest
on all other Indebtedness which is fully
subordinated to the Lease Obligations, plus
(iii) any indebtedness which is fully
subordinated to the Lease Obligations
pursuant to the Affiliated Party
Subordination Agreement or the Management
Subordination Agreement.
CASUALTY: As defined in Section 13.1.
CHATTEL PAPER: As defined in the UCC.
CLOSING: As defined in Section 18.3.6.
CODE: The Internal Revenue Code of
1986, as amended.
COLLATERAL: All of the property in
which security interests are granted to
Lessor and the other Meditrust Entities
pursuant to the Lease Documents and the
Related Party Agreements to secure the Lease
Obligations, including, without limitation,
the Cash Collateral.
COMPETITIVE ACTIVITY: As defined in
Section 11.5.
COMPLETION DATE: As defined in the
Leasehold Improvement Agreement.
COMPLETION OF THE PROJECT: As defined
in the Leasehold Improvement Agreement.
CONDEMNATION: With respect to the
Leased Property or any interest therein or
right accruing thereto or use thereof (i) the
exercise of any governmental authority,
whether by legal proceedings or otherwise, by
a Condemnor or (ii) a voluntary sale or
transfer by Lessor to any Condemnor, either
under threat of Condemnation or Taking or
while legal proceedings for Condemnation or
Taking are pending.
CONDEMNOR: Any public or quasi-public
authority, or private corporation or
individual, having the power of condemnation.
CONSOLIDATED: The consolidated accounts
of the relevant Person and its Subsidiaries
consolidated in accordance with GAAP.
CONSOLIDATED FINANCIALS: For any fiscal
year or other accounting period for any
Person and its consolidated Subsidiaries,
statements of earnings and retained earnings
and of changes in financial position for such
period and for the period 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.
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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.
DATE OF TAKING: The date the Condemnor
has the right to possession of the property
being condemned.
DEBT COVERAGE RATIO: The ratio of (i)
Cash Flow for each applicable period to (ii)
the total of all Rent (excluding Additional
Rent due under this Lease) paid or payable
during such period or accrued for such
period.
DECLARATION: As defined in Article 23.
DEED: As defined in Section 18.3.
DEPOSIT: As defined in Section 18.3.
DEPOSIT PLEDGE AGREEMENT: The pledge
and security agreement so captioned and dated
as of even date herewith between Lessee and
Lessor.
DOCUMENTS: As defined in the UCC.
ENCUMBRANCE: As defined in Section
20.3.
ENVIRONMENTAL INDEMNITY AGREEMENT: The
Environmental Indemnity Agreement of even
date herewith by and among Lessee the
Guarantor and Lessor.
ENVIRONMENTAL LAWS: As defined in the
Environmental Indemnity Agreement.
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ERISA: The Employment Retirement Income
Security Act of 1974, as amended.
EVENT OF DEFAULT: As defined in Article
16.
EXCESS GROSS REVENUES: Gross Revenues
less Base Gross Revenues.
EXPIRATION DATE: As defined in Section
1.2.
EXTENDED TERMS: As defined in Section
1.4.
FACILITY: The 82 unit, 164 bed, fully
licensed assisted living facility to be
constructed on the Land and to be known as
Ogden Assisted Living 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.
FINANCING PARTY: Any Person who is or
may be participating with Lessor in any way
in connection with the financing of any
Capital Addition.
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FINANCING STATEMENTS: Uniform
Commercial Code financing statements
evidencing the security interests granted to
Lessor in connection with the Lease
Documents.
FISCAL QUARTER: Each of the three (3)
month periods commencing on January 1st,
April 1st, July 1st and October 1st.
FISCAL YEAR: The twelve (12) month
period from January 1st to December 31st.
FIXTURES: As defined in Article 1.
GAAP: Generally accepted accounting
principles, consistently applied throughout
the relevant period.
GENERAL INTANGIBLES: As defined in the
UCC.
GOVERNMENTAL AUTHORITIES: Collectively,
all agencies, authorities, bodies, boards,
commissions, courts, instrumentalities,
legislatures, and offices of any nature
whatsoever of any government, quasi-
government unit or political subdivision,
whether with a federal, state, county,
district, municipal, city or otherwise and
whether now or hereinafter in existence.
GROSS REVENUES: Collectively, all
revenues generated by reason of the operation
of the Leased Property (including any Capital
Additions), directly or indirectly received
or to be received by Lessee or any Affiliate
of Lessee, including, without limitation, all
resident revenues received or receivable for
the use of, or otherwise by reason of, all
rooms, units and other facilities provided,
meals served, services performed, space or
facilities subleased or goods sold on or from
the Leased Property and further including,
without limitation, except as otherwise
specifically provided below, any
consideration received under any subletting,
licensing, or other arrangements with any
Person relating to the possession or use of
the Leased Property and all revenues from all
ancillary services provided at or relating to
the Leased Property; provided, however, that
Gross Revenues shall not include non-
operating revenues such as interest income or
gain from the sale of assets not sold in the
ordinary course of business; and provided,
further, that there shall be excluded or
deducted (as the case may be) from such
revenues:
(i) all applicable contractual
allowances (relating to any period during the
Term of this Lease and thereafter until the
Rent hereunder is paid in full), if any, for
billings not paid by or received from the
appropriate Governmental Agencies or Third
Party Payors,
(ii) all applicable allowances
according to GAAP for uncollectible accounts,
(iii) all proper resident billing
credits and adjustments according to GAAP, if
any, relating to health care accounting,
(iv) federal, state or local sales,
use, gross receipts and excise taxes and any
tax based upon or measured by said Gross
Revenues which is added to or made a part of
the amount billed to the resident or other
recipient of such services or goods, whether
included in the billing or stated separately,
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(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
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,
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right, title or interest therein, or (c) any
occupancy, operation, use or possession of,
sales from, or activity conducted on, or in
connection with, the Leased Property or the
leasing or use of the Leased Property.
Notwithstanding the foregoing, nothing
contained in this Lease shall be construed to
require Lessee to pay (1) any tax based on
net income (whether denominated as a
franchise or capital stock or other tax)
imposed on Lessor or any other Person, except
Lessee or its successors, (2) any net revenue
tax of Lessor or any other Person, except
Lessee and its successors, (3) any tax
imposed with respect to the sale, exchange or
other disposition by Lessor of the Leased
Property or the proceeds thereof, or
(4) except as expressly provided elsewhere in
this Lease, any principal or interest on any
Encumbrance on the Leased Property; provided,
however, the provisos set forth in clauses
(1) and (2) of this sentence shall not be
applicable to the extent that any real or
personal property tax, assessment, tax levy
or charge which Lessee is obligated to pay
pursuant to the first sentence of this
definition and which is in effect at any time
during the Term hereof is totally or
partially repealed, and a tax, assessment,
tax levy or charge set forth in clause (1) or
(2) is levied, assessed or imposed expressly
in lieu thereof. In computing the amount of
any franchise tax or capital stock tax which
may be or become an Imposition, the amount
payable by Lessee shall be equitably
apportioned based upon all properties owned
by Lessor that are located within the
particular jurisdiction subject to any such
tax.
INDEBTEDNESS: The total of all
obligations of a Person, whether current or
long-term, which in accordance with GAAP
would be included as liabilities upon such
Person's balance sheet at the date as of
which Indebtedness is to be determined, and
shall also include (i) all capital lease
obligations and (ii) all guarantees,
endorsements (other than for collection of
instruments in the ordinary course of
business), or other arrangements whereby
responsibility is assumed for the obligations
of others, whether by agreement to purchase
or otherwise acquire the obligations of
others, including any agreement contingent or
otherwise to furnish funds through the
purchase of goods, supplies or services for
the purpose of payment of the obligations of
others.
INDEMNIFIED PARTIES: As defined in
Section 12.2.2.
INDEX: The rate of interest of actively
traded marketable United States Treasury
Securities bearing a fixed rate of interest
adjusted for a constant maturity of ten (10)
years as calculated by the Federal Reserve
Board.
INITIAL TERM: As defined in Section
1.2.
INSTRUMENTS: As defined in the UCC.
INSURANCE REQUIREMENTS: All terms of
any insurance policy required by this Lease,
all requirements of the issuer of any such
policy with respect to the Leased Property
and the activities conducted thereon and the
requirements of any insurance board,
association or organization or underwriters'
regulations pertaining to the Leased
Property.
LAND: As defined in Article 1.
LEASE: As defined in the preamble of
this Lease.
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LEASE DEFAULT: The occurrence of any
default or breach of condition continuing
beyond any applicable notice and/or grace
periods under this Lease and/or any of the
other Lease Documents.
LEASE DOCUMENTS: Collectively, this
Lease, the Guaranty of Lease Obligations, the
Agreement Regarding Related Transactions, the
Leasehold Improvement Agreement, the Security
Agreement, the Deposit Pledge Agreement, the
Negative Pledge Agreement, the Permits
Assignment, the Financing Statements, the
Affiliated Party Subordination Agreement, the
Environmental Indemnity Agreement, and any
and all other instruments, documents,
certificates or agreements executed or
furnished by any member of the Leasing Group
in connection with the transactions evidenced
by the Lease and/or any of the foregoing
documents.
LEASE OBLIGATIONS: Collectively, all
indebtedness, covenants, liabilities,
obligations, agreements and undertakings
(other than Lessor's obligations) under this
Lease and the other Lease Documents.
LEASE YEAR: A twelve month period
ending on March 31st of each year; provided,
that the first Lease Year shall begin on the
Commencement Date and shall end on March 31,
1998.
LEASED IMPROVEMENTS: As defined in
Article 1.
LEASED PROPERTY: As defined in Article
1.
LEASEHOLD IMPROVEMENT AGREEMENT: The
Leasehold Improvement Agreement of even date
by and between Lessee and Lessor.
LEASEHOLD IMPROVEMENT FEE: Fifty-Four
Thousand Five Hundred Forty-Three Dollars and
11/100 ($54,543.11).
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.
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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.
LESSEE'S PURCHASE OPTION NOTICE: As
defined in Section 18.3.
LESSOR: As defined in the preamble of
this Lease and its successors and assigns.
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 as of even
date herewith between Lessee and Lessor.
MANAGER: Any Person who has entered
into a Management Agreement with Lessee or
any Sublessee.
MATERIAL STRUCTURAL WORK: Any (i)
structural alteration, (ii) structural repair
or (iii) structural renovation to the Leased
Property, which would customarily require or
which require the design and/or involvement
of a structural engineer or architect or
which would require the issuance of a Permit.
MEDICAID: The medical assistance
program established by Title XIX of the
Social Security Act (42 USC 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 Section 1395 et seq.) and any statute
succeeding thereto.
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MEDITRUST: As defined in Article 23.
MEDITRUST/EMERITUS TRANSACTION
AFFILIATE: An Affiliate of Lessee, the
business and activities of which are limited
to those subject to Meditrust/Emeritus
Transaction Documents (other than the
Affiliated Party Subordination Agreement, the
Agreement Regarding Related Transactions and
comparable agreement now or hereafter in
effect among Affiliates of Lessee and of
Lessor) to which such Affiliate is a party.
MEDITRUST/EMERITUS TRANSACTION
DOCUMENTS: As defined in the Agreement
Regarding Related Transactions.
MEDITRUST ENTITIES: Collectively,
Meditrust, Lessor and any other Affiliate of
Lessor which may now or hereafter be a party
to any Related Party Agreement.
MEDITRUST INVESTMENT: The sum of (i)
the Original Meditrust Investment plus (ii)
the aggregate amount of all Subsequent
Investments plus (iii) so much of the Project
Funds as Lessor has expended from time to
time less the sum of any Net Award Amounts
and/or Net Proceeds Amounts.
MONTHLY DEPOSIT DATE: As defined in
Section 4.6.
NEGATIVE PLEDGE AGREEMENT: The Group
Two Negative Pledge Agreement (Development)
dated July 10, 1996 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.
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 Five Hundred Thirty-Two Thousand Five
Hundred Fifteen Dollars and 84/100
($532,515.84).
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OTHER PERMITTED USES: To the extent
permitted under applicable Legal Requirements
and under Insurance Requirements, and so long
as the same do not detract in any material
manner from the Primary Intended Use and do
not occupy more than ten percent (10%) of the
useable floor area of the building comprising
the Facility, such uses as Lessee reasonably
determines are appropriate and incidental to
the Primary Permitted Use.
OVERDUE RATE: On any date, a rate of
interest per annum equal to the greater of:
(i) a variable rate of interest per annum
equal to one hundred twenty percent (120%) of
the Prime Rate, or (ii) eighteen percent
(18%) per annum; provided, however, in no
event shall the Overdue Rate be greater than
the maximum rate then permitted under
applicable law to be charged by Lessor.
PBGC: Pension Benefit Guaranty
Corporation.
PERMITS: Collectively, all permits,
licenses, approvals, qualifications, rights,
variances, permissive uses, accreditation,
certificates, certifications, consents,
agreements, contracts, contract rights,
franchises, interim licenses, permits and
other authorizations of every nature
whatsoever required by, or issued under,
applicable Legal Requirements relating or
affecting the Leased Property or the
construction, development, maintenance,
management, use or operation thereof, or the
operation of any programs or services in
conjunction with the Facility and all
renewals, replacements and substitutions
therefor, now or hereafter required or issued
by any Governmental Authority, Accreditation
Body or Third Party Payor to any member of
the Leasing Group, or maintained or used by
any member of the Leasing Group, or entered
into by any member of the Leasing Group with
any third Person with respect to the Leased
Property.
PERMITS ASSIGNMENT: The Collateral
Assignment of Permits, Licenses and Contracts
of even date granted by Lessee to Lessor.
PERMITTED ENCUMBRANCES: As defined in
Section 10.1.18.
PERMITTED PRIOR SECURITY INTERESTS: As
defined in Section 6.1.2.
PERSON: Any individual, corporation,
general partnership, limited partnership,
joint venture, stock company or association,
company, bank, trust, trust company, land
trust, business trust, unincorporated
organization, unincorporated association,
Governmental Authority or other entity of any
kind or nature.
PLANS AND SPECIFICATIONS: As defined in
Section 13.1.3.
PRE-CONVERSION BASE RENT: As defined in
Section 3.1.
PRE-CONVERSION RENT ADJUSTMENT RATE:
175 basis points over the Prime Rate.
POST-CONVERSION BASE RENT: As defined
in Section 3.1.
PRIMARY INTENDED USE: The use of the
Facility as an assisted living facility with
eighty-two (82) fully licensed units, one
hundred sixty-four (164) beds or such
additional number of units or beds as may
hereafter be
14
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permitted under this Lease, and such
ancillary uses as are permitted by law and
may be necessary in connection therewith or
incidental thereto.
PRIME RATE: The variable rate of
interest per annum from time to time
announced by the Reference Bank as its prime
rate of interest and in the event that the
Reference Bank no longer announces a prime
rate of interest, then the Prime Rate shall
be deemed to be the variable rate of interest
per annum which is the prime rate of interest
or base rate of interest from time to time
announced by any other major bank or other
financial institution reasonably selected by
Lessor.
PRINCIPAL PLACE OF BUSINESS: As defined
in Section 10.1.28.
PROCEEDS: As defined in the UCC.
PROJECT: As defined in the Leasehold
Improvement Agreement.
PROJECT FUNDS: As defined in the
Leasehold Improvement Agreement.
PROVIDER AGREEMENTS: All participation,
provider and reimbursement agreements or
arrangements, if any, now or hereafter in
effect for the benefit of Lessee or any
Sublessee in connection with the operation of
the Facility relating to any right of payment
or other claim arising out of or in
connection with Lessee's or such Sublessee's
participation in any Third Party Payor
Program.
PURCHASE OPTION: As defined in Section
18.3.
PURCHASE OPTION DATE: As defined in
Section 18.3.
PURCHASE OPTION PURCHASE PRICE: As
defined in Section 18.3.
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.
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RELATED PARTY AGREEMENT: Any agreement,
document or instrument now or hereafter
evidencing or securing any Related Party
Obligation, including, without limitation,
the Related Leases.
RELATED PARTY DEFAULT: The occurrence
of a default or breach of condition
continuing beyond the expiration of any
applicable notice and grace periods, if any,
under the terms of any Related Party
Agreement.
RELATED PARTY OBLIGATIONS:
Collectively, all indebtedness, covenants,
liabilities, obligations, agreements and
undertakings due to, or made for the benefit
of, Lessor or any of the other Meditrust
Entities by Lessee or any other member of the
Leasing Group or any of their respective
Affiliates in connection with any of the
properties described in Exhibit E to the
Agreement Regarding Related Transactions, as
the same may be modified and amended from
time to time; whether such indebtedness,
covenants, liabilities, obligations,
agreements and/or undertakings are direct or
indirect, absolute or contingent, liquidated
or unliquidated, due or to become due, joint,
several or joint and several, primary or
secondary, now existing or hereafter arising.
RENT: Collectively, the Base Rent,
Additional Rent, the Additional Charges and
all other sums payable under this Lease and
the other Lease Documents.
RENT ADJUSTMENT DATE: The first day of
any of the Extended Terms.
RENT ADJUSTMENT RATE: 325 basis points
over the Index.
RENT INSURANCE PROCEEDS: As defined in
Section 13.8.
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
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.
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<PAGE>
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.
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.
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<PAGE>
UPGRADE RENOVATIONS: Repair and
refurbishing other than normal janitorial,
cleaning and maintenance activities.
WORK: As defined in Section 13.1.1.
WORK CERTIFICATES: As defined in
Section 13.1.3.
WORKING CAPITAL LOAN: As defined in
Section 6.1.3.
WORKING CAPITAL STOCK PLEDGE: As
defined in Section 16.1(h).
2.2 RULES OF CONSTRUCTION. The
following rules of construction shall apply
to the Lease and each of the other Lease
Documents: (a) references to "herein",
"hereof" and "hereunder" shall be deemed to
refer to this Lease or the other applicable
Lease Document, and shall not be limited to
the particular text or section or subsection
in which such words appear; (b) the use of
any gender shall include all genders and the
singular number shall include the plural and
vice versa as the context may require; (c)
references to Lessor's attorneys shall be
deemed to include, without limitation,
special counsel and local counsel for Lessor;
(d) reference to attorneys' fees and expenses
shall be deemed to include all costs for
administrative, paralegal and other support
staff and to exclude any fees and expenses of
attorneys who are employees of an Affiliate
of Lessor; (e) references to Leased Property
shall be deemed to include references to all
of the Leased Property and references to any
portion thereof; (f) references to the Lease
Obligations shall be 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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<PAGE>
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 June 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 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.
3.2.1OFFICER'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.
3.2.2ANNUAL 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.
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<PAGE>
3.2.3DEFICITS. If the Additional
Rent, as finally determined for any
calendar year (or portion thereof),
exceeds the sum of the quarterly
payments of Additional Rent previously
paid by Lessee with respect to said
calendar year, within thirty (30) days
after such determination is required to
be made hereunder, Lessee shall pay such
deficit to Lessor and, if the deficit
exceeds five percent (5%) of the
Additional Rent which was previously
paid to Lessor with respect to said
calendar year, then Lessee shall also
pay Lessor interest on such deficit at
the Overdue Rate from the date that such
payment should have been made by Lessee
to the date that Lessor receives such
payment.
3.2.4OVERPAYMENTS. 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.
3.2.5FINAL 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.
3.2.6BEST 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.
3.3.1MAINTAIN ACCOUNTING SYSTEMS.
Lessee shall utilize, or cause to be
utilized, an accounting system for the
Leased Property in accordance with usual
and customary practices in the assisted
living industry and in accordance with
GAAP which will accurately record all
Gross Revenues. Lessee shall retain,
for at least three (3) years after the
expiration of each calendar year (and in
any event until the final reconciliation
described in Section 3.2 above has
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been made), adequate records conforming
to such accounting system showing all
Gross Revenues for such calendar year.
3.3.2AUDIT 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.
3.3.3DEFICIENCIES 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.
3.3.4SURVIVAL. The obligations of
Lessor and Lessee contained in this
Section shall survive the expiration or
earlier termination of this Lease.
3.4 ADDITIONAL CHARGES. Subject to the
rights to contest as set forth in Article 15,
in addition to the Base Rent and Additional
Rent, (a) Lessee will also pay and discharge
as and when due and payable all Impositions,
all amounts, liabilities and obligations
under the Appurtenant Agreements and all
other amounts, liabilities and obligations
which Lessee assumes or agrees to pay under
this Lease, and (b) in the event of any
failure on the part of Lessee to pay any of
those items referred to in clause (a) above,
Lessee will also promptly pay and discharge
every fine, penalty, interest and cost which
may be added for non-payment or late payment
of such items (the items referred to in
clauses (a) and (b) above being referred to
herein collectively as the "Additional
Charges"), and Lessor shall have all legal,
equitable and contractual rights, powers and
remedies provided in this Lease, by statute
or otherwise, in the case of non-payment of
the Additional Charges, as well as the Base
Rent and Additional
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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.
3.6.1NO TERMINATION. Except as may
be otherwise specifically and expressly
provided in this Lease, Lessee, to the
extent not prohibited by applicable law,
shall remain bound by this Lease in
accordance with its terms and shall
neither take any action without the
consent of Lessor to modify, surrender
or terminate the same, nor seek nor be
entitled to any abatement, deduction,
deferment or reduction of Rent, or set-
off against the Rent, nor shall the
respective obligations of Lessor and
Lessee be otherwise affected by reason
of (a) any Casualty or any Taking of the
Leased Property, (b) the lawful or
unlawful prohibition of, or restriction
upon, Lessee's use of the Leased
Property or the interference with such
use by any Person (other than Lessor,
except to the extent permitted
hereunder) or by reason of eviction by
paramount title; (c) any claim that
Lessee has or might have against Lessor,
(d) any default or breach of any
warranty by Lessor or any of the other
Meditrust Entities under this Lease, any
other Lease Document or any Related
Party Agreement, (e) any bankruptcy,
insolvency, reorganization, composition,
readjustment, liquidation, dissolution,
winding up or other proceedings
affecting Lessor or any assignee or
transferee of Lessor or (f) for any
other cause whether similar or
dissimilar to any of the foregoing,
other than a discharge of Lessee from
any of the Lease Obligations as a matter
of law.
3.6.2WAIVER. 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.
3.6.3INDEPENDENT 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.
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3.7 ABATEMENT OF RENT LIMITED. There
shall be no abatement of Rent on account of
any Casualty, Taking or other event, except
that (a) in the event of a partial Taking or
a temporary Taking as described in Section
14.3, the Base Rent shall be abated as
follows: (i) in the case of such a partial
Taking, the Meditrust Investment shall be
reduced for the purposes of calculating Base
Rent pursuant to Section 3.1 by subtracting
therefrom, as applicable, the net amount of
the Award received by Lessor, and (ii) in the
case of such a temporary Taking, by reducing
the Base Rent for the period of such a
temporary Taking, by the net amount of the
Award received by Lessor and (b) in the event
of a Casualty, the Base Rent shall be abated
as follows: the Meditrust Investment shall be
reduced for the purposes of calculating Base
Rent pursuant to Section 3.1 by subtracting
therefrom, as applicable, the net amount of
the insurance proceeds.
For the purposes of this Section 3.7,
the "net amount of the Award received by
Lessor" shall mean the Award paid to Lessor
or Lessor's mortgagee on account of such
Taking, minus all costs and expenses incurred
by Lessor in connection therewith, and minus
any amounts paid to or for the account of
Lessee to reimburse for the costs and
expenses of reconstructing the Facility
following such Taking in order to create a
viable and functional Facility under all of
the circumstances ("Net Award Amount") and
the "net amount of the insurance proceeds"
shall mean the insurance proceeds paid to
Lessor or Lessor's mortgagee on account of
such Casualty, minus all costs and expenses
incurred by Lessor in connection therewith
and minus any amounts paid to or for the
account of Lessee to reimburse for the costs
and expenses of reconstructing the Facility
following such Casualty in order to create a
viable and functional Facility under all of
the circumstances ("Net Proceeds Amount").
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 PAYMENTS
4.1 PAYMENT OF IMPOSITIONS.
4.1.1LESSEE 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,
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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.
4.1.2INSTALLMENT ELECTIONS. If any
such Imposition may, at the option of
the taxpayer, lawfully be paid in
installments (whether or not interest
shall accrue on the unpaid balance of
such Imposition), Lessee may exercise
the option to pay the same (and any
accrued interest on the unpaid balance
of such Imposition) in installments and,
in such event, shall pay such
installments during the Term hereof
(subject to Lessee's right to contest
pursuant to the provisions of Section
4.1.5 below) as the same respectively
become due and before any fine, penalty,
premium, further interest or cost may be
added thereto.
4.1.3RETURNS 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.
4.1.4REFUNDS. 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.
4.1.5PROTEST. 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
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expense as aforesaid, shall fully
cooperate in a reasonable manner with
Lessee in connection with such protest,
appeal or other action.
4.2 NOTICE OF IMPOSITIONS. Lessor shall
give prompt notice to Lessee of all
Impositions payable by Lessee hereunder of
which Lessor at any time has knowledge, but
Lessor's failure to give any such notice
shall in no way diminish Lessee's obligations
hereunder to pay such Impositions.
4.3 ADJUSTMENT OF IMPOSITIONS.
Impositions imposed in respect of the period
during which the expiration or earlier
termination of the Term occurs shall be
adjusted and prorated between Lessor and
Lessee, whether or not such Impositions are
imposed before or after such expiration or
termination, and Lessee's obligation to pay
its prorated share thereof shall survive such
expiration or termination.
4.4 UTILITY CHARGES. Lessee will pay or
cause to be paid all charges for electricity,
power, gas, oil, water, telephone, cable
television and other utilities used in the
Leased Property during the Term and
thereafter until Lessee surrenders the Leased
Property in the manner required by this
Lease.
4.5 INSURANCE PREMIUMS. Lessee will pay
or cause to be paid all premiums for the
insurance coverage required to be maintained
pursuant to Article 12 during the Term, and
thereafter until Lessee yields up the Leased
Property in the manner required by this
Lease. All such premiums shall be paid
annually in advance and Lessee shall furnish
Lessor with evidence satisfactory to Lessor
that all such premiums have been so paid
prior to the commencement of the Term and
thereafter at least thirty (30) days prior to
the due date of each premium which thereafter
becomes due. Notwithstanding the foregoing,
Lessee may pay such insurance premiums to the
insurer in monthly installments so long as
the applicable insurer is contractually
obligated to give Lessor not less than a
sixty (60) days notice of non-payment and so
long as no Lease Default has occurred and is
continuing. In the event of the failure of
Lessee either to 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.
4.6.1LESSOR'S OPTION. At the
option of Lessor upon the occurrence of
an event or circumstance which, with the
giving of notice and/or the passage of
time, would constitute a Lease Default,
which may be exercised at any time
thereafter, Lessee shall, upon written
request of Lessor, on the first day on
the calendar month immediately following
such request, and on the first day of
each calendar month thereafter during
the Term (each of which dates is
referred to as a "Monthly Deposit
Date"), pay to and deposit with Lessor a
sum equal to one-twelfth (1/12th) of the
Impositions to be levied, charged,
filed, assessed or imposed upon or
against the Leased Property within one
(1) year after said Monthly Deposit Date
and a sum equal to one-twelfth (1/12th)
of the premiums for the insurance
policies required pursuant to Article 12
which are payable within one (1) year
after said Monthly Deposit Date. If the
amount of the Impositions to be levied,
charged, assessed or imposed or
insurance premiums to be paid
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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.
4.6.2USE OF DEPOSITS. The sums
deposited by Lessee under this Section
4.6 shall be held by Lessor and shall be
applied in payment of the Impositions or
insurance premiums, as the case may be,
when due. Any such deposits may be
commingled with other assets of Lessor,
and shall be deposited by Lessor at such
bank as Lessor may, from time to time
select, and, provided that Lessor has
invested such deposits in one or more of
the investment vehicles described on
SCHEDULE 4.6.2 attached hereto and
incorporated by reference, Lessor shall
not be liable to Lessee or any other
Person (a) based on Lessor's (or such
bank's) choice of investment vehicles,
(b) for any consequent loss of principal
or interest or (c) for any
unavailability of funds based on such
choice of investment. Furthermore,
Lessor shall bear no responsibility for
the financial condition of, nor any act
or omission by, Lessor's depository
bank. The income from such investment
or interest on such deposit shall be
paid to Lessee on a semi-annual basis as
long as no Lease Default has occurred
and is then continuing, and as long as
no fact or circumstance exists which,
with the giving of notice and/or the
passage of time, would constitute a
Lease Default. Lessee shall give not
less than ten (10) days prior written
notice to Lessor in each instance when
an Imposition or insurance premium is
due, specifying the Imposition or
premium to be paid and the amount
thereof, the place of payment, and the
last day on which the same may be paid
in order to comply with the requirements
of this Lease. If Lessor, in violation
of its obligations under this Lease,
does not pay any Imposition or insurance
premium when due, for which a sufficient
deposit exists, Lessee shall not be in
default hereunder by virtue of the
failure of Lessor to pay such Imposition
or such insurance premium and Lessor
shall pay any interest or fine assessed
by virtue of Lessor's failure to pay
such Imposition or insurance premium.
4.6.3DEFICITS. 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
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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.
4.6.4OTHER 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.
4.6.5TRANSFERS. In connection with
any assignment of Lessor's interest
under this Lease, the original Lessor
named herein and each successor in
interest shall transfer all amounts
deposited pursuant to the provisions of
this Section 4.6 and still in its
possession to such assignee (as the
subsequent holder of Lessor's interest
in this Lease) and upon such transfer,
the original Lessor named herein or the
applicable successor in interest
transferring the deposits shall
thereupon be completely released from
all liability with respect to such
deposits so transferred and Lessee shall
look solely to said assignee, as the
subsequent holder of Lessor's interest
under this Lease, in reference thereto.
4.6.6SECURITY. 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.
4.6.7RETURN. 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.
4.6.8RECEIPTS. 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;
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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.
5.2.1LESSEE TO EQUIP FACILITY. If
and to the extent not included in the
Leased Property, Lessee, at its sole
cost and expense, shall install, affix
or assemble or place on the Leased
Property, sufficient items of Tangible
Personal Property, to enable the
operation of the Facility in accordance
with the requirements of this Lease for
the Primary Intended Use, and such
Tangible Personal Property and
replacements thereof, shall be at all
times the property of Lessee.
5.2.2SUFFICIENT 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.
5.2.3REMOVAL 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
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payment to Lessee. If Lessor requires
the removal of the Tangible Personal
Property, then all of the Tangible
Personal Property that is not removed by
Lessee within ten (10) days following
such request shall be considered
abandoned by Lessee and may be
appropriated, sold, destroyed or
otherwise disposed of by Lessor without
first giving notice thereof to Lessee,
without any payment to Lessee and
without any obligation to account
therefor.
ARTICLE 6
SECURITY FOR LEASE OBLIGATIONS
6.1 SECURITY FOR LESSEE'S OBLIGATIONS;
PERMITTED PRIOR SECURITY INTERESTS.
6.1.1SECURITY. 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.
6.1.2 PURCHASE-MONEY
SECURITY INTERESTS AND EQUIPMENT
LEASES. Notwithstanding any other
provision hereof regarding the
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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
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.
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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 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.
7.2.1OBLIGATION 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
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accreditation as required by all
applicable Legal Requirements.
7.2.2PERMITTED 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.
7.2.3COMPLIANCE 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.
7.2.4NO 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.
7.2.5NO 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.
7.2.6NO 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,
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contest any Legal Requirement to the extent
permitted by, and in accordance with, Article
15 below.
7.4 MANAGEMENT AGREEMENTS. Throughout
the Term, Lessee shall not enter into any
Management Agreement without the prior
written approval of Lessor, in each instance,
which approval shall not be unreasonably
withheld. Lessee shall not, without the
prior written approval of Lessor, in each
instance, which approval shall not be
unreasonably withheld, agree to or allow: (a)
any change in the Manager or change in the
ownership or control of the Manager, (b) the
termination of any Management Agreement
(other than in connection with the exercise
by Lessee of any of its remedies under the
Management Agreement as a result of any
default by the Manager thereunder), (c) any
assignment by the Manager of its interest
under the Management Agreement or (d) any
material amendment of the Management
Agreement. In addition, Lessee shall, at its
sole cost and expense, promptly and fully
perform or cause to be performed every
covenant, condition, promise and obligation
of the licensed operator of the Leased
Property under any Management Agreement.
Each Management Agreement shall provide
that Lessor shall be provided notice of any
defaults thereunder and, at Lessor's option,
an opportunity to cure such default. Lessee
shall furnish to Lessor, within three (3)
days after receipt thereof, or after the
mailing or service thereof by Lessee, as the
case may be, a copy of each notice of default
which Lessee shall give to, or receive from
any Person, based upon the occurrence, or
alleged occurrence, of any default in the
performance of any covenant, condition,
promise or obligation under any Management
Agreement.
Whenever and as often as Lessee shall
fail to perform, promptly and fully, at its
sole cost and expense, any covenant,
condition, promise or obligation on the part
of the licensed operator of the Leased
Property under and pursuant to any Management
Agreement, Lessor, or a lawfully appointed
receiver of the Leased Property, may, at
their respective options (and without any
obligation to do so), after five (5) days'
prior notice to Lessee (except in the case of
an emergency) enter upon the Leased Property
and perform, or cause to be performed, such
work, labor, services, acts or things, and
take such other steps and do such other acts
as they may deem advisable, to cure such
defaulted covenant, condition, promise or
obligation, and any amount so paid or
advanced by Lessor or such receiver and all
costs and expenses reasonably incurred in
connection therewith (including, without
limitation, attorneys' fees and expenses and
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.
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8.1.1 LESSEE'S RESPONSIBILITY.
Lessee, at its sole cost and expense,
shall keep the Leased Property and all
private roadways, sidewalks and curbs
appurtenant thereto which are under
Lessee's control in good order and
repair to the extent consistent with the
stage of construction of the Project
(whether or not the need for such
repairs occurs as a result of Lessee's
use, any prior use, the elements or the
age of the Leased Property or such
private roadways, sidewalks and curbs or
any other cause whatsoever other than
Lessor's gross negligence or willful
misconduct) and, subject to Articles 9,
13 and 14, Lessee shall promptly, with
the exercise of all reasonable efforts,
undertake and diligently complete all
necessary and appropriate repairs,
replacements, renovations, restorations,
alterations and modifications thereof of
every kind and nature, whether interior
or exterior, structural or non-
structural, ordinary or extraordinary,
foreseen or unforeseen or arising by
reason of a condition (concealed or
otherwise) existing prior to the
commencement of, or during, the Term and
thereafter until Lessee surrenders the
Leased Property in the manner required
by this Lease. In addition, Lessee, at
its sole cost and expense, shall make
all repairs, modifications,
replacements, renovations and
alterations of the Leased Property (and
such private roadways, sidewalks and
curbs) that are necessary to comply with
all applicable Legal Requirements and
Insurance Requirements so that the
Leased Property can be legally operated
for the Primary Intended Use and, if
applicable, the Other Permitted Uses.
All repairs, replacements, renovations,
alterations, and modifications required
by the terms of this Section 8.1 shall
be (a) performed in a good and
workmanlike manner in compliance with
all applicable Legal Requirements,
Insurance Requirements and the
requirements of Article 9 hereof, using
new materials well suited for their
intended purpose and (b) consistent with
the operation of the Facility in a
reputable 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
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or curbs appurtenant thereto), whether
ordinary or extraordinary, structural or
non-structural, foreseen or unforeseen,
or to make any expenditure whatsoever
with respect thereto in connection with
this Lease, or to maintain the Leased
Property (or any private roadways,
sidewalks or curbs appurtenant thereto)
in any way.
8.1.3 LESSEE MAY NOT OBLIGATE
LESSOR. Nothing contained herein nor
any action or inaction by Lessor shall
be construed as (a) constituting the
consent or request of Lessor, express or
implied, to any contractor,
subcontractor, laborer, materialman or
vendor to or for the performance of any
labor or services for any construction,
alteration, addition, repair or
demolition of or to the Leased Property
or (b) except as otherwise provided in
this Lease, giving Lessee any right,
power or permission to contract for or
permit the performance of any labor or
services or the furnishing of any
materials or other property in such
fashion as would permit the making of
any claim against Lessor for the payment
thereof or to make any agreement that
may create, or in any way be the basis
for, any right, title or interest in, or
Lien or claim against, the estate of
Lessor in the Leased Property. Without
limiting the generality of the foregoing
and except as otherwise provided in this
Lease, the right title and interest of
Lessor in and to the Leased Property
shall not be subject to liens or
encumbrances for the performance of any
labor or services or the furnishing of
any materials or other property
furnished to the Leased Property at or
by the request of Lessee or any other
Person other than Lessor. Lessee shall
notify any contractor, subcontractor,
laborer, materialman or vendor providing
any labor, services or materials to the
Leased Property of this provision.
8.2 ENCROACHMENTS; TITLE RESTRICTIONS.
If any of the Leased Improvements shall, at
any time, encroach upon any property, street
or right-of-way adjacent to the Leased
Property, or shall violate the agreements or
conditions contained in any lawful
restrictive covenant or other Lien now or
hereafter affecting the Leased Property, or
shall impair the rights of others under any
easement, right-of-way or other Lien to which
the Leased Property is now or hereafter
subject, then promptly upon the request of
Lessor, Lessee shall, at its sole cost and
expense, subject to Lessee's right to contest
the existence of any encroachment, violation
or impairment as set forth in Article 15, (a)
obtain valid and effective waivers or
settlements of all claims, liabilities and
damages resulting from each such
encroachment, violation or impairment or (b)
make such alterations to the Leased
Improvements, and take such other actions, as
Lessee in the good faith exercise of its
judgment deems reasonably practicable, to
remove such encroachment, or to end such
violation or impairment, including, if
necessary, the alteration of any of the
Leased Improvements. Notwithstanding the
foregoing, Lessee shall, in any event, take
all such actions as may be reasonably
necessary in order to be able to continue the
operation of the Leased Improvements for the
Primary Intended Use and, if applicable, the
Other Permitted Uses substantially in the
manner and to the extent that the Leased
Improvements were operated prior to the
assertion of such encroachment, violation or
impairment and nothing contained herein shall
limit Lessee's obligations to operate the
Leased Property in accordance with its
Primary Intended Use. Any such alteration
made pursuant to the terms of this
Section 8.2 shall be completed in conformity
with the applicable requirements of Section
8.1 and Article 9. Lessee's obligations
under this Section 8.2 shall be in addition
to and shall in no way discharge or diminish
any obligation of any insurer under any
policy of title or other insurance. If and
to the extent any
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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.
9.2.1NO 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.
9.2.2LESSEE'S PROPOSAL REGARDING
CAPITAL ADDITIONS AND MATERIAL
STRUCTURAL WORK. If Lessee desires to
undertake any Capital Addition or
Material Structural Work, Lessee shall
submit to Lessor in writing a proposal
setting forth in reasonable detail any
proposed Capital Addition or Material
Structural Work and shall provide to
Lessor copies of, or information
regarding, the applicable plans and
specifications, Permits, Contracts and
any other materials concerning the
proposed Capital Addition or Material
Structural Work, as the case may be, as
Lessor may reasonably request. Without
limiting the generality of the
foregoing, each such proposal pertaining
to any Capital Addition shall indicate
the approximate projected cost of
constructing such Capital Addition, the
use or uses to which it will be put and
a good faith estimate of the change, if
any, in the Gross Revenues that Lessee
anticipates will result from the
construction of such Capital Addition.
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9.2.3LESSOR'S OPTIONS REGARDING
CAPITAL ADDITIONS AND MATERIAL
STRUCTURAL WORK. Lessor shall have the
options of: (a) denying permission for
the construction of the applicable
Capital Addition or Material Structural
Work, (b) offering to finance the
construction of the Capital Addition
pursuant to Section 9.3 on such terms as
may be specified by Lessor, including
the terms of any amendment to this
Lease, including, without limitation, an
increase in Base Rent based on Lessor's
then existing terms and prevailing
conditions to compensate Lessor for the
additional funds advanced by it, (c)
allowing Lessee to separately pay for or
finance the construction of the Capital
Addition, subject to compliance with the
terms and conditions of Section 9.2.1,
Section 9.4, Section 13.1.3, all
applicable Legal Requirements, all other
requirements of this Lease and to such
other terms and conditions as Lessor may
in its discretion reasonably impose or
(d) any combination of the foregoing.
Unless Lessor notifies Lessee in writing
of a contrary election within thirty
(30) days of Lessee's request or unless
Lessor is required to consent thereto
pursuant to this Section 9.2.3, Lessor
shall be deemed to have denied the
request for the Capital Addition or
Material Structural Work. In the event
and to the extent Lessor has granted
permission for the construction of the
applicable Capital Addition or Material
Structural Work and (x) Lessor has not
offered to finance the construction of
the same or (y) Lessee declines to
accept the financing offered by Lessor,
Lessee may separately finance such
construction, subject to the limitation
on Liens set forth in Section 9.2.1, or
pay for such construction itself. In
the event Lessee declines to accept the
financing offered by Lessor or if Lessor
has not offered such financing to Lessee
and proposes to obtaining financing from
another Person, Lessee shall inform
Lessor in writing of the terms and
conditions of such financing and shall
provide Lessor with a copy of a
commitment letter evidencing the same
and Lessor may, by giving notice thereof
to Lessee within twenty (20) days
following being so informed, elect to
provide financing to Lessee at the
effective rate of interest as such
financing. Lessor shall not unreasonably
withhold its permission for the
construction of Material Structural Work
which is necessary to protect the safety
or welfare of residents of the Facility.
9.2.4LESSOR 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.
9.3.1ADVANCES. 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.
9.3.2LESSOR'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:
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(a) prior to any advance of
funds, (i) any information,
opinions, certificates, Permits or
documents reasonably requested by
Lessor or any applicable Financing
Party which are necessary to
confirm that Lessee is reasonably
expected to be able to use the
Capital Addition upon completion
thereof in accordance with the
Primary Intended Use and/or, if
applicable, the Other Permitted
Uses and (ii) evidence satisfactory
to Lessor and any applicable
Financing Party that all Permits
required for the construction and
use of the Capital Addition have
been received, are in full force
and effect and are not subject to
appeal, except only for those
Permits which cannot in the normal
course be obtained prior to
commencement or completion of the
construction; provided, that Lessor
and any applicable Financing Party
are furnished with reasonable
evidence that the same is
reasonably expected to be available
in the normal course of business
without unusual condition;
(b) prior to any advance of
funds, an Officer's Certificate
and, if requested, a certificate
from Lessee's architect, setting
forth in reasonable detail the
projected (or actual, if available)
Capital Addition Cost;
(c) bills of sale,
instruments of transfer and other
documents required by Lessor so as
to vest title to the Capital
Addition in Lessor free and clear
of all Liens (except to the extent
a Lien is being duly contested in
accordance with the terms and
provisions of this Lease), and
amendments to this Lease and any
recorded notice or memorandum
thereof, duly executed and
acknowledged, in form and substance
reasonably satisfactory to Lessor,
providing for any changes required
by Lessor including, without
limitation, 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;
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(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.
9.3.3PAYMENT OF COSTS. By virtue
of making a request to finance a Capital
Addition, whether or not such financing
is actually consummated, Lessee shall be
deemed to have agreed to pay, upon
demand, all costs and expenses
reasonably incurred by Lessor and any
Person participating with Lessor in any
way in the financing of the Capital
Addition Cost, including, but not
limited to (a) fees and expenses of
their respective attorneys, (b) all
photocopying expenses, if any, (c) the
amount of any filing, registration and
recording taxes and fees, (d)
documentary stamp taxes and intangible
taxes (e) title insurance charges and
appraisal fees.
9.4 GENERAL LIMITATIONS. Without in any
way limiting Lessor's options with respect to
proposed Capital Additions or Material
Structural Work: (a) no Capital Addition or
Material Structural Work shall be completed
that could, upon completion, significantly
alter the character or purpose or detract
from the value or operating efficiency of the
Leased Property, or significantly impair the
revenue-producing capability of the Leased
Property, or adversely affect the ability of
Lessee to comply with the terms of this
Lease; (b) no Capital Addition or Material
Structural Work shall be completed which
would tie in or connect any Leased
Improvements on the Leased Property with any
other improvements on property adjacent to
the Leased Property (and not part of the Land
covered by this Lease) including, without
limitation, tie-ins of buildings or other
structures or utilities, unless Lessee shall
have obtained the prior written approval of
Lessor, which approval may be withheld in
Lessor's
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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 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
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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
10.1REPRESENTATIONS 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
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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 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 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.
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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 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
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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 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;
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<PAGE>
(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.
(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.
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10.1.17 PROPERTY MATTERS.
(a) The Leased Property is free
and clear of agreements, covenants and
Liens, except those agreements,
covenants and Liens to which this Lease
is expressly subject, whether presently
existing, as are listed on EXHIBIT B or
were listed on the UCC lien search
results delivered to Lessor at or prior
to the execution and delivery of this
Lease (and were not required to be
terminated as a condition of the
execution and delivery of this Lease),
or which may hereafter be created in
accordance with the terms hereof
(collectively referred to herein as the
"Permitted Encumbrances"); and Lessee
shall warrant and defend Lessor's title
to the Leased Property against any and
all claims and demands of every kind and
nature whatsoever;
(b) There is no Condemnation or
similar proceeding pending with respect
to or affecting the Leased Property, and
Lessee is not aware, to the best of
Lessee's knowledge and belief, that any
such proceeding is contemplated;
(c) No part of the Collateral or
the Leased Property has been damaged by
any fire or other casualty;
(d) None of the Permitted
Encumbrances has or is likely to have a
material adverse impact upon, nor
interfere with or impede, in any
material respect, the operation of the
Leased Property in accordance with the
Primary Intended Use;
(e) Upon the Conversion Date, all
buildings, facilities and other
improvements necessary, both legally and
practically, for the proper and
efficient operation of the Facility will
be located upon the Leased Property and
all real property and personal property
currently utilized by Lessee will be
included within the definition of the
Leased Property or the Collateral;
(f) Upon the Conversion Date the
Leased Property shall abut on and have
direct vehicular access to a public road
or access to a public road via
permanent, irrevocable, appurtenant
easements;
(g) The Leased Property
constitutes a parcel(s) for real estate
tax purposes separate from any real
property that does not constitute a
portion of the Leased Property and no
portion of any real property that does
not constitute a portion of the Leased
Property is part of the same tax parcel
as any part of the Leased Property;
(h) All utilities necessary for
the use and operation of the Facility
are available to the lot lines of the
Leased Property:
(i) in sufficient supply and
capacity;
(ii) through validly created and
existing easements of record
appurtenant to or encumbering the
Leased Property (which easements
shall not impede or restrict the
operation of the Facility); and
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(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.
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.
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10.1.23 NO BROKER. No
member of the Leasing Group nor any of
their respective Affiliates has dealt
with any broker or agent in connection
with the transactions contemplated by
the Lease Documents.
10.1.24 NO IMPROPER
PAYMENTS. No member of the Leasing
Group nor any of their respective
Affiliates has:
(a) made any contributions,
payments or gifts of its funds or
property to or for the private use
of any government official,
employee, agent or other Person
where either the payment or the
purpose of such contribution,
payment or gifts is illegal under
the laws of the United States, any
state thereof or any other
jurisdiction (foreign or domestic);
(b) knowingly established or
maintained any unrecorded fund or
asset for any purpose or knowingly
made any false or artificial
entries on any of its books or
records for any reason;
(c) made any payments to any
Person with the intention or
understanding that any part of such
payment was to be used for any
other purpose other than that
described in the documents
supporting the payment; or
(d) made any contribution, or
reimbursed any political gift or
contribution made by any other
Person, to candidates for public
office, whether federal, state or
local, where such contribution
would be in violation of applicable
law.
10.1.25 NOTHING OMITTED.
Neither this Lease, nor any of the other
Lease Documents, nor any certificate,
agreement, statement or other document,
including, without limitation, any
financial statements concerning the
financial condition of any member of the
Leasing Group, furnished to or to be
furnished to Lessor or its attorneys in
connection with the transactions
contemplated by the Lease Documents,
contains or will contain any untrue
statement of a material fact or omits or
will omit to state a material fact
necessary in order to prevent all
statements contained herein and therein
from being misleading. There is no fact
within the special knowledge of Lessee
which has not been disclosed herein or
in writing to Lessor that 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
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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 Elliot Avenue,
Suite 500, Seattle, Washington 98121-
2162 (the "Principal Place of
Business").
10.1.29 Intentionally
Deleted
10.1.30 INTELLECTUAL
PROPERTY. Lessee is duly licensed or
authorized to use all (if any)
copyrights, rights of reproduction,
trademarks, trade-names, trademark
applications, service marks, patent
applications, patents and patent license
rights, (all whether registered or
unregistered, U.S. or foreign),
inventions, franchises, discoveries,
ideas, research, engineering, methods,
practices, processes, systems, formulae,
designs, drawings, products, projects,
improvements, developments, know-how and
trade secrets which are used in or
necessary for the development and/or
operation of the Facility in accordance
with its Primary Intended Use, without
conflict with or infringement of any,
and subject to no restriction, lien,
encumbrance, right, title or interest in
others.
10.1.31 MANAGEMENT
AGREEMENTS. There is no Management
Agreement in force and effect as of the
date hereof.
10.2 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.
49
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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 or the applicable
Sublessee, as the case may be (and,
without limiting anything else
contained herein, the Consolidated
Financials for Lessee and for each
such Sublessee shall include a
detailed balance sheet for Leased
Property as of the last day of such
fiscal year and a statement of
earnings from the Leased Property
for such fiscal year showing, among
other things, all rents and other
income therefrom and all expenses
paid or incurred in connection with
the operation of the Leased
Property); (ii) separate
statements, certified as true and
correct by Lessee, the Guarantor,
any Manager which is an Affiliate
of Lessee and each such Sublessee
which is an Affiliate of Lessee,
stating whether, to the best of the
signer's knowledge and belief after
making due inquiry, Lessee, the
Guarantor, such Manager or any such
Sublessee, as the case may be, is
in default in the performance or
observance of any of the terms of
this Lease or any of the other
Lease Documents and, if so,
specifying all such defaults, the
nature thereof and the steps being
taken to immediately remedy the
same; (iii) a copy of all letters
from the independent certified
accountants engaged to perform the
annual audits referred to above,
directed to the management of the
Guarantor regarding the existence
of any reportable conditions or
material weaknesses; (iv) a
statement certified as true and
correct by Lessee setting forth all
Subleases as of the last day of
such fiscal year, the respective
areas demised
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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.
(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.
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(f) CONTRACT NOTICES.
Promptly but in no event more than
ten (10) days after the receipt
thereof, true and complete copies
of any notices, consents,
terminations or statements of any
kind or nature relating to any of
the Contracts (involving payments
in the aggregate in excess of ONE
HUNDRED THOUSAND DOLLARS ($100,000)
per annum) other than those issued
in the ordinary course of business.
(g) PERMIT OR CONTRACT
DEFAULTS. Promptly but in no event
more than ten (10) days after the
receipt thereof, true and complete
copies of all surveys, follow-up
surveys, licensing surveys,
complaint surveys, examinations,
compliance certificates, inspection
reports, statements (other than
those statements that are issued in
the ordinary course of business),
if any, terminations and notices of
any kind (other than those notices
that are furnished in the ordinary
course of business) issued or
provided to Lessee, the Manager or
any Sublessee by any Governmental
Authority, Accreditation Body or
any Third Party Payor, including,
without limitation, any notices
pertaining to any delinquency in,
or proposed revision of, Lessee's,
the Manager's or any Sublessee's
obligations under the terms and
conditions of any Permits or
Contracts now or hereafter issued
by or entered into with any
Governmental Authority,
Accreditation Body or Third Party
Payor and the 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.
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(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 be
expected to have a
material adverse
effect on the
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financial
condition of Lessee
or any Sublessee
which is an Affiliate
of Lessee; and
(vi) any fact within
the special knowledge
of any member of the
Leasing Group, or any
other development in
the business or
affairs of any member
of the Leasing Group,
which could
reasonably be
expected to be
materially adverse to
the business,
properties, assets or
condition, financial
or otherwise, of any
member of the Leasing
Group or the Leased
Property.
(n) RESPONSES TO INSPECTION
REPORTS. Within thirty (30) days
after receipt of an inspection
report relating to the Leased
Property from Lessor, a written
response describing in detail
prepared plans to address concerns
raised by the inspection report.
(o) PUBLIC INFORMATION. Upon
the completion or filing, mailing
or other delivery thereof, complete
copies of all financial statements,
reports, notices and proxy
statements, if any, sent by any
member of the Leasing Group (which
is a publicly held corporation) to
its shareholders and of all
reports, if any, filed by any
member of the Leasing Group (which
is a publicly held corporation)
with any securities exchange or
with the Securities Exchange
Commission.
(p) ANNUAL BUDGETS.
Commencing on the Conversion Date,
prior to the end of each Fiscal
Year, Lessee, any Sublessee which
is an Affiliate of Lessee and/or
any Manager which is an Affiliate
of Lessee shall submit to Lessor a
preliminary annual financial budget
for the Facility for the next
Fiscal Year, a preliminary capital
expenditures budget for the
Facility for the next Fiscal Year
and a report detailing the capital
expenditures made in the then
current Fiscal Year and on or
before the end of the first month
of each Fiscal Year, Lessee, any
such Sublessee and/or any such
Manager shall submit to Lessor
revised finalized versions of such
budgets and report.
(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 Conversion Date until
the fourth anniversary thereof, Lessee
shall maintain with respect to the
Facility and all other Group Two
Development Facilities for each Fiscal
Quarter an aggregate Debt Coverage Ratio
equal to or greater than 1.1 to 1 and
from and after the fourth anniversary
thereof and for the remainder of the
Term, Lessee shall maintain with respect
to the Facility and all other Group Two
Development Facilities each Fiscal
Quarter an aggregate Debt Coverage Ratio
equal to or greater than 1.2 to 1.
11.3.2 INTENTIONALLY DELETED.
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11.3.3 INTENTIONALLY DELETED.
11.3.4 INTENTIONALLY DELETED.
11.3.5 CURRENT RATIO -
GUARANTOR. From and after December 31,
1999 and for the remainder of the Term,
the Guarantor shall maintain a ratio of
Consolidated Current Assets to
Consolidated Current Liabilities equal
to or greater than 1 to 1 as of the end
of each fiscal year.
11.3.6 INTENTIONALLY DELETED.
11.3.7 NET WORTH - GUARANTOR.
The Guarantor shall maintain, at all
times, a Net Worth of not less than
TWENTY MILLION DOLLARS ($20,000,000).
11.3.8 NO INDEBTEDNESS. Lessee
shall not create, incur, assume or
suffer to exist any liability for
borrowed money except (i) Indebtedness
to Lessor under the Lease Documents and,
(ii) Impositions allowed pursuant to the
provisions of the Lease, (iii) unsecured
normal trade debt incurred upon
customary terms in the ordinary course
of business, (iv) Indebtedness created
in connection with any financing of any
Capital Addition, provided, that each
such financing has been approved by
Lessor in accordance with the terms of
Article 9 hereof, (v) Indebtedness to
any Affiliate, provided, that, such
Indebtedness is fully subordinated to
this Lease pursuant to the Affiliated
Party Subordination Agreement, (vi)
other Indebtedness of Lessee in the
aggregate amount not to exceed TWO
HUNDRED THOUSAND DOLLARS ($200,000)
incurred, for the exclusive use of the
Leased Property, on account of purchase
money indebtedness or finance lease
arrangements, each of which shall not
exceed the fair market value of the
assets or property acquired or leased
and shall not extend to any assets or
property other than those purchased or
leased and purchase money security
interests in equipment and equipment
leases which comply with the provisions
of Section 6.1.2 and (vii) Indebtedness
specifically permitted by the
Meditrust/Emeritus Transaction
Documents.
11.3.9 NO GUARANTIES. Lessee
shall not assume, guarantee, endorse,
contingently agree to purchase or
otherwise become directly or
contingently liable (including, without
limitation, liable by way of agreement,
contingent or otherwise, to purchase, to
provide funds for payment, to supply
funds to or otherwise to invest in any
debtor or otherwise to assure any
creditor against loss) in connection
with any Indebtedness of any other
Person, except by the endorsement of
negotiable instruments for deposit or
collection or similar transactions in
the ordinary course of business and
except for a guaranty of the
Indebtedness of the Guarantor in
connection with a Working Capital Loan
which expressly limits recourse under
such guaranty to the Receivables.
11.4 AFFIRMATIVE COVENANTS. Lessee
covenants and agrees that throughout the Term
and any periods thereafter that Lessee
remains in possession of the Leased Property:
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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).
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.
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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 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.
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11.5 ADDITIONAL NEGATIVE COVENANTS.
Lessee covenants and agrees that, throughout
the Term and such time as Lessee remains in
possession of the Leased Property:
11.5.1 RESTRICTIONS RELATING TO
LESSEE. Except as may otherwise be
expressly provided in Section 19.4 or in
any of the other Lease Documents, Lessee
shall not, without the prior written
consent of Lessor, in each instance,
which consent may be withheld in the
sole and absolute discretion of Lessor:
(a) convey, assign,
hypothecate, transfer, dispose of
or encumber, or permit the
conveyance, assignment, transfer,
hypothecation, disposal or
encumbrance of all or any part of
any legal or beneficial interest in
this Lease, its other assets or the
Leased Property except as expressly
permitted by the terms of this
Lease Agreement; provided, however,
that this restriction shall not
apply to (i) the Permitted
Encumbrances that may be created
after the date hereof pursuant to
the Lease Documents; (ii) Liens
created in accordance with Section
6.1.2 against Tangible Personal
Property securing Indebtedness
permitted under Section 11.3.8(v);
(iii) the sale, conveyance,
assignment, hypothecation, lease or
other transfer of any material
asset or assets (whether now owned
or hereafter acquired), the fair
market value of which equals or is
less than TWENTY-FIVE THOUSAND
DOLLARS ($25,000), individually, or
ONE HUNDRED THOUSAND DOLLARS
($100,000) collectively; (iv)
without limitation as to amount,
the disposition in the ordinary
course of business of any obsolete,
worn out or defective fixtures,
furnishings or equipment used in
the operation of the Leased
Property provided that the same are
replaced with fixtures, furnishings
or equipment of equal or greater
utility or value or Lessee provides
Lessor with an explanation
(reasonably satisfactory to Lessor)
as to why such fixtures,
furnishings or equipment is no
longer required in connection with
the operation of the Leased
Property; (v) without limitation as
to amount, any sale of inventory by
Lessee in the ordinary course of
business; and (vi) subject to the
terms of the Negative Pledge
Agreement and the Affiliated Party
Subordination Agreement,
distributions to the 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
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Lease or any of the other Lease
Documents, or in respect of the Rent,
excluding (a) this Lease and any
permitted Subleases, (b) the Permitted
Encumbrances, (c) Liens which are
consented to in writing by Lessor, (d)
Liens for those taxes of Lessor which
Lessee is not required to pay hereunder,
(e) Liens of mechanics, laborers,
materialmen, suppliers or vendors for
sums either not yet due or being
contested in strict compliance with the
terms and conditions of Article 15, (f)
any Liens which are the responsibility
of Lessor pursuant to the provisions of
Article 20, (g) Liens for Impositions
which are either not yet due and payable
or which are in the process of being
contested in strict compliance with the
terms and conditions of Article 15 (h)
the Liens incurred pursuant to the
provisions of Section 6.1.2 and (i)
involuntary Liens caused by the actions
or omissions of Lessor.
11.5.3 LIMITS ON AFFILIATE
TRANSACTIONS. Lessee shall not enter
into any transaction with any Affiliate,
including, without limitation, the
purchase, sale or exchange of any
property, the rendering of any service
to or with any Affiliate and the making
of any loan or other extension of
credit, except in the ordinary course
of, and pursuant to the reasonable
requirements of, Lessee's business and
upon fair and reasonable terms no less
favorable to the Lessee than would be
obtained in a comparable arms'-length
transaction with any Person that is not
an Affiliate.
11.5.4 NON-COMPETITION. Lessee
acknowledges that upon and after any
termination of this Lease, any
competition by any member of the Leasing
Group with any subsequent owner or
subsequent lessee of the Leased Property
(the "Purchaser") would cause
irreparable harm to Lessor and any such
Purchaser. To induce Lessor to enter
into this Lease, Lessee agrees that,
from and after the date hereof and
thereafter until (a) in the case of the
expiration of the Initial Term or a
termination of this Lease, the fifth
(5th) anniversary of the termination
hereof or of the expiration of the
Initial Term, as applicable, and (b) in
the case of an expiration of any of the
Extended Terms, the second (2nd)
anniversary of the expiration of the
applicable Extended Term, no member of
the Leasing Group nor any Person holding
or controlling, directly or indirectly,
any interest in any member of the
Leasing Group (collectively, the
"Limited Parties") shall be involved in
any capacity in or lend any of their
names to or engage in any capacity in
any assisted living facility, center,
unit or program (or in any Person
engaged in any such activity or any
related activity competitive therewith)
other than (a) those set forth on
Schedule 11.5.4 annexed hereto, (b)
those activities in 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
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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.
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.
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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 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.
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12.1.1 TYPES AND AMOUNTS OF
INSURANCE. Lessee's insurance shall
include the following:
(a) property loss and
physical damage insurance on an all-
risk basis (with only such
exceptions as Lessor may in its
reasonable discretion approve)
covering the Leased Property
(exclusive of Land) for its full
replacement cost, which cost shall
be reset once a year at Lessor's
option, with an agreed-amount
endorsement and a deductible not in
excess of TWENTY FIVE THOUSAND
DOLLARS ($25,000). Such insurance
shall include, without limitation,
the following coverages: (i)
increased cost of construction,
(ii) cost of demolition, (iii) the
value of the undamaged portion of
the Facility and (iv) contingent
liability from the operation of
building laws, less exclusions
provided in the normal "All Risk"
insurance policy. During any
period of construction, such
insurance shall be on a builder's-
risk, completed value, non-
reporting form (including all risk
and extended coverage, collapse,
cost of demolition, increased cost
of construction and value of
undamaged portion of the
improvements protection) with
permission to occupy;
(b) flood insurance (if the
Leased Property or any portion
thereof is situated in an area
which is considered a flood risk
area by the U.S. Department of
Housing and Urban Development or
any future governmental authority
charged with such flood risk
analysis in the future) in limits
reasonably acceptable to Lessor and
subject to the availability of such
flood insurance;
(c) boiler and machinery
insurance (including related
electrical apparatus and
components) under a standard
comprehensive form, providing
coverage against loss or damage
caused by explosion of steam
boilers, pressure vessels or
similar vessels, now or hereafter
installed on the Leased Property,
in limits acceptable to Lessor;
(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
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occurrence with respect to bodily
injury and death and THREE MILLION
DOLLARS ($3,000,000) for property
damage and with all limits based
solely upon occurrences at the
Leased Property without any other
impairment;
(h) From and after the
Conversion Date: professional
liability insurance in an amount
not less than TEN MILLION DOLLARS
($10,000,000) for each medical
incident;
(i) physical damage insurance
on an all-risk basis (with only
such exceptions as Lessor in its
reasonable discretion shall
approve) covering the Tangible
Personal Property for the full
replacement cost thereof and with a
deductible not in excess of one
percent (1%) of the full
replacement cost thereof;
(j) From and after the
Conversion Date and prior thereto
with respect to Persons employed on
the Leased Property or any portion
thereof prior to the Conversion
Date, "Workers' Compensation and
Employers' Liability Insurance
providing protection against all
claims arising out of injuries to
all employees of Lessee or of any
Sublessee (employed on the Leased
Property or any portion thereof) in
amounts equal for Workers'
Compensation, to the statutory
benefits payable to employees in
the State and for Employers'
Liability, to limits of not less
than ONE HUNDRED THOUSAND DOLLARS
($100,000) for injury by accident,
ONE HUNDRED THOUSAND DOLLARS
($100,000) per employee for disease
and FIVE 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:
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(a) include an agreed amount
endorsement and loss payee,
additional named insured and
secured party endorsements, in
forms acceptable to Lessor in its
reasonable discretion;
(b) include mortgagee,
secured party, loss payable and
additional named insured
endorsements reasonably acceptable
to each Fee Mortgagee;
(c) provide that the
coverages may not be cancelled or
materially modified except upon
thirty (30) days' prior written
notice to Lessor and any Fee
Mortgagee;
(d) be payable to Lessor and
any Fee Mortgagee notwithstanding
any defense or claim that the
insurer may have to the payment of
the same against any other Person
holding any other interest in the
Leased Property;
(e) be endorsed with standard
noncontributory clauses in favor of
and in form reasonably acceptable
to Lessor and any Fee Mortgagee;
(f) expressly waive any right
of subrogation on the part of the
insurer against Lessor, any Fee
Mortgagee or the Leasing Group; and
(g) otherwise be in such
forms as shall be reasonably
acceptable to Lessor.
12.1.4 NOTICES; CERTIFICATES AND
POLICIES. Lessee shall promptly provide
to Lessor copies of any and all notices
(including notice of non-renewal),
claims and demands which Lessee receives
from insurers of the Leased Property.
At least ten (10) days prior to the
expiration of any insurance policy
required hereunder, Lessee shall deliver
to Lessor certificates and evidence of
insurance relating to all renewals and
replacements thereof, together with
evidence, satisfactory to Lessor, of
payment of the premiums thereon. Lessee
shall deliver to Lessor original
counterparts or copies certified by the
insurance company to be true and
complete copies, of all insurance
policies required hereunder not later
than ten (10) days after receipt thereof
by Lessee. Lessee shall use its best
efforts to obtain such counterparts or
copies within ninety (90) days after the
effective date of each such policy.
12.1.5 LESSOR'S RIGHT TO PLACE
INSURANCE. If Lessee shall fail to
obtain any insurance policy required
hereunder by Lessor, or shall fail to
deliver the certificate and evidence of
insurance relating to any such policy to
Lessor, or if any insurance policy
required hereunder (or any part thereof)
shall expire or be cancelled or become
void or voidable by reason of any breach
of any condition thereof, or if Lessor
reasonably determines that such
insurance coverage is unsatisfactory by
reason of the failure or impairment of
the capital of any insurance company
which wrote any such policy, upon demand
by Lessor, Lessee shall promptly but in
any event in not more than ten (10) days
thereafter obtain new or additional
insurance coverage on the Leased
Property, or for those risks required
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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 wilful
misconduct.
12.1.8 BLANKET POLICIES.
Notwithstanding anything to the contrary
contained herein, Lessee's obligations
to carry the insurance provided for
herein may be brought within the
coverage of a so-called blanket policy
or policies of insurance carried and
maintained by Lessee and its Affiliates;
provided, however, that the coverage
afforded to Lessor shall not be reduced
or diminished or otherwise be different
from that which would exist under a
separate policy meeting all other
requirements of this Lease by reason of
the use of such blanket policy of
insurance, and provided, further that
the requirements of Section 12.1 are
otherwise satisfied.
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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.
12.1.10ASSIGNMENT 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.
12.2INDEMNITY.
12.2.1 INDEMNIFICATION. Except
with respect to the gross negligence or
wilful misconduct of Lessor or any of
the other Indemnified Parties, as to
which no indemnity is provided, Lessee
hereby agrees to defend with counsel
reasonably acceptable to Lessor, against
all claims and causes of action and to
indemnify and hold harmless Lessor and
each of the other Indemnified Parties
from and against all damages, losses,
liabilities, obligations, penalties,
costs and expenses (including, without
limitation, reasonable attorneys' fees,
court costs and other expenses of
litigation) suffered by, or claimed or
asserted against, Lessor or any of the
other Indemnified Parties, directly or
indirectly, by any Person other than a
member of the Leasing Group who prevails
in such claim or action based on,
arising out of or resulting from (a) the
use and occupancy of the Leased Property
or any business conducted therein, (b)
any act, fault, omission to act or
misconduct by (i) any member of the
Leasing Group, (ii) any Affiliate of
Lessee or (iii) any employee, agent,
licensee, business invitee, guest,
customer, contractor or sublessee of any
of the foregoing parties, relating to,
directly or indirectly, the Leased
Property, (c) any accident, injury or
damage whatsoever caused to any Person,
including, without limitation, any claim
of malpractice, or to the property of
any Person in or about the Leased
Property or outside of the Leased
Property where such accident, injury or
damage results or is claimed to have
resulted from any act, fault, omission
to act or misconduct by any member of
the Leasing Group or any Affiliate of
Lessee or any employee, agent, licensee,
contractor or sublessee of any of the
foregoing parties, (d) any Lease
Default, (e) any claim brought or
threatened against Lessor by
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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, (g) any liability,
imposition, fine, interest, penalty,
assessment, or required escrow or other
amounts expended by any of the
Indemnified Parties in connection with
or as a result of any violation of, or
failure to comply with, Ordinance 96-52
of the City of Ogden, Utah, passed
October 22, 1996, and/or (h) the
enforcement of this indemnity. Any
amounts which become payable by Lessee
under this Section 12.2.1 shall be a
demand obligation of Lessee to Lessor,
payable as an Additional Charge. The
indemnity provided for in this Section
12.2.1 shall survive any termination of
this Lease.
12.2.2 INDEMNIFIED PARTIES. As
used in this Lease the term "Indemnified
Parties" shall mean the Meditrust
Entities, any Fee Mortgagee and their
respective successors, assigns,
employees, servants, agents, attorneys,
officers, directors, shareholders,
partners and owners.
12.2.3 LIMITATION ON LESSOR
LIABILITY. Neither Lessor nor any
Affiliate of Lessor shall be liable to
any member of the Leasing Group or any
Affiliate of any member of the Leasing
Group, or to any other Person whatsoever
for any damage, injury, loss,
compensation, or claim (including, but
not limited to, any claim for the
interruption of or loss to any business
conducted on the Leased Property) based
on, arising out of or resulting from any
cause whatsoever, including, but not
limited to, the following: (a) repairs
to the Leased Property, (b) interruption
in use of the Leased Property; (c) any
accident or damage resulting from the
use or operation of the Leased Property
or any business conducted thereon; (d)
the termination of this Lease by reason
of Casualty or Condemnation, (e) any
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
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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
13.1RESTORATION FOLLOWING FIRE OR OTHER
CASUALTY.
13.1.1 FOLLOWING FIRE OR CASUALTY.
In the event of any damage or
destruction to the Leased Property by
reason of fire or other hazard or
casualty (a "Casualty"), Lessee shall
give immediate written notice thereof to
Lessor and, subject to the terms of this
Article 13 and any applicable Legal
Requirements, Lessee shall proceed with
reasonable diligence, in full compliance
with all applicable Legal Requirements,
to perform such repairs, replacement and
reconstruction work (referred to herein
as the "Work") to restore the Leased
Property to the condition it was in
immediately prior to such damage or
destruction and to a condition adequate
to operate the Facility for the Primary
Intended Use and, if applicable, the
Other Permitted Uses and in compliance
with applicable Legal Requirements. All
Work shall be performed and completed in
accordance with all applicable Legal
Requirements and the other requirements
of this Lease within one hundred and
twenty (120) days following the
occurrence of the damage or destruction
plus a reasonable time to compensate for
Unavoidable Delays (including for the
purposes of this Section, delays in
obtaining Permits and in adjusting
insurance losses), but in no event
beyond two-hundred and seventy (270)
days following the occurrence of the
Casualty.
13.1.2 PROCEDURES. In the event
that any Casualty results in
non-structural damage to the Leased
Property in excess of FIFTY THOUSAND
DOLLARS ($50,000) or in any structural
damage to the Leased Property,
regardless of the extent of such
structural damage, prior to commencing
the Work, Lessee shall comply with the
following requirements:
(a) Lessee shall furnish to
Lessor complete plans and
specifications for the Work
(collectively and as the same may
be modified and amended from time
to time pursuant to the terms
hereof, the "Plans and
Specifications"), for Lessor's
approval, in each instance, which
approval shall not be unreasonably
withheld. The Plans and
Specifications shall bear the
signed approval thereof by an
architect, licensed
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to do business in the State,
reasonably satisfactory to Lessor
(in the event Lessor reasonably
determines that the Work is of a
nature for which the involvement of
an architect is appropriate) and
shall be accompanied by a written
estimate from the architect,
bearing the architect's seal, of
the entire cost of completing the
Work, and to the extent feasible,
the Plans and Specifications shall
provide for Work of such nature,
quality and extent, that, upon the
completion thereof, the Leased
Property shall be at least equal in
value and general utility to its
value and general utility prior to
the Casualty and shall be adequate
to operate the Leased Property for
the Primary Intended Use and, if
applicable, the Other Permitted
Uses;
(b) Lessee shall furnish to
Lessor certified or photostatic
copies of all Permits and Contracts
required by all applicable Legal
Requirements in connection with the
commencement and conduct of the
Work to the extent the same can be
secured in the ordinary course
prior to the commencement of
construction;
(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.
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13.1.3 DISBURSEMENT OF INSURANCE
PROCEEDS. If, as provided in Section
13.2, Lessor is required to apply any
property insurance proceeds toward
repair or restoration of the Leased
Property, then as long as the Work is
being diligently performed by Lessee in
accordance with the terms and conditions
of this Lease, Lessor shall disburse
such insurance proceeds from time to
time during the course of the Work in
accordance with and subject to
satisfaction of the following provisions
and conditions. Lessor shall not be
required to make disbursements more
often than at thirty (30) day intervals.
Lessee shall submit a written request
for each disbursement at least ten (10)
Business Days in advance and shall
comply with the following requirements
in connection with each disbursement:
(a) Prior to the commencement
of any Work, Lessee shall have
received Lessor's written approval
of the Plans and Specifications
(which approval shall not be
unreasonably withheld) and the Work
shall be supervised by an
experienced construction manager
with the consultation of an
architect or engineer qualified and
licensed to do business in the
State (in the event Lessor
reasonably determines that the Work
is of a nature for which the
involvement of such architect or
engineer is appropriate). Lessee
shall not make any changes in, and
shall not permit any changes in,
the quality of the materials to be
used in the Work, the Plans and
Specifications or the Work, whether
by change order or otherwise,
without the prior written consent
of Lessor, in each instance (which
consent may be withheld in Lessor's
sole and absolute discretion);
provided, however, that such
consent shall not be required for
any individual change which has
been approved by the architect,
which does not materially affect
the structure or exterior of the
Facility, and the cost of which
does not exceed TEN THOUSAND
DOLLARS ($10,000) or which changes,
in the aggregate, do not exceed ONE
HUNDRED THOUSAND DOLLARS ($100,000)
in cost. Notwithstanding the
foregoing, prior to making any
change in Plans and Specifications,
copies of all change orders shall
be submitted by Lessee to Lessor
and Lessee shall also deliver to
Lessor evidence satisfactory to
Lessor, in its reasonable
discretion, that all necessary
Permits and/or Contracts required
by any Governmental Authority in
connection therewith have been
obtained or entered into, as the
case may be.
(b) Each request for payment
shall be accompanied by (x) a
certificate of the architect or
engineer, bearing the architect's
or engineer's seal, and (y) a
certificate of the general
contractor, qualified and licensed
to do business in the State, that
is performing the Work
(collectively, the "Work
Certificates"), each dated not more
than ten (10) days prior to the
application for withdrawal of
funds, and each stating:
(i) that all of the Work
performed as of the date
of the certificates has
been completed in
compliance with the
approved Plans and
Specifications,
applicable Contracts and
all applicable Legal
Requirements;
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(ii) that the sum then
requested to be withdrawn
has been paid by Lessee
or is justly due to
contractors,
subcontractors,
materialmen, engineers,
architects or other
Persons, whose names and
addresses shall be stated
therein, who have
rendered or furnished
certain services or
materials for the Work,
and the certificate shall
also include a brief
description of such
services and materials
and the principal
subdivisions or
categories thereof and
the respective amounts so
paid or due to each of
said Persons in respect
thereof and stating the
progress of the Work up
to the date of said
certificate;
(iii) that the sum
then requested to be
withdrawn, plus all sums
previously withdrawn,
does not exceed the cost
of the Work insofar as
actually accomplished up
to the date of such
certificate;
(iv) that the remainder
of the funds held by
Lessor will be sufficient
to pay for the full
completion of the Work in
accordance with the Plans
and Specifications;
(v) that no part of the
cost of the services and
materials described in
the applicable Work
Certificate has been or
is being made the basis
of the withdrawal of any
funds in any previous or
then pending application;
and
(vi) that, except for the
amounts, if any,
specified in the
applicable Work
Certificate to be due
for services and
materials, there is no
outstanding indebtedness
known, after due inquiry,
which is then due and
payable for work, labor,
services or materials in
connection with the Work
which, if unpaid, might
become the basis of a
vendor's, mechanic's,
laborer's or
materialman's statutory
or other similar Lien
upon the Leased Property.
(c) Lessee shall deliver to
Lessor satisfactory evidence that
the Leased Property and all
materials and all property
described in the Work Certificates
are free and clear of Liens, except
(i) Liens, if any, securing
indebtedness due to Persons (whose
names and 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
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the foregoing lien waivers in
customary form from the general
contractor and all subcontractors
performing the Work, together with
an endorsement of its title
insurance policy (relating to the
Leased Property) in form acceptable
to Lessor, dated as of the date of
the making of the then current
disbursement, confirming the
foregoing.
(d) If the Work involves
alteration or restoration of the
exterior of any Leased Improvement
that changes the footprint of any
Leased Improvement, Lessee shall
deliver to Lessor, upon the request
of Lessor, an "as-built" survey of
the Leased Property dated as of a
date within ten (10) days prior to
the making of the first and final
advances (or revised to a date
within ten (10) days prior to each
such advance) showing no
encroachments other than such
encroachments, if any, by the
Leased Improvements upon or over
the Permitted Encumbrances as are
in existence as of the date hereof.
(e) Lessee shall deliver to
Lessor (i) an opinion of counsel
(satisfactory to Lessor both as to
counsel and as to the form of
opinion) prior to the first advance
opining that all necessary Permits
for the repair, replacement and/or
restoration of the Leased Property
which can be obtained in the
ordinary course as of said date
have been obtained and that the
Leased Property, if repaired,
replaced or rebuilt in accordance,
in all material respects, with the
approved Plans and Specifications
and such Permits, shall comply with
all applicable Legal Requirements
subject to such limitations as may
be imposed on such opinion under
local law and (ii) if applicable,
an architect's certificate
(satisfactory to Lessor both as to
the architect and as to the form of
the certificate) prior to the final
advance, certifying that the Leased
Property was repaired, replaced or
rebuilt in accordance, in all
material respects, with the
approved Plans and Specifications
and complies with all applicable
Legal Requirements, including,
without limitation, all Permits
referenced in the foregoing clause
(i).
(f) There shall be no Lease
Default or any state of facts or
circumstance existing which, with
the giving of notice and/or the
passage of time, would constitute
any Lease Default.
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
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fully completed in accordance with the
Plans and Specifications and the
requirements of Lessor. Upon the full
and final completion of all of the Work
in accordance with the provisions
hereof, the Retainage shall be made
available for payment to those Persons
entitled thereto.
Upon completion of the Work, and as a
condition precedent to making any
further advance, in addition to the
requirements set forth above, Lessee
shall promptly deliver to Lessor:
(i) if applicable, written
certificates of the architect
or engineer, bearing the
architect's or engineer's
seal, and the general
contractor, certifying that
the Work has been fully
completed in a good and
workmanlike manner in material
compliance with the Plans and
Specifications and all
applicable Legal Requirements;
(ii) an endorsement of its
title insurance policy
(relating to the Leased
Property) in form reasonably
acceptable to Lessor insuring
the Leased Property against
all mechanic's and
materialman's liens
accompanied by the final lien
waivers from the general
contractor and all
subcontractors;
(iii) a certificate by
Lessee in form and substance
reasonably satisfactory to
Lessor, listing all costs and
expenses in connection with
the completion of the Work and
the amount paid by Lessee with
respect to the Work; and
(iv) a temporary certificate
of occupancy (if obtainable)
and all other applicable
Permits and Contracts issued
by or entered into with any
Governmental Authority with
respect to the Primary
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
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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.
13.2DISPOSITION OF INSURANCE PROCEEDS.
13.2.1 PROCEEDS TO BE RELEASED TO
PAY FOR WORK. In the event of any
Casualty, except as provided for in
Section 13.2.2, Lessor shall release
proceeds of property insurance held by
it to pay for the Work in accordance
with the provisions and procedures set
forth in this Article 13, only if:
(a) all of the terms,
conditions and provisions of
Sections 13.1 and 13.2.1 are
satisfied;
(b) Lessee demonstrates to
Lessor's satisfaction that Lessee
has the financial ability to
satisfy the Lease Obligations
during such repair or restoration;
and
(c) no Sublease material to
the operation of the Facility
immediately prior to such damage or
taking shall have been 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
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immediately prior to such Casualty and
prior to any other Casualty which has
not been fully repaired, restored or
replaced, in which event, Lessee shall
be entitled upon payment of the full
purchase price to receive all property
insurance proceeds (less any costs and
expenses incurred by Lessor in
collecting the same), or (ii) terminate
this Lease, in which event (subject to
the provisions of the last sentence of
this Section 13.2.2) Lessor shall be
entitled to receive and retain the
insurance proceeds; provided, however,
that Lessee shall only have such right
of termination effective upon payment to
Lessor of all Rent and other sums due
under this Lease and the other Lease
Documents through the date of
termination plus an amount, which when
added to the sum of (1) the Fair Market
Value of the Leased Property as affected
by all unrepaired or unrestored damage
due to any Casualty (and giving due
regard for delays, costs and expenses
incident to completing all repair or
restoration required to fully repair or
restore the same) plus (2) the amount of
insurance proceeds actually received by
Lessor (net of costs and expenses
incurred by Lessor in collecting the
same) equals (3) the greater of the
Meditrust Investment or the Fair Market
Value of the Leased Property minus the
Fair Market Added Value, with the Fair
Market Value and the Fair Market Added
Value to be determined as of the day
immediately prior to such Casualty and
prior to any other Casualty which has
not been fully repaired. Any
acquisition of the Leased Property
pursuant to the terms of this Section
13.2.2 shall be consummated in
accordance with the provisions of
Article 18, mutatis, mutandis. If such
termination becomes effective, Lessor
shall assign to Lessee any outstanding
insurance claims and, at Lessee's
expense, shall cooperate in Lessee's
efforts to secure the same. In the
event this Lease is terminated pursuant
to the provisions of this Section 13.2.2
and the insurance proceeds received by
Lessor in connection 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.
13.3TANGIBLE 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.
13.4RESTORATION 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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13.5NO ABATEMENT OF RENT. In no event
shall any Rent abate as a result of any
Casualty except as expressly provided in
Section 3.7.
13.6TERMINATION OF CERTAIN RIGHTS. Any
termination of this Lease pursuant to this
Article 13 shall cause any right of Lessee to
extend the Term of this Lease granted to
Lessee herein and any right of Lessee to
purchase the Leased Property contained in
this Lease to be terminated and to be without
further force or effect.
13.7WAIVER. 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.
13.8APPLICATION 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.
13.9OBLIGATION 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
14.1PARTIES' 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.
14.2TOTAL TAKING. If there is a
permanent Taking of all or substantially all
of the Leased Property, this Lease shall
terminate on the Date of Taking. In the
event this Lease is terminated pursuant to
the provisions of this Section 14.2 and the
Award received by Lessor in connection
therewith (net of costs and expenses incurred
in obtaining such Award) exceeds one hundred
fifteen percent (115%) of the Fair Market
Value of the Leased Premises at the time of
such termination, Lessor shall pay to Lessee
fifty percent (50%) of the amount of such
excess.
14.3PARTIAL 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
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rendered permanently or temporarily
Unsuitable For Its Primary Intended Use: (a)
if only rendered temporarily Unsuitable For
Its Primary Intended Use, Lessee shall have
the right to restore the Leased Property, at
its own expense (subject to the right under
certain circumstances as provided for in
Section 14.5 to receive the net proceeds of
an Award for reimbursement), to the extent
possible, to substantially the same condition
as existed immediately before the partial or
temporary Taking or (b) Lessee shall have the
right to acquire the Leased Property from
Lessor (i) upon payment of all Rent due
through the date that the purchase price is
paid, for a purchase price equal to the
greater of (x) the Meditrust Investment or
(y) the Fair Market Value of the Leased
Property minus the Fair Market Added Value,
with the Fair Market Value of the Leased
Property and the Fair Market Added Value to
be determined as of the day immediately prior
to such partial or temporary Taking and (ii)
in accordance with the terms and conditions
set forth in Article 18; in which event, this
Lease shall terminate upon payment of such
purchase price and the consummation of such
acquisition. Notwithstanding the foregoing,
Lessor may overrule Lessee's election under
clause (a) or (b) and instead either (1)
terminate this Lease (with no obligation on
the part of Lessee to acquire the Leased
Property as a result thereof) as of the date
when Lessee is required to surrender
possession of the portion of the Leased
Property so taken if (X) such portion
comprises more than thirty percent (30%) of
the Leased Property or of the residential
building(s) located thereon or (Y) possession
thereof is to be surrendered within two years
of the expiration of the Term or (2) compel
Lessee to keep the Lease in full force and
effect and to restore the Leased Property as
provided in clause (a) above, but only if the
Leased Property may be operated for at least
eighty percent (80%) of the licensed unit
capacity of the Facility in effect prior to
the Taking. Lessee shall exercise its
election under this Section 14.3 by giving
Lessor notice thereof ("Lessee's Election
Notice") within sixty (60) days after Lessee
receives notice of the Taking. Lessor shall
exercise its option to overrule Lessee's
election under this Section 14.3 by giving
Lessee notice of Lessor's exercise of its
rights under Section 14.3 within thirty (30)
days after Lessor receives Lessee's Election
Notice. If, as the result of any such
partial or temporary Taking, this Lease is
not terminated as provided above, Lessee
shall be entitled to an abatement of Rent,
but only to the extent, if any, provided for
in Section 3.7, effective as of the date upon
which the Leased Property is rendered
Unsuitable For Its Primary Intended Use.
14.4RESTORATION. 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.
14.5AWARD 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
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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.
14.6CONTROL 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
15.1LESSEE'S RIGHT TO CONTEST. To the
extent of the express references made to this
Article 15 in other Sections of this Lease,
Lessee, any Sublessee or any Manager on their
own or on Lessor's behalf (or in Lessor's
name), but at their sole cost and expense,
may contest, by appropriate legal proceedings
conducted in good faith and with due
diligence (until the resolution thereof), the
amount, validity or application, in whole or
in part, of any Imposition, Legal
Requirement, the decision of any Governmental
Authority related to the operation of the
Leased Property for its Primary Intended Use
and/or, if applicable, any of the Other
Permitted Uses or any Lien or claim relating
to the Leased Property not otherwise
permitted by this Agreement; provided, that
(a) prior written notice of such contest is
given to Lessor, (b) in the case of an unpaid
Imposition, Lien or claim, the commencement
and continuation of such proceedings shall
suspend the collection thereof from Lessor
and/or compliance by any applicable member of
the Leasing Group with the contested Legal
Requirement or other matter may be legally
delayed pending the prosecution of any such
proceeding without the occurrence or creation
of any Lien, charge or liability of any kind
against the Leased Property, (c) neither the
Leased Property nor any rent therefrom would
be in any immediate danger of being sold,
forfeited, attached or lost as a result of
such proceeding, (d) in the case of a Legal
Requirement, neither Lessor nor any member of
the Leasing Group would be in any immediate
danger of civil or criminal liability for
failure to comply therewith pending the
outcome of such proceedings, (e) in the event
that any such contest shall involve a sum of
money or potential loss in excess of TWENTY
FIVE THOUSAND DOLLARS ($25,000), Lessee shall
deliver to Lessor an Officer's Certificate
and opinion of counsel, if Lessor deems the
delivery of an opinion to be appropriate,
certifying or opining, as the case may be, as
to the validity of the statements set forth
to the
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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.
15.2LESSOR'S COOPERATION. Lessor, at
Lessee's sole cost and expense, shall execute
and deliver to Lessee such authorizations and
other documents as may reasonably be required
in any such contest, so long as the same does
not expose Lessor to any civil or criminal
liability, and, if reasonably requested by
Lessee or if Lessor so desires, Lessor shall
join as a party therein.
15.3LESSEE'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
16.1EVENTS 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
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one hundred twenty (120) days after the
giving of such notice by Lessor to
Lessee and (iv) such Failure to Perform
does not impair the value of, or
Lessor's rights with respect to, the
Leased Property or otherwise impair the
Collateral or Lessor's security interest
therein;
(c) the occurrence of any
default or breach of condition
continuing beyond the expiration of the
applicable notice and grace periods, if
any, under any of the other Lease
Documents, including, without
limitation, the Agreement Regarding
Related Transactions;
(d) if any representation,
warranty or statement contained herein
or in any of the other Lease Documents
proves to be untrue in any material
respect as of the date when made or at
any time during the Term if such
representation or warranty is a
continuing representation or warranty
pursuant to Section 10.2;
(e) if any member of the Leasing
Group shall (i) voluntarily be
adjudicated a bankrupt or insolvent,
(ii) seek or consent to the appointment
of a receiver or trustee for itself or
for the Leased Property, (iii) file a
petition seeking relief under the
bankruptcy or other similar laws of the
United States, any state or any
jurisdiction, (iv) make a general
assignment for the benefit 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;
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ii. the shares of the issued
and outstanding capital
stock of any member of the
Leasing Group (other than
Guarantor) shall be, on any
one or more occasions,
directly or indirectly,
sold, assigned,
hypothecated or otherwise
transferred (whether by
operation of law or
otherwise), if such member
of the Leasing Group shall
be a corporation, without
the prior written consent
of Lessor, in each
instance, which consent may
be withheld by Lessor in
its reasonable discretion
with respect to a sale,
assignment, hypothecation
or other transfer to a
Meditrust/Emeritus
Transaction Affiliate and
in all other cases, in its
sole and absolute
discretion; or
iii. all or any portion of the
beneficial interest in any
member of the Leasing Group
(other than Guarantor)
shall be, directly or
indirectly, sold or
otherwise transferred
(whether by operation of
law or otherwise), if such
member of the Leasing Group
shall be a trust, without
the prior written consent
of Lessor, in each
instance, which consent may
be withheld by Lessor in
its reasonable discretion
with respect to a sale,
assignment, hypothecation
or other transfer to a
Meditrust/Emeritus
Transaction Affiliate and
in all other cases, in its
sole and absolute
discretion;
Notwithstanding the foregoing, no
consent of Lessor to a pledge by Lessee
of its stock to the lender of a Working
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
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
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applicable agreement due and payable or
to exercise any other right or remedy
available to such creditor or obligee,
or, whether or not such creditor or
obligee has so elected or exercised,
such creditor's or obligee's rights and
remedies, if exercised, may involve or
result in the taking of possession of,
or the creation of a Lien on, the Leased
Property; provided, however, that in any
event, the election by the applicable
creditor or obligee to declare the
obligations of Lessee under the
applicable agreement due and payable or
to exercise any other right or remedy
available to such creditor or obligee
shall be an Event of Default hereunder
only if such obligations, individually
or in the aggregate, are in excess of
TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000);
(l) the occurrence of a Related
Party Default;
(m) the occurrence of any
default or breach of condition which is
not cured within any applicable cure
period under a Working Capital Loan
secured by a Working Capital Stock
Pledge (or any documents executed in
connection therewith) or the exercise of
any ownership rights by the lender of a
Working Capital Loan secured by a
Working Capital Stock Pledge;
(n) except as a result of
Casualty or a partial or complete
Condemnation (including a temporary
taking), if Lessee or any Sublessee
ceases operation of the Facility for a
period in excess of thirty (30) days (a
"Failure to Operate");
(o) if one or more judgments
against Lessee or any Sublessee which is
an Affiliate of Lessee or attachments
against Lessee's interest or any such
Sublessee's interest in the Leased
Property, which in the aggregate exceed
TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000) or which may materially and
adversely interfere with the operation
of the Facility, remain unpaid, unstayed
on appeal, undischarged, unbonded or
undismissed for a period of thirty (30)
days;
(p) if any malpractice award or
judgment exceeding any applicable
professional liability insurance
coverage by more than FIVE HUNDRED
THOUSAND DOLLARS ($500,000) shall be
rendered against any member of the
Leasing Group and either (i) enforcement
proceedings shall have been commenced by
any creditor upon such award or judgment
or (ii) such award or judgment shall
continue unsatisfied and in effect for a
period of ten (10) consecutive days
without an insurance company
satisfactory to Lessor (in its sole and
absolute discretion) having agreed to
fund such award or judgment in a manner
satisfactory to Lessor (in its sole and
absolute discretion) and in either case
such award or judgment shall, in the
reasonable opinion of Lessor, have a
material adverse affect on the ability
of Lessee or any Sublessee to operate
the Facility;
(q) if any Provider Agreement
material to the operation or financial
condition of the Leased Property shall
be terminated prior to the expiration of
the term thereof or, without the prior
written consent of Lessor, in each
instance, which consent may be
withheld in Lessor's reasonable
discretion, shall not be renewed or
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extended upon the expiration of the
stated term thereof;
(r) if, after Lessee or any
Sublessee has obtained approval for
Medicare and/or Medicaid funding, a
final unappealable determination is made
by the applicable Governmental Authority
that Lessee or any Sublessee shall have
failed to comply with applicable
Medicare and/or Medicaid regulations in
the operation of the Facility, as a
result of which failure Lessee or such
Sublessee is declared ineligible to
continue its participation in the
Medicare and/or Medicaid programs and
such determination could reasonably be
expected to have a material adverse
effect on the operation or financial
condition of the Leased Property;
(s) if any member of the Leasing
Group receives notice of a final
unappealable determination by applicable
Governmental Authorities of the
revocation of any Permit required for
the lawful construction or operation of
the Facility in accordance with the
Primary Intended Use and, if applicable,
the Other Permitted Uses or the loss of
any Permit under any other circumstances
under which any member of the Leasing
Group is required to permanently cease
the construction or operation of the
Facility in accordance with the Primary
Intended Use and the Other Permitted
Uses; and
(t) any failure to maintain the
insurance required pursuant to Section
13 of this Lease in force and effect at
all times until the Lease Obligations
are fully paid and performed;
(u) the appointment of a
temporary manager (or operator) for the
Leased Property by any Governmental
Authority;
(v) the entry of an order by a
court with jurisdiction over the Leased
Property to close the Facility, to
transfer one or more residents the
Facility as a result of an allegation of
abuse or neglect or to take any action
to eliminate an emergency situation then
existing at the Facility, if such order
has not been stayed pending appeal
within ten (10) following such entry; or
(w) the occurrence of any
default or breach of condition continuing for
more than thirty (30) days under any credit
agreement, loan agreement or other agreement
establishing a major line of credit
(including, without limitation, a major line
of credit or a Working Capital Loan which is
not secured by a Working Capital Stock
Pledge)(or any documents executed in
connection with such lines of credit) on
behalf of Guarantor without regard to whether
the applicable creditor has elected to
declare the indebtedness 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.
16.2REMEDIES.
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(a) If any Lease Default shall have
occurred, Lessor may at its option terminate
this Lease by giving Lessee not less than ten
(10) days' notice of such termination, or
exercise any one or more of its rights and
remedies under this Lease or any of the other
Lease Documents, or as available at law or in
equity and upon the expiration of the time
fixed in such notice, the Term shall
terminate (but only if Lessor shall have
specifically elected by a written notice to
so terminate the Lease) and all rights of
Lessee under this Lease shall cease.
Notwithstanding the foregoing, in the event
of Lessee's failure to pay Rent, if such Rent
remains unpaid beyond ten (10) days from the
due date thereof, Lessor shall not be
obligated to give ten (10) days notice of
such termination or exercise of any of its
other rights and remedies under this Lease,
or the other Lease Documents, or otherwise
available at law or in equity, and Lessor
shall be at liberty to pursue any one or more
of such rights or remedies without further
notice. No taking of possession of the
Leased Property by or on behalf of Lessor,
and no other act done by or on behalf of
Lessor, shall constitute an acceptance of
surrender of the Leased Property by Lessee or
reduce Lessee's obligations under this Lease
or the other Lease Documents, unless
otherwise expressly agreed to in a written
document signed by an authorized officer or
agent of Lessor.
(b) To the extent permitted under
applicable law, Lessee shall pay as
Additional Charges all costs and expenses
(including, without limitation, attorneys'
fee and expenses) reasonably incurred by or
on behalf of Lessor as a result of any Lease
Default.
(c) If any Lease Default shall have
occurred, whether or not this Lease has been
terminated pursuant to Paragraph (a) of this
Section, Lessee shall, to the extent
permitted under applicable law, if required
by Lessor so to do, upon not less than ten
(10) days' prior notice from Lessor,
immediately surrender to Lessor the Leased
Property pursuant to the provisions of
Paragraph (a) of this Section and quit the
same, and Lessor may enter upon and repossess
the Leased Property by reasonable force,
summary proceedings, ejectment or otherwise,
and may remove Lessee and all other Persons
and any and all of the Tangible Personal
Property from the Leased Property, subject to
the rights of any residents of the Facility
and any Sublessees who are not Affiliates of
any member of the Leasing Group and to any
requirements of applicable law, or Lessor may
claim ownership of the Tangible Personal
Property as set forth in Section 5.2.3 hereof
or Lessor may exercise its rights as secured
party under the Security Agreement. Lessor
shall use reasonable, good faith efforts to
relet the Leased Property or otherwise
mitigate damages suffered by Lessor as a
result of Lessee's breach of this Lease.
(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.
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16.3DAMAGES. None of (a) the
termination of this Lease pursuant to Section
16.2, (b) the eviction of Lessee or the
repossession of the Leased Property, (c) the
inability after reasonable diligence of
Lessor, notwithstanding reasonable good faith
efforts, to relet the Leased Property, (d)
the reletting of the Leased Property or (e)
the failure of Lessor to collect or receive
any rentals due upon any such reletting,
shall relieve Lessee of its liability and
obligations hereunder, all of which shall
survive any such termination, repossession or
reletting. In any such event, Lessee shall
forthwith pay to Lessor all Rent due and
payable with respect to the Leased Property
to and including the date of such
termination, repossession or eviction.
Thereafter, Lessee shall forthwith pay to
Lessor, at Lessor's option, either:
(i) the sum of: (x) all Rent
that is due and unpaid at later to
occur of termination, repossession
or eviction, together with interest
thereon at the Overdue Rate to the
date of payment, plus (y) the worth
(calculated in the manner stated
below) of the amount by which the
unpaid Rent for the balance of the
Term after the later to occur of
the termination, repossession or
eviction exceeds the fair market
rental value of the Leased Property
for the balance of the Term, plus
(z) any other amount necessary to
compensate Lessor for all damage
proximately caused by Lessee's
failure to perform the Lease
Obligations or which in 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.
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16.4LESSEE 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.
16.5APPLICATION 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.
16.6FAILURE 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.
16.7LESSOR'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.
16.8NO WAIVER BY LESSOR. Lessor shall
not by any act, delay, omission or otherwise
(including, without limitation, the exercise
of any right or remedy hereunder) be deemed
to have waived any of its rights or remedies
hereunder or under any of the other Lease
Documents unless such waiver is in writing
and signed by Lessor, and then, only to the
extent specifically set forth therein. No
waiver at any time of any of the terms,
conditions, covenants, representations or
warranties set forth in any of the Lease
Documents (including, without limitation, any
of the time periods set forth therein for the
performance of the Lease Obligations) shall
be construed as a waiver of any other term,
condition, covenant, representation or
warranty of any of the Lease Documents, nor
shall such a waiver in any one instance or
circumstances be construed as a waiver of the
same term, condition, covenant,
representation or warranty in any subsequent
instance or circumstance. No such failure,
delay or waiver shall be construed as
creating a requirement that Lessor must
thereafter, as a result of such failure,
delay or waiver, give notice to Lessee
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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.
16.9RIGHT OF FORBEARANCE. Whether or
not for consideration paid or payable to
Lessor and, except as may be otherwise
specifically agreed to by Lessor in writing,
no forbearance on the part of Lessor, no
extension of the time for the payment of the
whole or any part of the Obligations, and no
other indulgence given by Lessor to Lessee or
any other Person, shall operate to release or
in any manner affect the original liability
of Lessee or such other Persons, or to limit,
prejudice or impair any right of Lessor,
including, without limitation, the right to
realize upon any collateral, or any part
thereof, for any of the Obligations evidenced
or secured by the Lease Documents; notice of
any such extension, forbearance or indulgence
being hereby waived by Lessee and all those
claiming by, through or under Lessee.
16.10 CUMULATIVE REMEDIES. The
rights and remedies set forth under this
Lease are in addition to all other rights and
remedies afforded to Lessor under any of the
other Lease Documents or at law or in equity,
all of which are hereby reserved by Lessor,
and this Lease is made and accepted without
prejudice to any such rights and remedies.
All of the rights and remedies of Lessor
under each of the Lease Documents shall be
separate and cumulative and may be exercised
concurrently or successively in Lessor's sole
and absolute discretion.
ARTICLE 17
SURRENDER OF LEASED PROPERTY OR LEASE;
HOLDING OVER
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17.1SURRENDER. 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.
17.2TRANSFER 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 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.
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17.3NO 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.
17.4HOLDING 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
18.1PURCHASE 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.
18.2APPRAISAL.
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18.2.1DESIGNATION 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.
18.2.2APPRAISAL 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.
18.2.3SPECIFIC 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
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parties except as otherwise provided by
applicable law. Lessor and Lessee shall
each pay the fees and expenses of the
appraiser appointed by it and each shall
pay one-half of the fees and expenses of
the third appraiser and one-half of all
other cost and expenses incurred in
connection with each appraisal.
18.3 LESSEE'S OPTION TO PURCHASE.
18.3.1CONDITIONS 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").
18.3.2EXERCISE OF OPTION; DEPOSIT.
Such Purchase Option shall permit Lessee
to purchase the Leased Property (a) on
the last day of the Initial Term or (b)
on the last day of any Extended Term
effectively exercised by Lessee (each of
such dates are referred to herein as a
"Purchase Option Date") and shall be
exercised by notice given by Lessee to
Lessor (the "Lessee's Purchase Option
Notice") at least one hundred eighty
(180) days (but not more than three
hundred sixty (360) days) prior to the
relevant Purchase Option Date.
Notwithstanding anything to the contrary
set forth in this Lease, Lessee's right
to purchase the Leased Property is
subject to the further conditions that
(i) concurrently with the exercise of
the option set forth under this Section
18.3, the Lessee shall have exercised
its right to purchase the premises
demised under each of the Related Leases
in accordance with the provisions of
Section 18.3 of each of the Related
Leases, (ii) the conveyance of the
Leased Property pursuant to the
provisions of this Section 18.3 shall
occur simultaneously with the conveyance
of the premises demised under each of
the Related Leases pursuant to Section
18.3 of each of the Related Leases and
(iii) all conditions contained in the
Agreement Regarding Related Transactions
pertaining to the Purchase Option are
satisfied. Lessee shall have no right
to rescind Lessee's Purchase Option
Notice once given unless (a) a notice of
such rescission is given (i) within ten
(10) days following receipt of the final
determination of the Fair Market Value
of the Leased Property or (ii) within
thirty (30) days following an event of
Casualty or Condemnation as to which
Lessee has waived any right of
termination set forth in Section 13.2.2
hereof and (b) simultaneously with such
notice of rescission, Lessee, by notice
given pursuant to Section 1.3 hereof
extends the Term.
18.3.3CONVEYANCE. 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.
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18.3.4CALCULATION 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.
18.3.5PAYMENT 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.
18.3.6PLACE 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.
18.3.7CONDITION OF LEASED PROPERTY.
The Leased Property is to be purchased
"AS IS" and "WHERE IS" as of the Time of
Closing.
18.3.8QUALITY OF TITLE. If Lessor
shall be unable to give title or to make
conveyance, as stipulated in this
Section 18.3, then, at Lessor's option,
Lessor shall use reasonable efforts to
remove all defects in title and the
applicable Purchase Option Date and Time
of Closing shall be extended for period
of thirty (30) days other than with
respect to any Encumbrances which Lessor
has caused to exist. Lessor shall not
be required to expend more than FIFTY
THOUSAND DOLLARS ($50,000) (inclusive of
attorney's fees) in order to have used
"reasonable efforts."
18.3.9LESSOR'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
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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.
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
19.1SUBLETTING 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,
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but not be limited to, any one or more sales,
pledges, hypothecations or other transfers
(including, without limitation, any transfer
by operation of law) of any of the capital
stock of or partnership interest in Lessee or
sales, pledges, hypothecations or other
transfers (including, without limitation, any
transfer by operation of law) of the capital
or the assets of Lessee. Any such
assignment, pledge, sale, hypothecation or
other transfer made without Lessor's consent
shall be void and of no force and effect.
Notwithstanding the foregoing, Lessors
consent shall not be unreasonably withheld
with respect to an assignment or pledge of an
interest of Lessee in this Lease or a sublet
of all or a part of the Leased Property to a
Meditrust/Emeritus Transaction Affiliate.
19.2ATTORNMENT. Lessee shall insert in
each Sublease approved by Lessor, provisions
to the effect that (a) such Sublease is
subject and subordinate to all of the terms
and provisions of this Lease and to the
rights of Lessor hereunder, (b) in the event
this Lease shall terminate before the
expiration of such Sublease, the Sublessee
thereunder will, at Lessor's option, attorn
to Lessor and waive any right the Sublessee
may have to terminate the Sublease or to
surrender possession thereunder, as a result
of the termination of this Lease and (c) in
the event the Sublessee receives a written
notice from Lessor stating that Lessee is in
default under this Lease, the Sublessee shall
thereafter be obligated to pay all rentals
accruing under said Sublease directly to
Lessor or as Lessor may direct. All rentals
received from the Sublessee by Lessor shall
be credited against the amounts owing by
Lessee under this Lease.
ARTICLE 20
TITLE TRANSFERS AND LIENS GRANTED BY LESSOR
20.1NO 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.
20.2TRANSFERS 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.
20.3LESSOR 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
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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".
20.4SUBORDINATION AND NON-DISTURBANCE.
Concurrently with the execution and delivery
of any Fee Mortgage entered into after the
date hereof, provided that the Lessee
executes and delivers an agreement of the
type described in the following paragraph,
Lessor shall obtain and deliver to Lessee an
agreement by the holder of such Fee Mortgage,
pursuant to which, (a) the applicable Fee
Mortgagee consents to this Lease and (b)
agrees that, notwithstanding the terms of the
applicable Fee Mortgage held by such Fee
Mortgagee, or any default, expiration,
termination, foreclosure, sale, entry or
other act or omission under or pursuant to
such Fee Mortgage or a transfer in lieu of
foreclosure, (i) Lessee shall not be
disturbed in peaceful enjoyment of the Leased
Property nor shall this Lease be terminated
or cancelled at any time, except in the event
that Lessor shall have the right to terminate
this Lease under the terms and provisions
expressly set forth herein, (ii) Lessee's
option to purchase the Leased Property shall
remain in force and effect pursuant to the
terms hereof and (iii) in the event that
Lessee elects its option to purchase the
Leased Property and performs all of its
obligations hereunder in connection with any
such election, the holder of the Fee Mortgage
shall release its Fee Mortgage upon payment
by Lessee of the purchase price required
hereunder, provided, that (1) such purchase
price is paid to the holder of the Fee
Mortgage, in the event that the Indebtedness
secured by the applicable Fee Mortgage is
equal to or greater than the purchase price
or (2) in the event that the purchase price
is greater than the Indebtedness secured by
the Fee Mortgage, a portion of the purchase
price equal to the Indebtedness secured by
the Fee Mortgage is paid to the Fee Mortgagee
and the remainder of the purchase price is
paid to Lessor.
At the request from time to time by any
Fee Mortgagee, Lessee shall (a) subordinate
this Lease and all of Lessee's rights and
estate hereunder to the Fee Mortgage held by
such Fee Mortgagee and (b) agree that Lessee
will attorn to and recognize such Fee
Mortgagee or the purchaser at any foreclosure
sale or any sale under a power of sale
contained in any such Fee Mortgage as Lessor
under this Lease for the balance of the Term
then remaining. To effect the intent and
purpose of the immediately preceding
sentence, Lessee agrees to execute and
deliver such instruments in recordable from
as are reasonably requested by Lessor or the
applicable Fee Mortgagee; provided, however,
that such Fee Mortgagee simultaneously
executes, delivers and records a written
agreement of the type described in the
preceding paragraph.
ARTICLE 21
LESSOR OBLIGATIONS
21.1QUIET 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
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peaceably and quietly have, hold and enjoy
the Leased Property throughout the Term, free
of any claim or other action by Lessor or
anyone claiming by, through or under Lessor,
but subject to all the Permitted Encumbrances
and such Liens as may hereafter be consented
to by Lessee. No failure by Lessor to comply
with the foregoing covenant shall give Lessee
any right to cancel or terminate this Lease,
or to fail to perform any other sum payable
under this Lease, or to fail to perform any
other obligation of Lessee hereunder.
Notwithstanding the foregoing, Lessee shall
have the right by separate and independent
action to pursue any claim it may have
against Lessor as a result of a breach by
Lessor of the covenant of quiet enjoyment
contained in this Article 21.
21.2MEMORANDUM 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.
21.3DEFAULT 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:
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 Guarantor: 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
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 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
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or from Lessor pursuant to the terms and
provisions of the Lease Documents.
ARTICLE 24
MISCELLANEOUS PROVISIONS
24.1BROKER'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.
24.2NO 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.
24.3AMENDMENTS, 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
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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.
24.4CAPTIONS 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.
24.5TIME 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.
24.6COUNTERPARTS. 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.
24.7ENTIRE AGREEMENT. This Lease and
the other Lease Documents set forth the
entire agreement of the parties with respect
to the subject matter and shall supersede in
all respect the letter of intent, dated
January 31, 1996 (and all prior iterations
thereof), from Meditrust to Lessee.
24.8WAIVER 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.
24.9SUCCESSORS 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,
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assigns and participants (if any), the
Meditrust Entities, Lessee, the Guarantor,
the other members of the Leasing Group and
their respective permitted successors and
assigns, and, except as otherwise expressly
set forth in any of the Lease Documents,
nothing contained therein shall confer upon
any Person other than such parties any right
to insist upon or to enforce the performance
or observance of any of the obligations
contained therein. All conditions to the
obligations of Lessor to advance or make
available proceeds of insurance or Awards, or
to release any deposits held for Impositions
or insurance premiums are imposed solely and
exclusively for the benefit of Lessor, its
successors and assigns. No other Person
shall have standing to require satisfaction
of such conditions in accordance with their
terms, and no other Person shall, under any
circumstances, be a beneficiary of such
conditions, any or all of which may be freely
waived in whole or in part by Lessor at any
time, if, in Lessor's sole and absolute
discretion, Lessor deems it advisable or
desirable to do so.
24.11 GOVERNING LAW. This Lease
shall be construed and the rights and
obligations of Lessor and Lessee shall be
determined in accordance with the laws of the
State.
Lessee hereby consents to personal
jurisdiction in the courts of the State and
the United States District Court for the
District in which the Leased Property is
situated as well as to the jurisdiction of
all courts from which an appeal may be taken
from the aforesaid courts, for the purpose of
any suit, action or other proceeding arising
out of or with respect to any of the Lease
Documents, the negotiation and/or
consummation of the transactions evidenced by
the Lease Documents, the Lessor's
relationship of any member of the Leasing
Group in connection with the transactions
evidenced by the Lease Documents and/or the
performance of any obligation or the exercise
of any remedy under any of the Lease
Documents and expressly waives any and all
objections Lessee may have as to venue in any
of such courts.
24.12 GENERAL. Anything contained
in this Lease to the contrary
notwithstanding, all claims against, and
liabilities of, Lessee or Lessor arising
prior to any date of termination of this
Lease or any of the other Lease Documents
shall survive such termination.
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.
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ARTICLE 25
SUBSTITUTION OF PROPERTY
25.1SUBSTITUTION 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.
25.2CONDITIONS TO SUBSTITUTION. Without
limiting the foregoing, as conditions
precedent to the consummation of any proposed
substitution:
(a) as of the applicable Substitution
Date, no Event of Default shall have occurred
under the Lease (excluding any Event of
Default which has been waived, in writing, by
Lessor), nor any event which with the giving
of notice or the passage of time or both
would constitute such an Event of Default;
(b) Lessor shall have received
engineering and inspection reports relating
to the assisted living facility identified by
Lessee in the applicable Substitution Notice
(referred to herein as a "Proposed
Facility"), reasonably satisfactory in all
respects to Lessor;
(c) Lessee shall have delivered to
Lessor (i) an MAI appraisal of the Proposed
Facility (prepared by an appraiser selected
by Lessee and approved by Lessor), in form
and substance reasonably satisfactory to
Lessor and (ii) an instrument survey of the
premises upon which the Proposed Facility is
located acceptable to Lessor and the title
insurance company providing insurance with
respect to the Proposed Facility;
(d) Lessor shall be satisfied as to
compliance of Lessee, the Proposed Facility,
the owner of the Proposed Facility (to the
extent such owner is not Lessee as provided
in subsection (l) below) and/or the proposed
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substitution, as the case may be, with (i)
all applicable land use, zoning, subdivision
and environmental laws and regulations, (ii)
all applicable assisted living licensure laws
and regulations and (iii) such other matters
as Lessor reasonably deems relevant
(including, without limitation, whether the
conveyance of the property to Lessor in
connection with the proposed substitution may
be avoided under the Bankruptcy Code);
(e) Lessee shall have delivered to
Lessor a valid and binding owner's or
lessee's (as applicable) title insurance
commitment issued by a title insurer
reasonably acceptable to Lessor (the "Title
Company"), in an amount equal to the Fair
Market Value of the Proposed Facility, with
such endorsements and affirmative coverages,
and in such form, as Lessor may reasonably
require insuring Lessor's fee title or
leasehold title to the Proposed Facility,
subject to no Liens except those approved or
assumed by Lessor and arrangements
satisfactory to Lessor shall have been made
for the issuance of a title insurance policy
on the Substitution Date in accordance with
such title insurance commitment;
(f) Lessee shall have delivered an
environmental site assessment report relating
to the Proposed Facility, in form and
substance reasonably acceptable to Lessor and
prepared by an environmental consultant
reasonably acceptable to Lessor;
(g) Lessor shall have obtained, at
Lessee's cost, an opinion of Lessor's
counsel, in form and substance acceptable to
Lessor, confirming that (i) the substitution
of the Proposed Facility for the Leased
Property will qualify as an exchange solely
of property of a like-kind under Section 1031
of the Code, in which, generally, except for
"boot" such as cash needed to equalize
exchange values or discharge indebtedness, no
gain or loss is recognized to Lessor, (ii)
the substitution or sale will not result in
ordinary recapture income to Lessor pursuant
to Code Section 1250(d)(4) or any other Code
provision, (iii) the substitution or sale
will result in income, if any, to Lessor of a
type described in Code Section 856(c)(2) or
(3) and will not result in income of the
types described in Code Section 856(c)(4) or
result in the tax imposed under Code Section
857(b)(6) and (iv) the substitution or sale,
together with all other substitutions and
sales made or requested by Lessee or any
Affiliate of Lessee or of any Guarantor
pursuant to any other leases with Lessor (or
any of its Affiliates) or any other transfers
of the Leased Property or the properties
leased under other such leases, during the
relevant time period, will not jeopardize the
qualification of Lessor as a real estate
investment trust under Code Sections 856-860;
(h) Lessor shall have received opinions
of Lessee's counsel as to (i) the compliance
of the Proposed Facility with land use,
zoning, subdivision and environmental laws
and regulations, (ii) the compliance of
Lessee, the owner of the Proposed Facility
(to the extent such owner is not Lessee as
provided in subsection (l) below), the
proposed substitution and the Proposed
Facility with applicable assisted living laws
and regulations, (iii) the due authorization,
execution and enforceability of the
Substitution Documents and (iv) such other
matters as are reasonably requested; in form
and substance reasonably acceptable to
Lessor;
(i) Lessee and each Guarantor shall have
executed and delivered, or caused to be
executed and delivered, such documents as are
reasonably required by Lessor to effectuate
the substitution (collectively, the
"Substitution
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Documents"), including, without limitation,
(i) a deed with full warranties or assignment
of a leasehold estate with full warranties
(as applicable) conveying to Lessor title to
the Proposed Facility free and clear of all
Liens, except those approved or assumed by
Lessor, (ii) a facility lease (the
"Substitution Lease") duly executed,
acknowledged and delivered by Lessee,
containing the same terms and conditions as
are contained herein except that (1) the
legal description of the land shall refer to
the Proposed Facility, (2) the Minimum
Repurchase Price of the Proposed Facility
shall be an amount equal to the Minimum
Repurchase Price of the Leased Property
increased by any Cash Adjustment paid by
Lessor, (3) the Rent under the Substitution
Lease in all respects shall provide Lessor
with a substantially equivalent yield at the
time of the substitution (i.e., annual return
on its equity in such Proposed Facility) to
that received (and reasonably expected to be
received thereafter) from the Leased
Property, taking into account the Cash
Adjustment, if any, paid by Lessor and any
other relevant factors and (4) such other
changes therein as may be necessary or
appropriate under the circumstances shall be
made; (iii) a collateral assignment of
permits, licenses, approvals and contracts
relating to the Proposed Facility,
substantially in the form of the Permits
Assignment; (iv) UCC financing statements;
(v) a guaranty substantially in the form of
the Guaranty of Lease Obligations shall be
executed by Guarantor, (vi) an affiliated
party subordination agreement, substantially
in the form of the Affiliated Party
Subordination Agreement, shall be executed by
the Lessee, and such other Affiliates of the
Lessee as are deemed necessary or appropriate
by the Lessor and (vii) the Agreement
Regarding Related Transactions shall be
amended to reflect the substitution of the
Proposed Facility. The Substitution
Documents shall be based upon and contain the
same terms and conditions as are set forth in
Lessee Documents in effect prior to the
substitution, except that such changes shall
be made as may be necessary or reasonably
appropriate under the circumstances to
effectuate the substitution and secure the
protection and priority of the property and
security interests conveyed and/or granted to
Lessor;
(j) without limiting any other provision
contained herein, Lessee shall have delivered
to Lessor such other information and
materials relating to Lessee, the owner of
the Proposed Facility (to the extent that
such owner is not Lessee as provided in
subsection (l) below) and the Proposed
Facility as Lessor may reasonably request,
including, without limitation, leases,
receipted bills, management agreements and
other Contracts, Provider Agreements, cost
reports, Permits, evidence of legal and
actual access to the Proposed Facility,
evidence of the availability and sufficiency
of utilities servicing the Proposed Facility,
historical and current operating statements,
detailed budgets and financial statements and
Lessor shall have found the same to be
satisfactory in all respects;
(k) Lessee or an Affiliate of Lessee
shall be the licensed operator of the
Proposed Facility as of the date of the
consummation of the substitution;
(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);
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(m) Lessee shall have delivered to
Lessor an insurance certificate evidencing
compliance with all of the insurance
requirements set forth in the Substitution
Documents;
(n) Lessee shall have delivered to
Lessor an Officer's Certificate certifying as
of the Substitution Date that (i) the
Proposed Facility has been accepted by Lessee
for all purposes of the Substitution Lease
and there has been no material damage to the
improvements located on the Proposed
Facility, nor is any condemnation or eminent
domain proceeding pending with respect
thereto; (ii) all Permits (including, but not
limited to, a permanent, unconditional
certificate of occupancy and all certificates
of need, licenses and Provider Agreements)
which are necessary to permit the use of the
Proposed Facility in accordance with the
provisions of the Substitution Lease have
been obtained and are in full force and
effect; (iii) under applicable zoning and use
laws, ordinances, rules and regulations, the
Proposed Facility may be used for the
purposes contemplated by Substitution
Documents and all necessary subdivision
approvals have been obtained; (iv) to the
best knowledge of Lessee, there exists no
Event of Default under this Lease, and no
defense, offset or claim exists with respect
to any sums to be paid by Lessee hereunder,
and (v) any exceptions to Lessor's title to
the Proposed Facility do not materially
interfere with the intended use of the
Proposed Facility by Lessee;
(o) Lessor shall have determined that
the Proposed Facility constitutes a
Comparable Facility, and
(p) Lessor shall have received all Rent
due and payable hereunder through the
Substitution Date.
In the event that the equity value of
the Proposed Facility (i.e., the Fair Market
Value of the Proposed Facility minus the
Liens to which Lessor will take the Proposed
Facility subject) as of the Substitution Date
is greater than the equity value of the
Leased Property (i.e., the Fair Market Value
of the Leased Property minus the Liens to
which Lessee will take the Leased Property
subject other than those Liens which Lessee
is obligated to pay or discharge pursuant to
the terms of this Lease) as of the
Substitution Date, subject to the limitation
set forth below, Lessor shall pay an amount
equal to the difference to Lessee; provided,
however, that Lessor shall not be obligated
to consummate such substitution if Lessor
would be required to make a payment to Lessee
of an amount equal to or in excess of fifteen
percent (15%) of said Fair Market Value of
the Leased Property (the amount of cash paid
by Lessor to Lessee being referred to herein
as the "Cash Adjustment"). Without limiting
the generality or effect of the preceding
sentence, in the event that, on the
Substitution Date, Lessor is obligated to pay
a Cash Adjustment to Lessee and Lessor does
not have sufficient funds available, or
elects not to make such payment in cash,
Lessor shall provide Lessee with (and Lessee
shall accept) a purchase money note and
mortgage for a term not to exceed eighteen
(18) months from the Substitution Date and
bearing interest, payable monthly, at the
rate described in Section 10.2.
25.3CONVEYANCE 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
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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.
25.4EXPENSES. 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.
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<PAGE>
IN WITNESS WHEREOF, the parties have
caused this Lease to be executed and attested
by their respective officers thereunto duly
authorized.
WITNESS: LESSEE:
EMERITUS
PROPERTIES I, INC.,
a
Washington corporation
/s/ Susan Griffin By: /s/ Raymond
R. Brandstrom
- ---------------------------
- ----------------------------------------
Name: Susan Griffin Name:
Raymond R. Brandstrom
Title: President
WITNESS: LESSOR:
MEDITRUST
ACQUISITION
CORPORATION I, a
Massachusetts
corporation
By: /s/ Michael S.
Benjamin
- -----------------------------------------
Name: Michael S.
Benjamin, ESQ.
Title: Senior Vice
President
107
<PAGE>
OGDEN, UTAH
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 April 30, 1997 by and among
EMERITUS PROPERTIES I, INC., a Washington
corporation (the "Lessee"), and MEDITRUST
ACQUISITION CORPORATION I, a Massachusetts
corporation (the "Lessor").
1. BACKGROUND
1.1 LESSEE.
Lessee is a corporation which is a
wholly-owned Subsidiary of the Guarantor (as
hereinafter defined). The Guarantor is a
corporation the stock of which is publicly
traded on the American Stock Exchange.
1.2 THE LAND AND EXISTING IMPROVEMENTS.
Lessor is the owner of a certain parcel
of land located in Ogden, Weber County, Utah
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 Weber County, Utah real
estate records.
1.4 PROJECT.
Lessee proposes to construct an 82 unit
164 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
<PAGE>
exceed Six Million Three Hundred Two Thousand
Eight Hundred Seventy-Four Dollars
($6,302,874) 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' Reed Reinvald Johnson
Willows, PLLC (the "Architect") pursuant to
the contract dated January 13, 1997 by and
between Lessee and the Architect (the
"Architect's Contract").
1.7 CONSTRUCTION CONTRACTS.
All of the Improvements are to be
constructed pursuant to a guaranteed maximum
contract (the "Construction Contract") to be
delivered as provided herein by and between
Lessee and Rushforth Construction, dated
April 22, 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,
2
<PAGE>
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.
1.10USE 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.
1.11PROJECT 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.
1.12GUARANTIES AND INDEMNITIES.
As an inducement to Lessor to enter into
this Agreement, advance the Project Funds and
enter into the Facility Lease, the Guarantor
has agreed to furnish certain guaranties as
hereinafter described.
2. DEFINITIONS
In this Agreement, except as otherwise
expressly provided in the text of this
Agreement or unless the context otherwise
requires, all capitalized terms shall have
the meaning ascribed to them in EXHIBIT E.
3
<PAGE>
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 Fourth Amended and Restated
Agreement Regarding Related
Transactions (Development) dated
August 1, 1996 by and among Lessee,
Lessor and ESC G.P. I, Inc., as the
same may be amended from time to
time;
B. this Agreement;
C. the Facility Lease;
D. a Collateral Assignment of Permits,
Approvals, Licenses, and Contracts
of even date granted by Lessee to
Lessor (the "Permits Assignment");
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, the Guarantor and Lessor
(the "Environmental Indemnity
Agreement");
4
<PAGE>
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");
L. an Assignment of Architect's
Contract of even date granted by
Lessee to Lessor and containing the
consent of the Architect (the
"Architect's Assignment");
M. an Affiliated Party Subordination
Agreement of even date by and among
Lessee, the Guarantor, various
Affiliates of Lessee and Lessor
(the "Affiliated Party
Subordination Agreement"); and
N. 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").
5
<PAGE>
4.3 COLLATERAL SECURITY.
The Lease Obligations shall be secured
by the following:
A. a perfected first priority security
interest in all Permits and
Contracts pursuant to the Permits
Assignment;
B. a security interest in Tangible
Personal Property, and certain
other Collateral and a security
interest in Receivables, all
pursuant to the Security Agreement;
C. the Completion Guaranty;
D. the Guaranty of Lease Obligations;
E. the Environmental Indemnity;
F. a perfected first priority interest
in the Cash Collateral pursuant to
the Deposit Pledge Agreement;
G. all other security interests in
such other property for which
provision is made in the Lease
Documents or at law or in equity;
and
H. certain other Related Party
Agreements.
All of the property in which security
interests are granted as described in items
(A) through (H) above are referred to herein
as the "Collateral".
5. REPRESENTATIONS AND WARRANTIES
In order to induce Lessor to advance the
Project Funds pursuant to the terms and
conditions of this Agreement, Lessee
represents and warrants to Lessor that:
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
6
<PAGE>
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;
7
<PAGE>
5.3 PRIOR CONSTRUCTION WORK.
No Person has performed any construction
work or furnished any services in connection
with any construction carried on or to be
carried on at the Leased Property who or
which remains unpaid at the time of execution
of this Agreement, except as indicated in the
requisition submitted simultaneously herewith
or otherwise expressly approved by Lessor
and, if applicable, the Other Permitted Uses;
5.4 SUITABILITY OF PROJECT PLANS.
The Project Plans provide for the
construction and renovation of all buildings
and related improvements necessary, both
legally and practically, for the construction
of the Project in accordance with the terms
of this Agreement and, after the completion
of the construction thereof, for the
operation of the Project for its Primary
Intended Use;
5.5 COMPLIANCE WITH LEGAL REQUIREMENTS
AND APPLICABLE AGREEMENTS.
Upon the completion of construction of
the Project, which shall be constructed in
accordance with the Project Plans and the
terms and provisions of this Agreement, the
Project shall be in compliance with (a) all
Legal Requirements; (b) all Permits and
Contracts and (c) all applicable by-laws,
codes, rules, regulations and restrictions of
the Board of Fire Underwriters or other
insurance underwriters or similar bodies.
5.6 PERMITS AND CONTRACTS.
All Permits and Contracts required by or
entered into with any Governmental Authority
or quasi-governmental authority or agency
for, or in connection with, the construction
of the Project which can be obtained in the
ordinary course as of the date hereof have
been obtained or executed, as the case may
be. All such Permits and Contracts are in
full force and effect, are not subject to any
unexpired appeal periods or any appeals or
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
8
<PAGE>
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 acceleration of any obligation of
9
<PAGE>
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.
5.10CONSENTS 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.
5.11PENDING 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
10
<PAGE>
in any material adverse change in the
business, prospects, condition, affairs or
operations of any member of the Leasing Group
or the Leased Property (including, without
limitation, any action to revoke, withdraw or
suspend any Permit necessary or desirable for
the construction of the Project for its
Primary Intended Use.
(b) No member of the Leasing Group has
received any notice of any claim, requirement
or demand of any Governmental Authority, to
take action so as to make the Project or the
Leased Property conform to or comply with any
applicable Legal Requirement.
6. COVENANTS
6.1 COLLECTION AND ENFORCEMENT COSTS.
Upon demand, Lessee shall reimburse
Lessor for all costs and expenses, including,
without limitation, attorneys' fees and
expenses and court costs, paid or reasonably
incurred by Lessor in connection with the
collection of any sum due hereunder, or in
connection with the enforcement of any of
Lessor's rights or any member of the Leasing
Group's obligations under this Agreement or
any of the other Lease Documents. Any amount
due and payable to Lessor pursuant to the
provisions of this Section shall be a demand
obligation and, to the extent permitted by
law, shall be added to the Lease Obligations
and shall be secured by the Liens created by
the Lease Documents as fully and effectively
and with the same priority as every other
obligation of Lessee secured thereby and, if
not paid within ten (10) days after demand,
shall thereafter, to the extent permitted by
applicable law, bear interest at the Overdue
Rate until the date of payment. The
obligation of Lessee to pay all costs,
charges and sums due hereunder or under any
of the other Lease Documents shall continue
in full force and effect and in no way shall
be impaired, until the actual payment thereof
to Lessor. In the event of (a) a sale,
conveyance, transfer or other disposition of
the Leased Property, (b) any further
agreement given to secure the payment of the
obligations set forth herein or (c) any
agreement or stipulation extending the time
or modifying the terms of payment set forth
herein, Lessee shall nevertheless remain
11
<PAGE>
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.
6.3.1COMMENCEMENT 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.
6.3.2QUALITY 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
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<PAGE>
Construction Contract and this
Agreement, and both the quality of such
materials and such workmanship shall be
satisfactory to Lessor. Lessee shall
not make any changes in, and shall not
permit the General Contractor or the
Architect to make any changes in, the
quality of such materials, the Project
Plans or the Project Budget, whether by
change order or otherwise, without the
prior written consent of Lessor, in each
instance (which consent may be withheld
in Lessor's reasonable discretion);
provided, however, that such consent
shall not be required for any individual
change which has been approved by the
Architect, which does not materially
affect the structure or exterior of the
Project, and the cost of which does not
exceed TEN THOUSAND DOLLARS ($10,000) or
which changes, in the aggregate, do not
exceed ONE HUNDRED THOUSAND DOLLARS
($100,000) in cost. Notwithstanding the
foregoing, prior to making any change in
Project Plans, copies of all change
orders shall be submitted by Lessee to
Lessor and Lessee shall also deliver to
Lessor evidence satisfactory to Lessor,
in its reasonable discretion, that all
necessary Permits and/or Contracts
required by any Governmental Authority
in connection therewith have been
obtained or entered into, as the case
may be.
6.3.3PROJECT 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.
6.3.4ARCHITECT CERTIFICATES.
Lessee agrees to cause the
Architect to furnish such statements as
to progress and certificates of
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<PAGE>
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.
6.3.5INTENTIONALLY DELETED.
6.3.6LESSOR'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
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<PAGE>
obligations of Lessee under
this Agreement, and to advise
Lessor of the anticipated
costs of, and the time for,
the completion of the Project
in accordance with the Project
Plans, and the adequacy of
reserves and contingencies
related thereto;
D. to review and analyze any
proposed changes to the
Project Plans and advise
Lessor regarding the same;
E. to review and analyze the
Project Budget and advise
Lessor as to the sufficiency
thereof; and
F. to review and analyze the
Architect's Contract and the
Construction Contract entered
into by Lessee in connection
with the construction of the
Project and advise Lessor
regarding the same.
Except as otherwise expressly
provided herein, Lessee agrees promptly
to make such changes or corrections in
the construction of the Project as may
be required by Lessor, based on the
recommendation of any of the
Consultants, unless Lessee demonstrates
to Lessor's satisfaction that such
corrective work is inconsistent with the
Project Plans.
6.3.7TITLE 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
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<PAGE>
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.
6.3.8COMPLIANCE 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.
6.3.9LIENS.
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.
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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
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.
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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.
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Lessee agrees to hold all advances by
Lessor hereunder as a trust fund for the
purpose of payment of the costs and
expenses permitted under this Agreement.
6.3.15 OCCUPANCY OF THE PROJECT.
Lessee shall not permit any
occupancy of the Project (other than
such occupancy as is required in
connection with the construction
thereto) prior to (a) the substantial
completion of that portion of the
Project being occupied and (b) the
issuance by the appropriate Governmental
Authorities of a Certificate of
Occupancy (or its equivalent) permitting
the occupancy of the Project for its
Primary Intended Use and, if applicable,
the Other Permitted Uses. The Project
shall not be deemed to have been
completed unless and until constructed
in accordance with this Agreement and a
Certificate of Occupancy (or its
equivalent) permitting the occupancy of
the Project for its Primary Intended Use
has been issued by the applicable
Governmental Authorities.
7. CONSTRUCTION ADVANCES
7.1 CONDITIONS PRECEDENT TO FIRST
ADVANCE OF PROJECT FUNDS.
Prior to the first advance of Project
Funds contemplated by this Agreement, and as
a condition of Lessee's right to receive any
of the proceeds of the Project Funds, there
shall have been furnished to Lessor:
A. An owner's title insurance policy
in form and substance satisfactory
to Lessor, in its sole and absolute
discretion, issued by a title
insurance company or companies
satisfactory to Lessor (the "Title
Company") with such endorsements,
reinsurance and/or co-insurance as
Lessor may require, insuring
Lessor's fee title to the Leased
Property free from all Liens and
without exception for (i) filed or
unfiled mechanics' liens,
(ii) survey matters, (iii) rights
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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;
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H. A current instrument survey,
satisfactory in form and content to
Lessor, prepared in accordance with
the requirements set forth in
EXHIBIT G (the "Survey") and a
certificate substantially in the
form of EXHIBIT H (the "Surveyor's
Certificate"), prepared and signed
by a surveyor licensed to do
business in the state where the
Leased Property is located with his
or her seal affixed thereto;
I. True and correct copies of the
Construction Contract and the
Architect's Contract in effect with
respect to the Project, as well as
all receipted bills paid by Lessee
to the General Contractor and the
Architect for goods and/or services
rendered with respect to the
Project prior to the date hereof;
J. A certificate from an engineer
and/or architect, registered as
such in the state where the Leased
Property is located, substantially
in the form attached hereto as
EXHIBIT H, certifying as to the
(i) compliance of the Leased
Property with all applicable Legal
Requirements, (ii) the availability
and adequacy of access/egress to
and from the Leased Property and
(iii) the availability and adequacy
of sewer, drainage, water, electric
and other utility services to the
lot line of the Leased Property;
together with such other assurances
concerning the design of the
Project as Lessor may require;
K. Lessor's receipt of opinions, in
forms satisfactory to Lessor (in
its sole and absolute discretion),
from Lessee's counsel and the
Guarantor's counsel, regarding (i)
the due execution, authority and
enforceability of the Lease
Documents; (ii) the compliance of
the Leased Property and the
Project, in all material respects,
with applicable zoning and other
22
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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;
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P. True and correct copies of all
payment, performance and completion
bonds required pursuant to 6.3.13
hereof;
Q. A fully executed Construction
Assignment, in form and substance
satisfactory to Lessor; and
R. A fully executed and authorized
Architect's Assignment, in form and
substance satisfactory to Lessor.
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
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Architect, the General Contractor
and Lessee, jointly and severally,
to the extent such indemnification
is available from the General
Contractor and the Architect upon
Lessee's best efforts to obtain
such indemnification, against any
and all claims of any
subcontractors, laborers and
suppliers;
B. A certificate executed by Lessee
substantially in the form attached
hereto as EXHIBIT I;
C. A certificate executed by the
General Contractor substantially in
the form attached hereto as EXHIBIT
J;
D. With respect to every other Advance
requested, a certificate executed
by the Architect substantially in
the form attached hereto as EXHIBIT
K.
E. At Lessor's request, certificates
executed by the Consultants in such
form as Lessor may reasonably
require;
F. To the event the Advance is not
clearly subject to effective
coverage, an endorsement of the
Title Policy issued by the Title
Company, satisfactory in form and
substance to Lessor, redating the
Title Policy to the date that the
then current advance will be made,
increasing the coverage afforded by
the Title Policy so that the same
shall constitute insurance in an
amount at least equal to the sum of
the amount of the insurance then
existing under the Title Policy
plus the amount of the then current
advance of Project Funds to be
disbursed to Lessee under this
Agreement and subject to no
additional exceptions other than
the Permitted Encumbrances;
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<PAGE>
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
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<PAGE>
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);
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
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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-
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pocket costs incurred by it
pursuant to the Project Budget. No
funds advanced by Lessor shall be
utilized for any purpose other than
as specified herein and none of the
Project Funds shall be paid over to
any officer, stockholder or
employee of any member of the
Leasing Group or to any of the
Persons collectively constituting
any member of the Leasing Group or
those holding a beneficial interest
in any member of the Leasing Group,
or any employee thereof, except to
the extent funds are used to pay
compensation to an employee for and
with respect to activity of such
employee in construction of the
Project.
B. The amount of each requisition
shall represent (i) the cost of the
work completed on the Project as of
the date of such requisition, which
has not been paid for under prior
requisitions, (ii) the cost of all
equipment, fixtures and furnishings
included within the Project Budget
approved by Lessor, which has not
been paid for under prior
requisitions, but not incorporated
into any contract and which have
been delivered to the Leased
Property for incorporation into the
Project; provided that, in Lessor's
judgment, such materials are
suitably stored, secured and
insured and that Lessee can furnish
Lessor with evidence satisfactory
to Lessor of Lessee'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
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<PAGE>
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
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constitute an approval or
acceptance by Lessor of any work on
the Project theretofore completed.
F. If, while this Agreement is in
effect, a claim is made that the
Project does not comply with any
Legal Requirement or an action is
instituted before any Governmental
Authority with jurisdiction over
the Leased Property or Lessee in
which a claim is made as to whether
the Project does so comply, Lessor
shall have the right to defer any
advance of Project Funds which
Lessor would otherwise be obligated
to make until such time as any such
claim is finally disposed of
favorably to the position of
Lessee, without any obligation on
the part of Lessor to make a
determination of, or judgment on,
the merits of any such claim. For
the purposes of the foregoing
sentence, the term "claim" shall
mean an assertion by any
Governmental Authority or Person as
to which, in each case, Lessor has
made a good faith determination
that the assertion may properly be
made by the party asserting the
same, that the assertion, on its
face, is not without foundation and
that the interests of Lessor
require that the assertion be
treated as presenting a bona fide
risk of liability or adverse effect
on the Project.
If any such proceeding is not
favorably resolved within thirty
(30) days after the commencement
thereof, Lessor shall also have the
right, at its option, to treat the
commencement of such action as a
Lease Default, for which Lessor
shall have all rights herein
specified for 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
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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
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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 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
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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.
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<PAGE>
9.2.FIRE OR OTHER CASUALTY OR
CONDEMNATION.
In the event of any damage or
destruction to the Leased Property by reason
of fire or other hazard or casualty (a
"Casualty") or a taking by power of eminent
domain or conveyance in lieu thereof of all
or any portion of the Leased Property (a
"Condemnation"), Lessee shall give immediate
written notice thereof to Lessor and comply
with the provisions of the Facility Lease
governing Casualties and Condemnations.
10. EVENTS OF DEFAULT
Each of the following shall constitute
an "Event of Default" hereunder and shall
entitle Lessor to exercise its remedies
hereunder and under any of the other Lease
Documents:
A. any failure of Lessee to pay any
amount due hereunder or under any
of the other Lease Documents within
ten (10) days following the date
when such payment was due;
B. any failure in the observance or
performance of any other covenant,
term, condition or warranty
provided in this Agreement or any
of the other Lease Documents, other
than the payment of any monetary
obligation and other than as
specified in subsections (C)
through (F) below (referred to
herein as a "Failure to Perform"),
continuing for thirty (30) days
after the giving of notice by
Lessor to Lessee specifying the
nature of the Failure to Perform;
except as to matters not
susceptible to cure within thirty
(30) days, provided that with
respect to such matters, (i) Lessee
commences the cure thereof within
thirty (30) days after the giving
of such notice by Lessor to Lessee,
(ii) Lessee continuously prosecutes
such cure to completion, (iii) such
cure is completed within one
hundred twenty (120) days after the
giving of such notice by Lessor to
35
<PAGE>
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
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.
36
<PAGE>
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
37
<PAGE>
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.
12. GENERAL
The provisions set forth in Article 23
and Sections 2.2, 16.8 through 16.10, 24.2
through 24.6, and 24.8 through 24.12 of the
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.
38
<PAGE>
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]
39
<PAGE>
IN WITNESS WHEREOF, the parties hereto
have executed this Agreement under seal on
the day and year first above written.
LESSEE:
EMERITUS PROPERTIES I, INC.
By: /s/ Raymond R. Brandstrom
---------------------------
Name: Raymond R. Brandstrom
Title: President
LESSOR:
MEDITRUST ACQUISITION
CORPORATION I, a Massachusetts
corporation
By: /s/ Michael S. Benjamin,
-----------------------------
Name: Michael S. Benjamin, ESQ.
Title: Senior Vice President
40
<PAGE>
MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement")
is made and entered into as of May 30, 1997,
between WILLARD HOLDINGS, INC., a Texas
corporation with offices at 5720 LBJ Freeway,
Suite 450, LB 16, Dallas, Texas 75240-6339
("Owner"), and EMERITUS CORPORATION, a Washington
corporation with offices at 3131 Elliott Avenue,
Suite 500, Seattle, Washington 98121 ("Manager").
WITNESSETH
WHEREAS, Owner is the owner of an 82-unit
assisted living facility being developed in
Cheyenne, Wyoming, 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 1.
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
approved 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
<PAGE>
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
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
2
<PAGE>
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 all 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 deductions and tax reporting. The term
"fringe benefits" as used herein shall include but
not be limited to the employer's contribution 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,
3
<PAGE>
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.
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 charge 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
4
<PAGE>
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 similar 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
5
<PAGE>
endorsement to a fire insurance policy so as to
include 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 (
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
(f) 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 kinds 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
6
<PAGE>
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.
(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
to 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
7
<PAGE>
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 agreed 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
8
<PAGE>
Funds"), which funds shall be Owner's funds. No
amounts deposited which 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 arc
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 time 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, excluding the reimbursable expenses of
Manager hereunder pursuant to Exhibit A attached
hereto;
(b) payment of Facility Debt Service;
(c) Manager's Base Management Fee provided
for in Article 5, below (excluding any accrued and
unpaid Base Management Fees for prior periods);
and
(d) the balance of the Facility Funds shall
be disbursed to Owner within five days.
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
in 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
Manager on Owner's behalf, any additional amounts
necessary and sufficient to allow Manager to pay
all amounts due hereunder. Manager 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 Manager, shall be
considered a breach by Owner of this Agreement.
9
<PAGE>
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 3.12(b) 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 hereof 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 pro it 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
months then ended, and having annexed thereto (i)
a copy of the Medicare 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
10
<PAGE>
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.
(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
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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 regulation affecting the
Facility. Any counsel to be engaged under this or
the next preceding paragraph of this Section shall
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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
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.
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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 submitted
to Owner, Manager shall submit, for Owner's
approval, a narrative report of Manager's major
management goals and intended actions for the
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. AII expenses shall be charged to the
proper budget account and no expense may be
classified (or reclassified) for the purpose of
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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 or capital expenditure is immediately
necessary for: (i) the health or safety of the
residents of the Facility, or (ii) 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, or charges of any kind, 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
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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 consent of Owner. The
entire cost of construction of any such new
improvements to the existing facility and all
expenses connected therewith, shall be 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 a11
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 kind 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
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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 ba 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
hereto fore 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)(n 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
17
<PAGE>
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
(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
seeking 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
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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
the Facility, including reasonable and necessary
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 standards 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.
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,
19
<PAGE>
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 kind 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;
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(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
(f)any refunds, contractual adjustments,
income set-offs or bad debt expense.
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 corporation duly organized, validly existing
and in good standing under the laws of the State
of Texas and is qualified to do business in each
other jurisdiction where such qualification is
necessary. Copies of the Articles of Incorporation
and By-Laws 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
21
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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 of 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 proceedings 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 kind.
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;
(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;
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(c) made or 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 reasonably be
expected to have a material adverse effect on the
revenues or operations of the Facility. Owner
shall report to Manager, 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
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 Owner
("Governmental Requirements"). Owner shall report
to Manager, 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.
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ARTICLE 7.
REPRESENTATIONS AND WARRANTIES OF MANAGER
Manager represents and warrants to Owner as
follows:
7.1 ORGANIZATION AND STANDING OF MANAGER.
Manager 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 Manager, and all
amendments thereof to date, have been, if
requested, delivered to Owner and are complete and
correct. Manager 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.
7.2 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 by Manager, nor the performance by Manager
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 Manager, 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 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.
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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, 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 kind.
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
25
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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 liquidation of 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
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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
ire 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;
(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
27
<PAGE>
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
28
<PAGE>
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 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 not bound to
arbitration under this Agreement, then, unless
both parties to this Agreement agree to proceed in
arbitration, that dispute or any other related
disputes shall not be subject to this arbitration
provision.
Both parties, however, shall make a good
faith effort to resolve any controversy, which
effort shall continue for a period of 30 days
prior to any demand for arbitration. Unless
otherwise specified in the decision of the
arbitrators, the prevailing party shall be
reimbursed by the non-prevailing party for any
reasonable out-of pocket expenses (including
travel expenses and reasonable attorney's fees and
expenses) incurred as a result of its
participation in any such arbitration and the non-
29
<PAGE>
prevailing party will pay all other costs
associated with such proceedings.
If the issue to be arbitrated is Manager's
alleged breach of this Agreement, and as a result
thereof Owner has the right to terminate this
Agreement, Manager shall continue to manage the
Facility hereunder pending the outcome of such
arbitration, provided Manager posts bond for any
money damages in dispute.
ARTICLE 11.
SUCCESSORS AND ASSIGNS
11.1 ASSIGNMENTS BY MANAGER. Manager.
without the consent of Owner, shall have the right
to assign this Agreement to a wholly or majority
owned subsidiary, provided that Manager shall not
hereby be released from its obligations hereunder
and no event of default then exists under Section
8.1 hereof.
Except as otherwise permitted herein,
Manager shall have no right to assign this
Agreement.
11.2 SALE, ASSIGNMENT, OR SUBLEASE BY OWNER.
Any sale, sub-lease, or assignment by Owner with
respect to the Facility, other than to Manager or
one of its affiliates, shall be expressly subject
to the terms and provisions of this Agreement and
shall not relieve Owner of its liability or
obligations hereunder. Owner shall cause any
purchaser, assignee, or sublessee to deliver to
Manager written acknowledgment of its agreement to
perform hereunder including the payment of the
management fee described herein.
ARTICLE 12.
MISCELLANEOUS PROVISIONS
12.1 NOTICES. Any notice or other
communication by either party to the other shall
be in writing and shall be deemed to have been
duly given upon the date delivered if delivered
personally, or upon the date received if mailed
30
<PAGE>
postage prepaid, registered, or certified mail,
addressed as follows:
Owner: WILLARD HOLDINGS, INC.
5720 LBJ Freeway
Suite 450 LB 16
Dallas, Texas 75240-6339
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
31
<PAGE>
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, 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.
32
<PAGE>
OWNER
WILLARD HOLDINGS, INC.
By: /s/ Craig Spaulding
---------------------
Craig Spaulding,
President
MANAGER
EMERITUS CORPORATION
By: /s/ Kelly J. Price
---------------------
Kelly J. Price
<PAGE>
LEASE AGREEMENT
WILLARD HOLDINGS, INC.
a Texas corporation
("LESSOR")
AND
EMERITUS CORPORATION
a Washington corporation
("LESSEE")
May 30, 1997
for
ASSISTED LIVING FACILITY
Auburn, California
<PAGE>
LEASE
THIS LEASE ("Lease") dated as of May 30,
1997, is entered into between WILLARD HOLDINGS,
INC., a Texas corporation, having its principal
office at 5720 LBJ Freeway, Suite 450, LB I6,
Dallas, Texas 75240-6339 ("Lessor") and EMERITUS
CORPORATION, a Washington corporation, having its
principal office at 3131 Elliott Avenue, Suite
500, Seattle, Washington 98I2l ("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
(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 any strips and gores
adjacent to or lying between such real property
and any adjacent real property (the "Land");
(b) the 89-unit assisted living facility (the
"Facility") to be constructed on the Land together
with a11 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,
<PAGE>
including all furnaces, boilers, hearers,
electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and
water pollution control, waste disposal, air-
cooling and air conditioning systems and
appazatus, sprinlcler 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 (collectiveiy
the "Fixtures"):
(d) the Personal Propezty;
(e) to the extent permitted by law, all
permits, appzovals 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
hexeafter conducted by Lessee or any Tenant or
with the use thereof, including all leases,
contract rights, agreements, trade nam.es, water
rights and reservations, zoning rights,
business licenses and warranties (including those
relating to construction Or fabrication) related
to the Leascd Property or any part thereof, but
specifically excluding the general corporace
txademarks, service marks, logos, insignia or
books and recozds of Lessee; and all site plans,
surveys, soil and substrata studies, architectural
drawings, plans and specifcations, 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
<PAGE>
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 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, 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) 1.1 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 of
<PAGE>
California, Inc. (the "Lender") and Lessor, as
borrower. 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
$358,000.00.
(b) Increases to Minimum Rent. On each
anniversary of the Commencement Date (each such
annual date individually referred to as the
"Adjustment 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 hereto.
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
<PAGE>
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.
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.
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 non-
<PAGE>
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 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 any
installment of Minimum Rent or any Additional
Charges pursuant to Section 15.1(b) more than
three times within any twelvemonth 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. I(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
<PAGE>
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 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,
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.
<PAGE>
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 in 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
I5. 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
<PAGE>
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.
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.
<PAGE>
ARTICLE 5
OWNERSHIP OF LEASED 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.
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 QUALITY 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
<PAGE>
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 an 89-
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 fox 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.
(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.
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
<PAGE>
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 lease agreements with an Affiliate
of Lessee must contain provisions to the effect
that (A) the obligations of Lessee to pay
management fees is subordinate to its obligations
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 benefits of the
Leased Property, (c) dedicate oz 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 oz
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
<PAGE>
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
o1E 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 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
pan thereof, including any Capital Addicioz2s -
7.2 lC,ega1 Requirements 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 ocher 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 parts thereof, shall at all 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
<PAGE>
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
<PAGE>
remodeling shall, to the extent reasonably
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
<PAGE>
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 entire 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 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
<PAGE>
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
<PAGE>
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 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
<PAGE>
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 still 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:
<PAGE>
(i) such loan documentation as may be
required by Lessor;
(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
governing the Leased Property or a
supplemental policy of title insurance
covering the Leased Property 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
<PAGE>
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. 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
<PAGE>
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 are 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 of 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
<PAGE>
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
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
<PAGE>
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
<PAGE>
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 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 an 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 or damage by explosion of steam
boilers, pressure vessels or similar apparatus now
or hereafter installed in the Facility, in such
limits with respect to any one accident as may be
reasonably requested by Lessor from time to time;
(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
<PAGE>
rental amounts received 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
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 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
<PAGE>
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 part 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 form 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
<PAGE>
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.
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
<PAGE>
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 this
Article I2 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
<PAGE>
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.
(a) Facility Rendered Unsuitable for Its
Primary Intended Use. 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
<PAGE>
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
Prima 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).
<PAGE>
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 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
<PAGE>
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
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.
<PAGE>
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.
<PAGE>
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 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.
<PAGE>
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 Primary 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.
<PAGE>
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.
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.
ARTICLE 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;
<PAGE>
(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 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
<PAGE>
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 in
thus effecting compliance with Lessee's
obligations 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
<PAGE>
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 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, but 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
<PAGE>
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.
<PAGE>
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, 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
<PAGE>
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 sale 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 connected 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.
<PAGE>
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 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
<PAGE>
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-
<PAGE>
860.
ARTICLE 18
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 to 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
<PAGE>
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 19.2, 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 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
<PAGE>
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 case 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-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
<PAGE>
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 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").
<PAGE>
(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.
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
<PAGE>
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;
(b) a special warranty deed with warranties
against claims arising under Lessee conveying to
Lessor title 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;
<PAGE>
(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
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
<PAGE>
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 persons 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 non-performance of any of the terms
and provisions of any and all existing and future
subleases of the Leased Property to be performed
by 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
<PAGE>
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
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
<PAGE>
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 insert 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 an 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
<PAGE>
formula such that any portion of the sublease
rental received by Lessor would fail to qualify as
cents 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 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 items 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
<PAGE>
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)
<PAGE>
from any and all licensing and/or certifying
agencies that the license or applicable
reimbursement certification for the Facility
is being downgraded 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 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 filed
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
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.
<PAGE>
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
Lease, 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:
WILLARD HOLDINGS, INC.
5720 LBJ Freeway
Suite 450, LB 16
Dallas, Texas 75240-6339
Attention: Mr. Craig Spaulding
Telephone: 972-458-0025
Telecopy: 972-458-2233
With a copy to:
Mr. Sam Stollenwerck
Stollenwerck, Moore & Silverberg, P.C. 5949
Sherry Lane, Suite 1025, LB 109
Dallas, Texas 75225
<PAGE>
Telephone: 214-368-1800
Telecopy: 214-368-1025
If to Lessee:
Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Telephone: 206-298-2909
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
<PAGE>
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
appraisers shall have been appointed and shall
have made their determinations within the
respective requisite periods set forth above and
if the difference between the amounts so
determined shall not exceed ten percent of the
lesser of such amounts, then the Fair 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
<PAGE>
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 of 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
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
<PAGE>
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.
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 of 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
<PAGE>
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.
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
<PAGE>
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
parties 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
<PAGE>
expenses and reasonable attorneys' fees and
expenses, and the non-prevailing party shall pay
all other costs of such proceeding.
ARTICLE 32
FINANCING OF THE 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 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
<PAGE>
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
<PAGE>
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
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
<PAGE>
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 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, 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 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
<PAGE>
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
<PAGE>
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. I(b) hereof.
"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.
<PAGE>
"Breakeven Date" has the meaning set forth in
Article l.
"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 fling, registration and recording
taxes and fees, (D) documentary stamp taxes, if
<PAGE>
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.
"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.
"Consolidated 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.
<PAGE>
"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.
"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.
<PAGE>
"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 l.
"Facility Mortgage" has the meaning set forth
in Section 12.1.
"Facility Mortgagee" has the meaning set
forth in Section 12.1.
"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
<PAGE>
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 1 to December 31.
"Fixtures" has the meaning set forth in
Article 1.
"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
<PAGE>
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
<PAGE>
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.
"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 l.
"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.
<PAGE>
"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
settlement 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 WILLARD HOLDINGS, INC., a
Texas corporation, 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 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.
<PAGE>
"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 Exceptions" 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
<PAGE>
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, together with all replacements and
substitutions therefor, except for any portion of
the Leased Property, all as more specifically set
forth on Exhibit G 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 rates)
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.
<PAGE>
"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 the same shall have
actually been commenced.
<PAGE>
"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 Board 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, 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
<PAGE>
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
used anywhere in this Lease, shall mean that, by
reason of damage or destruction, or a partial
Taking, (i) the Facility is 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.
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 of the date first written
above.
LESSOR:
WILLARD HOLDINGS, INC.
By: /s/ Craig Spaulding
---------------------
Craig Spaulding
President
LESSEE:
EMERITUS CORPORATION
By: /s/ Kelly J. Price
---------------------
Its: Vice President of Finance
<PAGE>
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT, dated
the l4th day of May 1997, between EMERITUS
CORPORATION, a Washington corporation (the
"Company"), and Michelle A. Bickford("Executive").
RECITALS
A. Executive is currently employed by the
Company or one of its Subsidiaries.
B. The Board of Directors of the Company (the
"Board") has determined that it is appropriate to
reinforce the continued attention and dedication
of certain members of the Company's management,
including Executive, to their assigned duties
without distraction in potentially disturbing
circumstances arising from the possibility of a
Change in Control of the Company, as defined in
Schedule A attached hereto.
AGREEMENTS
NOW, THEREFORE, in consideration of the
covenants and agreements hereinafter set forth,
the Company and Executive agree as follows:
1. DEFINITIONS
Terms capitalized in this Agreement which are
not otherwise defined shall have the meanings
assigned to such terms in Schedule A attached
hereto.
2. EMPLOYMENT FOLLOWING A CHANGE IN CONTROL.
Once a (Change in Control has occurred, no
termination of Executive's employment with the
Company, other than on account of death, shall be
effective unless the party causing such
termination of employment provides the other party
30 days' prior written notice of such termination,
which shall indicate those specific provisions in
this Agreement relied upon and which sets forth in
reasonable detail the conflicts and circumstances
claimed to provide a basis for the termination of
Executive's employment constituting a Termination,
if any, under the provision so indicated.
<PAGE>
3. BENEFITS UPON CHANGE IN CONTROL
Executive shall be entitled to the following
payments and benefits following a Change in
Control, whether or not a Termination occurs:
(a) SALARY AND BENEFITS. Executive shall
(i) receive an annual base salary no less than
$125,000 current market salary and an annual bonus
equal to at least the average of the two annual
bonuses paid to Executive in the two years prior
to the Change in Control, and (ii) be entitled to
participate in all employee expense reimbursement,
incentive, savings and retirement plans,
practices, policies and programs (including any
Company plan qualified under Section 401 (a) of
the Code) available to other peer executives of
the Company and its Subsidiaries, but in no event
shall the benefits provided to Executive under
this item (ii) be less favorable, in the
aggregate, than the most favorable of those plans,
practices, policies or programs in effect
immediately prior to the date that the Change in
Control occurs.
(b) WELFARE BENEFITS. The Company shall
at the Company's expense (except for the amount,
if any, of any required employee contribution
which would have been necessary for Executive to
contribute as an active employee under the plan or
program as in effect on the date of the Change in
Control continue to cover Executive (and his or
her dependents) under, or provide Executive (and
his or her dependents) with insurance coverage no
less favorable than, the Company's life,
disability, health, dental and any other employee
welfare benefit plans or programs, as in effect on
the date of the Change in Control (such benefits,
the "Welfare Benefits").
(c) DEATH OF EXECUTIVE. In the event of
Executive's death prior to Termination, but while
employed by the Company or any Subsidiary, as the
case may he, his or her spouse, if any, or
otherwise the personal representative of his or
her estate shall be entitled to receive (i)
Executive's salary at the rate then in effect
through the date of death, as provided under the
Company's pay policy, and (ii) any Accrued
Benefits for the periods of service prior to the
date of death.
2
<PAGE>
(d) DISABILITY OF EXECUTIVE. In the
event of Executive's Disability prior to
Termination, but while employed by the Company or
any Subsidiary, as the case may be, Executive
shall be entitled to receive (i) his or her salary
at the rate then iii effect through the date of
the determination of Disability, as provided under
the Company's pay policy, (ii) any Accrued
Benefits for the periods of service prior to the
date of the determination of Disability, (iii)
payments under the Company 's short and long term
disability plans following the determination of
Disability, and (iv) Welfare Benefits for a period
of one year following the determination of
Disability.
(e) CAUSE; UPON EXPIRATION OF THIS
AGREEMENT; OTHER THAN FOR GOOD REASON. If
Executive's employment shall be terminated by the
Company for cause or upon expiration of this
Agreement or by Executive other than for Good
Reason, Executive shall be entitled to receive
only (i) his or her salary at the rate then in
effect through the date of such termination, as
provided under the Company's pay policy, and (ii)
any Accrued Benefits for the periods of service
prior to the date of such termination.
(f) WITHHOLDING. All payments under this
Section 4 arc; subject to applicable federal and
state payroll withholding or other applicable
taxes.
4. PAYMENTS AND BENEFITS UPON TERMINATION
Executive shall be entitled to the following
payments and benefits following Termination:
(a) TERMINATION PAYMENT. Subject to
Section 4(b), in recognition of past services to
the Company by Executive, the Company shall make a
lump sum payment in cash to Executive as severance
pay within ten (10) business days following the
date of Termination equal to three times the sum
of: (i) Executive's annual base salary in effect
pursuant of Section 3(a) or such date of
Termination, whichever salary is higher; plus (ii)
Executive's target bonus for the current fiscal
year as determined by the Compensation Committee;
provided, however, that if Termination occurs
3
<PAGE>
prior to the determination of such target bonus
for a fiscal year, such bonus shall be the target
bonus for the prior fiscal year.
(b) TERMINATION BENEFITS; Certain
Additional Payments by the Company.
(i) Then the payments to Executive
under Section 4(a) shall be increased (such
increase, a "Gross-Up Payment"), but only to the
extent necessary to ensure that, after payment by
the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes),
including, without limitation, any income taxes
and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up
Payment equal to such Excise Tax. The foregoing
calculations shall be made by the Company and
Executive. If no agreement on the calculations is
reached within ten (10) business days after the
date of Termination, then the accounting firm
which regularly audits the financial statements of
the Company (the "Auditors") shall review the
calculations, and report their determination of
the amount due to both Executive and the Company
within thirty (30) days of the termination. The
determination of such firm shall be conclusive and
binding on all parties and the expense for such
accountants shall be paid by the Company. Pending
such determination, the Company shall continue to
make all other required payments to Executive at
the time and in the manner provided herein.
(ii) As a result of the uncertainty
in the application of Section 280G and Section
4999 of the Code, it is possible that the Company
will make a payment (including a Gross-Up Payment)
under this Agreement that should not have been
made (an "Overpayment") or that the Company will
fail to make a payment (including a Gross-Up
Payment) under this Agreement that should have
been made (an "Underpayment"). If the Company and
Executive, or, if no agreement is reached by the
Company and Executive, the Auditors, determine
that Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan to the
Executive which he shall repay to the Company,
together with interest at the applicable federal
rate provided for in section 7872(f)(2)(A) of the
Code. If the Company and Executive, or, if no
4
<PAGE>
agreement is reached by the Company and Executive,
the Auditors, determine that an Underpayment has
occurred, such Underpayment shall promptly be paid
by the Company to Executive, together with
interest at the applicable federal rate provided
for in section 7872(f)(2)(A) of the Code. The
Company and Executive agree to give each other
prompt written notice of any information or taxing
authority inquiry that could reasonably result in
the determination that an Overpayment or
Underpayment has been made.
(c) ACCRUED BENEFITS. Within ten (10)
business days following the date of Termination,
the Company shall make a lump sum payment in cash
to Executive in the amount of any Accrued Benefits
for the periods of service prior to the date of
Termination.
(d) WELFARE BENEFITS. The Company shall,
at its sole option and expense (except for the
amount, if any, of any required employee
contribution that would have been necessary for
Executive to contribute as an active employee
under the plan or program as in effect on the date
of Termination) either (i) continue to cover
Executive (and his or her dependents) under, or
provide Executive (and his or her dependents) with
Welfare Benefits (as in effect on the date of the
Change in Control or, at the option of Executive,
on the date of Termination) for a period of three
years following the date of Termination, or (ii)
pay Executive a lump sum cash payment within ten
(10) business days following the date of
Termination equal to the then-present value of the
cost to the Company of such Welfare Benefits;
provided, however, that if Executive is provided
by another employer during such three-year period
with benefits substantially comparable to the
Welfare Benefits, the benefits provided by the
Company shall, unless a lump sum payment has been
made by the Company (in which case Executive shall
not, for any reason, be required to return any
part of such payment), be reduced by the benefits
provided by such other employer, but only to the
extent of, and with respect to, the Welfare
Benefits otherwise payable by the Company to
Executive.
5
<PAGE>
(e) DEATH OF EXECUTIVE. In the event of
Executive's death subsequent to termination and
prior to receiving all benefits and payments
provided for by this Section 4, such benefits and
payments shall be paid to his or her spouse, if
any, or otherwise to the personal representative
of his or her estate, unless Executive has
otherwise directed the Company in writing prior to
his or her death.
(f) EXCLUSIVE SOURCE OF SEVERANCE PAY.
Benefits provided hereunder shall replace the
amount of any severance payments to which
Executive would otherwise be entitled under any
severance plan or policy generally available to
employees of the Company.
(g) NONSEGREGATION. No assets of the
Company need be segregated c1I- earmarked to
represent the liability for benefits payable
hereunder. The rights of any person to receive
benefits hereunder shall be only those of a
general unsecured creditor.
(h) WITHHOLDING. All payments under this
Section 4 are subject to applicable federal and
state payroll withholding or other applicable
taxes.
5. NONCOMPETITION
(a) NONCOMPETITION. In the event that,
after a change in Control, Executive's employment
is terminated by the Company or by Executive for
any reason, and provided that any payments due
Executive upon such termination are paid when due,
then for a period of one year after such
termination, Executive shall not engage in any
activities (including, without limitation,
activities for any subsequent employer of
Executive) directly competitive with the business
of the Company.
(b) COMPANY REMEDY. In the event of any
breach by Executive of the obligations set forth
in Section 5(a), the Company shall be entitled to
recover an amount equal to the total of all
amounts paid to Executive pursuant to Sections
4(a) and 4(b) of this Agreement in addition to any
6
<PAGE>
other remedies available to the Company at law or
in equity.
6. ARBITRATION
Any dispute or controversy arising under or
in connection with this Agreement shall be settled
exclusively by arbitration in Seattle, Washington,
in accordance with the Arbitration Rules of the
Judicial Arbitration & Mediation Services then in
effect. Judgment may be entered on the
arbitrator's award in any jurisdiction.
7. CONFLICT IN BENEFITS
This Agreement is not intended to and shall
not adversely affect, limit or terminate any other
agreement or arrangement between Executive and the
Company presently in effect or hereafter entered
into, including any employee benefit plan under
which Executive is entitled to benefits.
8. TERM, TERMINATION AND AMENDMENT
(a) The initial term of this Agreement shall
be from the date hereof until the anniversary date
of this Agreement. On each such annual anniversary
date, this Agreement shall automatically be
renewed for a period of one year, unless 60 days
prior to such anniversary date the Company shall
give notice to Executive that the Agreement is
terminated or amended, provided that no Change in
Control has occurred prior to such anniversary.
Notwithstanding such termination, the Company
shall remain liable for any rights or payments
arising prior to such termination to which
Executive is entitled under this Agreement. During
each such one year term, this Agreement may not be
amended or terminated except by written agreement
between Executive and the Company.
(b) In the event of a Change in Control,
unless earlier terminated as provided herein, this
Agreement shall continue in effect until for a
period of three years from the date of the Change
in Control at which time this Agreement shall
expire. For a three-year period following a Change
in Control, (i) this Agreement may not be
terminated, and (ii) no amendment or other action
of the Board which adversely affects the rights of
7
<PAGE>
Executive hereunder is valid and enforceable
without the prior written consent of Executive.
After the three-year period from the date of the
Change in Control, the Board may terminate or
amend this Agreement without the prior written
consent of Executive.
9. MISCELLANEOUS
(a) AMENDMENT. This Agreement may not be
amended except by written agreement between
Executive and the Company.
(b) NO MITIGATION. All payments and
benefits to which Executive is entitled under this
Agreement shall be made and provided without
offset, deduction or mitigation on account of
income Executive could or may receive from other
employment or otherwise, except as provided in
Section 4(d) and Section 5(b) hereof.
(c) EMPLOYMENT NOT GUARANTEED. Nothing
contained in this Agreement, and no decision as to
the eligibility for benefits or the determination
of the amount of any benefits hereunder, shall
give Executive any right to be retained in the
employ of the Company or rehired, and the right
and power of the Company to dismiss or discharge
any employee for any reason is specifically
reserved. Except as expressly provided herein, no
employee or any person claiming under or through
him or her shall have any right or interest
herein, or in any benefit hereunder.
(d) LEGAL EXPENSES. In connection with
any litigation, arbitration or similar proceeding,
whether or not instituted by the Company or
Executive, with respect to the interpretation or
enforcement of any provision of this Agreement,
the prevailing party shall be entitled to recover
from the other party all costs and expenses,
including reasonable attorneys' fees and
disbursements, in connection with such litigation,
arbitration or similar proceeding. The Company
shall pay prejudgment interest on any money
judgment obtained by Executive as a result of such
proceedings, calculated at the published
commercial interest rate of Seattle-First National
Bank for its best customers, as in effect from
8
<PAGE>
time to time from the date that payment should
have been made to Executive under this Agreement.
(e) NOTICES. Any notices required under
the terms of this Agreement shall be effective
when mailed, postage prepaid, by certified mail
and addressed to, in the case of the Company:
EMERITUS Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: Chief Financial Officer
and to, in the case of Executive
Michelle A. Bickford
13821 SE 275th Place
Kent, WA 98042
Either party may designate a different address by
giving written notice of change of address in the
manner provided above.
(f) WAIVER; CURE. No waiver or
modification in whole or in part of this
Agreement, or any term or condition hereof, shall
be effective against any party unless in writing
and duly signed by the party sought to be bound.
Any waiver of any breach of any provision hereof
or any right or power by any party on one occasion
shall not be construed as a waiver of, or a bar
to, the exercise of such right or power on any
other occasion or as a waiver of any subsequent
breach. Other than a breach of the provisions of
Section 5, any breach of this Agreement may be
cured by the breaching party within ten days of
the date that such breaching party shall have
received written notice of such breach from the
party asserting such breach.
(g) BINDING EFFECT; SUCCESSORS. Subject
to the provisions hereof, nothing in this
Agreement shall prevent the consolidation of the
Company with, or its merger into, any other
corporation, or the sale by the Company of all or
substantially all of its properties and assets, or
the assignment of this Agreement by the Company in
connection with any of the foregoing actions. This
Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Company and
9
<PAGE>
Executive and their respective heirs, legal
representatives, successors and assigns. If the
Company shall be merged into or consolidated with
another entity, the provisions of this Agreement
shall be binding upon and inure to the benefit of
the entity surviving such merger or resulting from
such consolidation. The Company shall require any
successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets
of the Company, including the successor to all or
substantially all of the business or assets of any
Subsidiary, division or profit center of the
Company, to expressly assume and agree to perform
this Agreement in the same manner and to the same
extent that the Company would be required to
perform it if no such succession had taken place.
The provisions of this Section 9(g) shall continue
to apply to each subsequent employer of Executive
hereunder in the event of any subsequent merger,
consolidation or transfer of assets of such
subsequent employer.
(h) SEPARABILITY. Any provision of this
Agreement which is held to be unenforceable or
invalid in any respect in any jurisdiction shall
be ineffective in such jurisdiction to the extent
that it is unenforceable or invalid without
affecting the remaining provisions hereof, which
shall continue in full force and effect. The
unenforceability or invalidity of a provision of
this Agreement in one jurisdiction shall not
invalidate or render unenforceable such provision
in any other jurisdiction.
(i) CONTROLLING LAW. This Agreement
shall be governed by and construed in accordance
with the laws of the state of Washington
applicable to contracts made and to be performed
therein.
10
<PAGE>
IN WITNESS WHEREOF, the Company and
Executive have executed this Agreement as of the
day and year first above written.
EMERITUS CORPORATION
By: /s/ Raymond R. Brandstrom
----------------------
By: Raymond R. Brandstrom
Title: President
EXECUTIVE:
By: /s/ Michelle A. Bickford
--------------------------
Michelle A. Bickford
11
<PAGE>
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the
context requires a different meaning, the
following terms have the meanings indicated:
"ACCRUED BENEFITS" means the aggregate of any
compensation previously deferred by Executive
(together with any accrued interest or earnings
thereon), any accrued vacation pay and, if the
date of Termination occurs after the end of a
Fiscal Year for which a bonus is payable to
Executive, such bonus, in each case to the extent
previously earned and not paid.
"BASE AMOUNT" shall mean the "base amount" of
Executive as defined in Section 280G of the Code.
"CAUSE" means (a) willful misconduct on the
part of Executive that has a materially adverse
effect on the Company and its Subsidiaries, taken
as a whole, (b) Executive's engaging in conduct
which could reasonably result in his or her
conviction of a felony or a crime against the
Company or involving substance abuse, fraud or
moral turpitude, or which would materially
compromise the Company's reputation, as determined
in good faith by a written resolution duly adopted
by the affirmative vote of not less than two-
thirds of all of the directors who are not
employees or of officers of the Company, or (c)
unreasonable refusal by Executive to perform the
duties and responsibilities of his or her position
in any material respect. No action, or failure to
act shall be considered "willful" if it is done by
Executive in good faith and with reasonable belief
that his or her action or omission was in the best
interests of the Company.
"CHANGE IN CONTROL" means, and shall be
deemed to occur upon the happening of. any one of
the following:
(a) The occupying of a majority of the seats
(other than vacant seats) on the Board by
individuals who were neither nominated or
appointed by a majority of the Incumbent
Directors;
12
<PAGE>
(b) The acquisition, directly or indirectly,
by any Person (other than Daniel R. Baty and his
affiliates) of beneficial ownership of 30% or more
of the combined voting power of the then
outstanding voting securities of the Company
entitled to vote generally in the election of
directors, which acquisition is not approved in
advance by a majority of the Incumbent Directors;
(c) The approval by the stockholders of the
Company of a reorganization, merger or
consolidation or sale of substantially all of the
assets of the Company (an "Acquisition
Transaction") unless, following such Acquisition
Transaction, all or substantially all of the
individuals and entities who were the beneficial
owners of the outstanding voting securities of the
Company immediately prior to such Acquisition
Transaction beneficially own, directly or
indirectly, more than 50"% of the then outstanding
voting securities of the corporation resulting
from such Acquisition Transaction (including,
without limitation, a corporation which as a
result of such transaction owns the Company or all
or substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately prior
to such Acquisition Transaction of the outstanding
voting securities of the Company; or
(d) Approval by the stockholders of the
Company of a liquidation or dissolution of the
Company.
(e) For purposes of this definition, (i) the
terms "beneficial owner" and "beneficial
ownership" shall have the meanings set forth in
Rules 13d-3 and 13d-5 of the General Rules and
Regulations promulgated under the Exchange Act,
(ii) the term "voting securities" shall mean the
voting securities of a corporation entitled to
vote generally in the election of directors and
the term "affiliate" shall have the meaning set
forth in Rule 12b-2 of the General Rules and
Regulations promulgated under the 1~.xchange Act.
"CODE" means the Internal Revenue Code of
1986, as amended.
13
<PAGE>
"DISABILITY" means that (a) a person has been
incapacitated by bodily injury or physical or
mental disease so as to be prevented thereby from
performance of his or her duties with the Company
for 120 days in any 12-month period, and (b) such
person is disabled for purposes of any and all of
the plans or programs of the Company or any
Subsidiary that employs Executive under which
benefits, compensation or awards are contingent
upon a finding of disability. The determination
with respect to whether Executive is suffering
from such a Disability will be determined by a
mutually acceptable physician or, if there is no
physician mutually acceptable to the Company and
Executive, by a physician selected by the then
Dean of the University of Washington Medical
School.
"EXCHANGE ACT" means the Securities Exchange
Act of 1934, as amended.
"EXCISE TAX" means the excise tax, including
any interest or penalties thereon, imposed on
Executive by Section 4999 of the Code.
"FISCAL YEAR" means the 12-month period
ending on December 3 I in each year I or such
other fiscal year period established by the
Board).
"GOOD REASON" means, without Executive's
express written consent:
(a) (i) the assignment to Executive of
duties, or limitation of Executive's ,
responsibilities inconsistent with
Executive s title, position, duties,
responsibilities and status with the
Company Executive as such duties and
responsibilities existed immediately
prior to the date of the Change in
Control, or (ii) removal of Executive
from, or failure to re-elect Executive
to, Executive's positions with the
Company or any Subsidiary that employs
Executive immediately prior to the
Change in Control, except in connection
with the involuntary termination of
Executive's employment by the Company
14
<PAGE>
for Cause or as a result of Executive's
death or Disability;
(b) failure by the Company to pay, or
reduction by the Company of, Executive's
annual base salary, as reflected in the
Company's payroll records for
Executive's last pay period immediately
prior to the Change in Control;
(c) failure by the Company to pay, or
reduction by the Company of, Executive's
bonus;
( d) the relocation of the principal place of
Executive's employment to a location
that is more than 25 miles further from
Executive's principal residence than
such principal place of employment
immediately prior to the Change in
Control; or
(e) the breach of any material provision of
this Agreement by the Company,
including, without limitation, failure
by the Company to bind any successor to
the Company to the terms and provisions
of this Agreement in accordance with
Section 9(g).
"GROSS-UP PAYMENT" shall have the meaning set
forth in Section 4(b).
"INCUMBENT DIRECTOR" means a member of the
Board who has been either (a) nominated by a
majority of the directors of the Company then in
of ice or (b) appointed by directors so nominated,
but excluding, for this purpose, any such
individual whose initial assumption of office
occurs as a result of either an actual or
threatened election contest (as such terms are
used in Rule 14a-l1 of Regulation 14A promulgated
under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board.
"PARACHUTE PAYMENT" means any payment deemed
to constitute a "parachute payment" as defined in
Section 280G of the Code.
15
<PAGE>
"PERSON" means any individual, entity or
group (as such term is used in Section 13(d)(3 )
or 14(d)(2) of the Exchange Act).
"SUBSIDIARY" means an Person controlled by
the Company directly, or indirectly through one or
more intermediaries.
"TERMINATION" means, following the occurrence
of any Change in Control by the Company, (a) the
involuntary termination of the employment of
Executive for any reason other than death,
Disability or for Cause or (b) the termination of
employment by Executive for Good Reason.
"WELFARE BENEFITS" shall have the meaning set
forth in Section 3(b).
16
<PAGE>
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT, dated
the l4th day of May 1997, between EMERITUS
CORPORATION, a Washington corporation (the
"Company"), and Frank A. Ruffo ("Executive").
RECITALS
A. Executive is currently employed by the
Company or one of its Subsidiaries.
B. The Board of Directors of the Company (the
"Board") has determined that it is appropriate to
reinforce the continued attention and dedication
of certain members of the Company's management,
including Executive, to their assigned duties
without distraction in potentially disturbing
circumstances arising from the possibility of a
Change in Control of the Company, as defined in
Schedule A attached hereto.
AGREEMENTS
NOW, THEREFORE, in consideration of the
covenants and agreements hereinafter set forth,
the Company and Executive agree as follows:
1. DEFINITIONS
Terms capitalized in this Agreement which are
not otherwise defined shall have the meanings
assigned to such terms in Schedule A attached
hereto.
2. EMPLOYMENT FOLLOWING A CHANGE IN CONTROL.
Once a (Change in Control has occurred, no
termination of Executive's employment with the
Company, other than on account of death, shall be
effective unless the party causing such
termination of employment provides the other party
30 days' prior written notice of such termination,
which shall indicate those specific provisions in
this Agreement relied upon and which sets forth in
reasonable detail the conflicts and circumstances
claimed to provide a basis for the termination of
Executive's employment constituting a Termination,
if any, under the provision so indicated.
<PAGE>
3. BENEFITS UPON CHANGE IN CONTROL
Executive shall be entitled to the following
payments and benefits following a Change in
Control, whether or not a Termination occurs:
(a) SALARY AND BENEFITS. Executive shall
(i) receive an annual base salary no less than
$175,000 current market salary and an annual bonus
equal to at least the average of the two annual
bonuses paid to Executive in the two years prior
to the Change in Control, and (ii) be entitled to
participate in all employee expense reimbursement,
incentive, savings and retirement plans,
practices, policies and programs (including any
Company plan qualified under Section 401 (a) of
the Code) available to other peer executives of
the Company and its Subsidiaries, but in no event
shall the benefits provided to Executive under
this item (ii) be less favorable, in the
aggregate, than the most favorable of those plans,
practices, policies or programs in effect
immediately prior to the date that the Change in
Control occurs.
(b) WELFARE BENEFITS. The Company shall
at the Company's expense (except for the amount,
if any, of any required employee contribution
which would have been necessary for Executive to
contribute as an active employee under the plan or
program as in effect on the date of the Change in
Control continue to cover Executive (and his or
her dependents) under, or provide Executive (and
his or her dependents) with insurance coverage no
less favorable than, the Company's life,
disability, health, dental and any other employee
welfare benefit plans or programs, as in effect on
the date of the Change in Control (such benefits,
the "Welfare Benefits").
(c) DEATH OF EXECUTIVE. In the event of
Executive's death prior to Termination, but while
employed by the Company or any Subsidiary, as the
case may he, his or her spouse, if any, or
otherwise the personal representative of his or
her estate shall be entitled to receive (i)
Executive's salary at the rate then in effect
through the date of death, as provided under the
Company's pay policy, and (ii) any Accrued
Benefits for the periods of service prior to the
date of death.
2
<PAGE>
(d) DISABILITY OF EXECUTIVE. In the
event of Executive's Disability prior to
Termination, but while employed by the Company or
any Subsidiary, as the case may be, Executive
shall be entitled to receive (i) his or her salary
at the rate then iii effect through the date of
the determination of Disability, as provided under
the Company's pay policy, (ii) any Accrued
Benefits for the periods of service prior to the
date of the determination of Disability, (iii)
payments under the Company 's short and long term
disability plans following the determination of
Disability, and (iv) Welfare Benefits for a period
of one year following the determination of
Disability.
(e) CAUSE; UPON EXPIRATION OF THIS
AGREEMENT; OTHER THAN FOR GOOD REASON. If
Executive's employment shall be terminated by the
Company for cause or upon expiration of this
Agreement or by Executive other than for Good
Reason, Executive shall be entitled to receive
only (i) his or her salary at the rate then in
effect through the date of such termination, as
provided under the Company's pay policy, and (ii)
any Accrued Benefits for the periods of service
prior to the date of such termination.
(f) WITHHOLDING. All payments under this
Section 4 arc; subject to applicable federal and
state payroll withholding or other applicable
taxes.
4. PAYMENTS AND BENEFITS UPON TERMINATION
Executive shall be entitled to the following
payments and benefits following Termination:
(a) TERMINATION PAYMENT. Subject to
Section 4(b), in recognition of past services to
the Company by Executive, the Company shall make a
lump sum payment in cash to Executive as severance
pay within ten (10) business days following the
date of Termination equal to three times the sum
of: (i) Executive's annual base salary in effect
pursuant of Section 3(a) or such date of
Termination, whichever salary is higher; plus (ii)
Executive's target bonus for the current fiscal
year as determined by the Compensation Committee;
provided, however, that if Termination occurs
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<PAGE>
prior to the determination of such target bonus
for a fiscal year, such bonus shall be the target
bonus for the prior fiscal year.
(b) TERMINATION BENEFITS; Certain
Additional Payments by the Company.
(i) Then the payments to Executive
under Section 4(a) shall be increased (such
increase, a "Gross-Up Payment"), but only to the
extent necessary to ensure that, after payment by
the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes),
including, without limitation, any income taxes
and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up
Payment equal to such Excise Tax. The foregoing
calculations shall be made by the Company and
Executive. If no agreement on the calculations is
reached within ten (10) business days after the
date of Termination, then the accounting firm
which regularly audits the financial statements of
the Company (the "Auditors") shall review the
calculations, and report their determination of
the amount due to both Executive and the Company
within thirty (30) days of the termination. The
determination of such firm shall be conclusive and
binding on all parties and the expense for such
accountants shall be paid by the Company. Pending
such determination, the Company shall continue to
make all other required payments to Executive at
the time and in the manner provided herein.
(ii) As a result of the uncertainty
in the application of Section 280G and Section
4999 of the Code, it is possible that the Company
will make a payment (including a Gross-Up Payment)
under this Agreement that should not have been
made (an "Overpayment") or that the Company will
fail to make a payment (including a Gross-Up
Payment) under this Agreement that should have
been made (an "Underpayment"). If the Company and
Executive, or, if no agreement is reached by the
Company and Executive, the Auditors, determine
that Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan to the
Executive which he shall repay to the Company,
together with interest at the applicable federal
rate provided for in section 7872(f)(2)(A) of the
Code. If the Company and Executive, or, if no
4
<PAGE>
agreement is reached by the Company and Executive,
the Auditors, determine that an Underpayment has
occurred, such Underpayment shall promptly be paid
by the Company to Executive, together with
interest at the applicable federal rate provided
for in section 7872(f)(2)(A) of the Code. The
Company and Executive agree to give each other
prompt written notice of any information or taxing
authority inquiry that could reasonably result in
the determination that an Overpayment or
Underpayment has been made.
(c) ACCRUED BENEFITS. Within ten (10)
business days following the date of Termination,
the Company shall make a lump sum payment in cash
to Executive in the amount of any Accrued Benefits
for the periods of service prior to the date of
Termination.
(d) WELFARE BENEFITS. The Company shall,
at its sole option and expense (except for the
amount, if any, of any required employee
contribution that would have been necessary for
Executive to contribute as an active employee
under the plan or program as in effect on the date
of Termination) either (i) continue to cover
Executive (and his or her dependents) under, or
provide Executive (and his or her dependents) with
Welfare Benefits (as in effect on the date of the
Change in Control or, at the option of Executive,
on the date of Termination) for a period of three
years following the date of Termination, or (ii)
pay Executive a lump sum cash payment within ten
(10) business days following the date of
Termination equal to the then-present value of the
cost to the Company of such Welfare Benefits;
provided, however, that if Executive is provided
by another employer during such three-year period
with benefits substantially comparable to the
Welfare Benefits, the benefits provided by the
Company shall, unless a lump sum payment has been
made by the Company (in which case Executive shall
not, for any reason, be required to return any
part of such payment), be reduced by the benefits
provided by such other employer, but only to the
extent of, and with respect to, the Welfare
Benefits otherwise payable by the Company to
Executive.
5
<PAGE>
(e) DEATH OF EXECUTIVE. In the event of
Executive's death subsequent to termination and
prior to receiving all benefits and payments
provided for by this Section 4, such benefits and
payments shall be paid to his or her spouse, if
any, or otherwise to the personal representative
of his or her estate, unless Executive has
otherwise directed the Company in writing prior to
his or her death.
(f) EXCLUSIVE SOURCE OF SEVERANCE PAY.
Benefits provided hereunder shall replace the
amount of any severance payments to which
Executive would otherwise be entitled under any
severance plan or policy generally available to
employees of the Company.
(g) NONSEGREGATION. No assets of the
Company need be segregated c1I- earmarked to
represent the liability for benefits payable
hereunder. The rights of any person to receive
benefits hereunder shall be only those of a
general unsecured creditor.
(h) WITHHOLDING. All payments under this
Section 4 are subject to applicable federal and
state payroll withholding or other applicable
taxes.
5. NONCOMPETITION
(a) NONCOMPETITION. In the event that,
after a change in Control, Executive's employment
is terminated by the Company or by Executive for
any reason, and provided that any payments due
Executive upon such termination are paid when due,
then for a period of one year after such
termination, Executive shall not engage in any
activities (including, without limitation,
activities for any subsequent employer of
Executive) directly competitive with the business
of the Company.
(b) COMPANY REMEDY. In the event of any
breach by Executive of the obligations set forth
in Section 5(a), the Company shall be entitled to
recover an amount equal to the total of all
amounts paid to Executive pursuant to Sections
4(a) and 4(b) of this Agreement in addition to any
6
<PAGE>
other remedies available to the Company at law or
in equity.
6. ARBITRATION
Any dispute or controversy arising under or
in connection with this Agreement shall be settled
exclusively by arbitration in Seattle, Washington,
in accordance with the Arbitration Rules of the
Judicial Arbitration & Mediation Services then in
effect. Judgment may be entered on the
arbitrator's award in any jurisdiction.
7. CONFLICT IN BENEFITS
This Agreement is not intended to and shall
not adversely affect, limit or terminate any other
agreement or arrangement between Executive and the
Company presently in effect or hereafter entered
into, including any employee benefit plan under
which Executive is entitled to benefits.
8. TERM, TERMINATION AND AMENDMENT
(a) The initial term of this Agreement shall
be from the date hereof until the anniversary date
of this Agreement. On each such annual anniversary
date, this Agreement shall automatically be
renewed for a period of one year, unless 60 days
prior to such anniversary date the Company shall
give notice to Executive that the Agreement is
terminated or amended, provided that no Change in
Control has occurred prior to such anniversary.
Notwithstanding such termination, the Company
shall remain liable for any rights or payments
arising prior to such termination to which
Executive is entitled under this Agreement. During
each such one year term, this Agreement may not be
amended or terminated except by written agreement
between Executive and the Company.
(b) In the event of a Change in Control,
unless earlier terminated as provided herein, this
Agreement shall continue in effect until for a
period of three years from the date of the Change
in Control at which time this Agreement shall
expire. For a three-year period following a Change
in Control, (i) this Agreement may not be
terminated, and (ii) no amendment or other action
of the Board which adversely affects the rights of
7
<PAGE>
Executive hereunder is valid and enforceable
without the prior written consent of Executive.
After the three-year period from the date of the
Change in Control, the Board may terminate or
amend this Agreement without the prior written
consent of Executive.
9. MISCELLANEOUS
(a) AMENDMENT. This Agreement may not be
amended except by written agreement between
Executive and the Company.
(b) NO MITIGATION. All payments and
benefits to which Executive is entitled under this
Agreement shall be made and provided without
offset, deduction or mitigation on account of
income Executive could or may receive from other
employment or otherwise, except as provided in
Section 4(d) and Section 5(b) hereof.
(c) EMPLOYMENT NOT GUARANTEED. Nothing
contained in this Agreement, and no decision as to
the eligibility for benefits or the determination
of the amount of any benefits hereunder, shall
give Executive any right to be retained in the
employ of the Company or rehired, and the right
and power of the Company to dismiss or discharge
any employee for any reason is specifically
reserved. Except as expressly provided herein, no
employee or any person claiming under or through
him or her shall have any right or interest
herein, or in any benefit hereunder.
(d) LEGAL EXPENSES. In connection with
any litigation, arbitration or similar proceeding,
whether or not instituted by the Company or
Executive, with respect to the interpretation or
enforcement of any provision of this Agreement,
the prevailing party shall be entitled to recover
from the other party all costs and expenses,
including reasonable attorneys' fees and
disbursements, in connection with such litigation,
arbitration or similar proceeding. The Company
shall pay prejudgment interest on any money
judgment obtained by Executive as a result of such
proceedings, calculated at the published
commercial interest rate of Seattle-First National
Bank for its best customers, as in effect from
8
<PAGE>
time to time from the date that payment should
have been made to Executive under this Agreement.
(e) NOTICES. Any notices required under
the terms of this Agreement shall be effective
when mailed, postage prepaid, by certified mail
and addressed to, in the case of the Company:
EMERITUS Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: Chief Financial Officer
and to, in the case of Executive
Frank A. Ruffo
2767 Holy Bluff Court
Gig Harbor, WA 98335
Either party may designate a different address by
giving written notice of change of address in the
manner provided above.
(f) WAIVER; CURE. No waiver or
modification in whole or in part of this
Agreement, or any term or condition hereof, shall
be effective against any party unless in writing
and duly signed by the party sought to be bound.
Any waiver of any breach of any provision hereof
or any right or power by any party on one occasion
shall not be construed as a waiver of, or a bar
to, the exercise of such right or power on any
other occasion or as a waiver of any subsequent
breach. Other than a breach of the provisions of
Section 5, any breach of this Agreement may be
cured by the breaching party within ten days of
the date that such breaching party shall have
received written notice of such breach from the
party asserting such breach.
(g) BINDING EFFECT; SUCCESSORS. Subject
to the provisions hereof, nothing in this
Agreement shall prevent the consolidation of the
Company with, or its merger into, any other
corporation, or the sale by the Company of all or
substantially all of its properties and assets, or
the assignment of this Agreement by the Company in
connection with any of the foregoing actions. This
Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Company and
9
<PAGE>
Executive and their respective heirs, legal
representatives, successors and assigns. If the
Company shall be merged into or consolidated with
another entity, the provisions of this Agreement
shall be binding upon and inure to the benefit of
the entity surviving such merger or resulting from
such consolidation. The Company shall require any
successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets
of the Company, including the successor to all or
substantially all of the business or assets of any
Subsidiary, division or profit center of the
Company, to expressly assume and agree to perform
this Agreement in the same manner and to the same
extent that the Company would be required to
perform it if no such succession had taken place.
The provisions of this Section 9(g) shall continue
to apply to each subsequent employer of Executive
hereunder in the event of any subsequent merger,
consolidation or transfer of assets of such
subsequent employer.
(h) SEPARABILITY. Any provision of this
Agreement which is held to be unenforceable or
invalid in any respect in any jurisdiction shall
be ineffective in such jurisdiction to the extent
that it is unenforceable or invalid without
affecting the remaining provisions hereof, which
shall continue in full force and effect. The
unenforceability or invalidity of a provision of
this Agreement in one jurisdiction shall not
invalidate or render unenforceable such provision
in any other jurisdiction.
(i) CONTROLLING LAW. This Agreement
shall be governed by and construed in accordance
with the laws of the state of Washington
applicable to contracts made and to be performed
therein.
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<PAGE>
IN WITNESS WHEREOF, the Company and
Executive have executed this Agreement as of the
day and year first above written.
EMERITUS CORPORATION
By: /s/ Raymond R. Brandstrom
----------------------
By: Raymond R. Brandstrom
Title: President
EXECUTIVE:
By: /s/ Frank A. Ruffo
--------------------------
Frank A. Ruffo
11
<PAGE>
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the
context requires a different meaning, the
following terms have the meanings indicated:
"ACCRUED BENEFITS" means the aggregate of any
compensation previously deferred by Executive
(together with any accrued interest or earnings
thereon), any accrued vacation pay and, if the
date of Termination occurs after the end of a
Fiscal Year for which a bonus is payable to
Executive, such bonus, in each case to the extent
previously earned and not paid.
"BASE AMOUNT" shall mean the "base amount" of
Executive as defined in Section 280G of the Code.
"CAUSE" means (a) willful misconduct on the
part of Executive that has a materially adverse
effect on the Company and its Subsidiaries, taken
as a whole, (b) Executive's engaging in conduct
which could reasonably result in his or her
conviction of a felony or a crime against the
Company or involving substance abuse, fraud or
moral turpitude, or which would materially
compromise the Company's reputation, as determined
in good faith by a written resolution duly adopted
by the affirmative vote of not less than two-
thirds of all of the directors who are not
employees or of officers of the Company, or (c)
unreasonable refusal by Executive to perform the
duties and responsibilities of his or her position
in any material respect. No action, or failure to
act shall be considered "willful" if it is done by
Executive in good faith and with reasonable belief
that his or her action or omission was in the best
interests of the Company.
"CHANGE IN CONTROL" means, and shall be
deemed to occur upon the happening of. any one of
the following:
(a) The occupying of a majority of the seats
(other than vacant seats) on the Board by
individuals who were neither nominated or
appointed by a majority of the Incumbent
Directors;
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<PAGE>
(b) The acquisition, directly or indirectly,
by any Person (other than Daniel R. Baty and his
affiliates) of beneficial ownership of 30% or more
of the combined voting power of the then
outstanding voting securities of the Company
entitled to vote generally in the election of
directors, which acquisition is not approved in
advance by a majority of the Incumbent Directors;
(c) The approval by the stockholders of the
Company of a reorganization, merger or
consolidation or sale of substantially all of the
assets of the Company (an "Acquisition
Transaction") unless, following such Acquisition
Transaction, all or substantially all of the
individuals and entities who were the beneficial
owners of the outstanding voting securities of the
Company immediately prior to such Acquisition
Transaction beneficially own, directly or
indirectly, more than 50"% of the then outstanding
voting securities of the corporation resulting
from such Acquisition Transaction (including,
without limitation, a corporation which as a
result of such transaction owns the Company or all
or substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately prior
to such Acquisition Transaction of the outstanding
voting securities of the Company; or
(d) Approval by the stockholders of the
Company of a liquidation or dissolution of the
Company.
(e) For purposes of this definition, (i) the
terms "beneficial owner" and "beneficial
ownership" shall have the meanings set forth in
Rules 13d-3 and 13d-5 of the General Rules and
Regulations promulgated under the Exchange Act,
(ii) the term "voting securities" shall mean the
voting securities of a corporation entitled to
vote generally in the election of directors and
the term "affiliate" shall have the meaning set
forth in Rule 12b-2 of the General Rules and
Regulations promulgated under the 1~.xchange Act.
"CODE" means the Internal Revenue Code of
1986, as amended.
13
<PAGE>
"DISABILITY" means that (a) a person has been
incapacitated by bodily injury or physical or
mental disease so as to be prevented thereby from
performance of his or her duties with the Company
for 120 days in any 12-month period, and (b) such
person is disabled for purposes of any and all of
the plans or programs of the Company or any
Subsidiary that employs Executive under which
benefits, compensation or awards are contingent
upon a finding of disability. The determination
with respect to whether Executive is suffering
from such a Disability will be determined by a
mutually acceptable physician or, if there is no
physician mutually acceptable to the Company and
Executive, by a physician selected by the then
Dean of the University of Washington Medical
School.
"EXCHANGE ACT" means the Securities Exchange
Act of 1934, as amended.
"EXCISE TAX" means the excise tax, including
any interest or penalties thereon, imposed on
Executive by Section 4999 of the Code.
"FISCAL YEAR" means the 12-month period
ending on December 3 I in each year I or such
other fiscal year period established by the
Board).
"GOOD REASON" means, without Executive's
express written consent:
(a) (i) the assignment to Executive of
duties, or limitation of Executive's ,
responsibilities inconsistent with
Executive s title, position, duties,
responsibilities and status with the
Company Executive as such duties and
responsibilities existed immediately
prior to the date of the Change in
Control, or (ii) removal of Executive
from, or failure to re-elect Executive
to, Executive's positions with the
Company or any Subsidiary that employs
Executive immediately prior to the
Change in Control, except in connection
with the involuntary termination of
Executive's employment by the Company
14
<PAGE>
for Cause or as a result of Executive's
death or Disability;
(b) failure by the Company to pay, or
reduction by the Company of, Executive's
annual base salary, as reflected in the
Company's payroll records for
Executive's last pay period immediately
prior to the Change in Control;
(c) failure by the Company to pay, or
reduction by the Company of, Executive's
bonus;
( d) the relocation of the principal place of
Executive's employment to a location
that is more than 25 miles further from
Executive's principal residence than
such principal place of employment
immediately prior to the Change in
Control; or
(e) the breach of any material provision of
this Agreement by the Company,
including, without limitation, failure
by the Company to bind any successor to
the Company to the terms and provisions
of this Agreement in accordance with
Section 9(g).
"GROSS-UP PAYMENT" shall have the meaning set
forth in Section 4(b).
"INCUMBENT DIRECTOR" means a member of the
Board who has been either (a) nominated by a
majority of the directors of the Company then in
of ice or (b) appointed by directors so nominated,
but excluding, for this purpose, any such
individual whose initial assumption of office
occurs as a result of either an actual or
threatened election contest (as such terms are
used in Rule 14a-l1 of Regulation 14A promulgated
under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board.
"PARACHUTE PAYMENT" means any payment deemed
to constitute a "parachute payment" as defined in
Section 280G of the Code.
15
<PAGE>
"PERSON" means any individual, entity or
group (as such term is used in Section 13(d)(3 )
or 14(d)(2) of the Exchange Act).
"SUBSIDIARY" means an Person controlled by
the Company directly, or indirectly through one or
more intermediaries.
"TERMINATION" means, following the occurrence
of any Change in Control by the Company, (a) the
involuntary termination of the employment of
Executive for any reason other than death,
Disability or for Cause or (b) the termination of
employment by Executive for Good Reason.
"WELFARE BENEFITS" shall have the meaning set
forth in Section 3(b).
16
<PAGE>
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT, dated
the l4th day of May 1997, between EMERITUS
CORPORATION, a Washington corporation (the
"Company"), and Kelly J. Price ("Executive").
RECITALS
A. Executive is currently employed by the
Company or one of its Subsidiaries.
B. The Board of Directors of the Company (the
"Board") has determined that it is appropriate to
reinforce the continued attention and dedication
of certain members of the Company's management,
including Executive, to their assigned duties
without distraction in potentially disturbing
circumstances arising from the possibility of a
Change in Control of the Company, as defined in
Schedule A attached hereto.
AGREEMENTS
NOW, THEREFORE, in consideration of the
covenants and agreements hereinafter set forth,
the Company and Executive agree as follows:
1. DEFINITIONS
Terms capitalized in this Agreement which are
not otherwise defined shall have the meanings
assigned to such terms in Schedule A attached
hereto.
2. EMPLOYMENT FOLLOWING A CHANGE IN CONTROL.
Once a (Change in Control has occurred, no
termination of Executive's employment with the
Company, other than on account of death, shall be
effective unless the party causing such
termination of employment provides the other party
30 days' prior written notice of such termination,
which shall indicate those specific provisions in
this Agreement relied upon and which sets forth in
reasonable detail the conflicts and circumstances
claimed to provide a basis for the termination of
Executive's employment constituting a Termination,
if any, under the provision so indicated.
<PAGE>
3. BENEFITS UPON CHANGE IN CONTROL
Executive shall be entitled to the following
payments and benefits following a Change in
Control, whether or not a Termination occurs:
(a) SALARY AND BENEFITS. Executive shall
(i) receive an annual base salary no less than
$150,000 current market salary and an annual bonus
equal to at least the average of the two annual
bonuses paid to Executive in the two years prior
to the Change in Control, and (ii) be entitled to
participate in all employee expense reimbursement,
incentive, savings and retirement plans,
practices, policies and programs (including any
Company plan qualified under Section 401 (a) of
the Code) available to other peer executives of
the Company and its Subsidiaries, but in no event
shall the benefits provided to Executive under
this item (ii) be less favorable, in the
aggregate, than the most favorable of those plans,
practices, policies or programs in effect
immediately prior to the date that the Change in
Control occurs.
(b) WELFARE BENEFITS. The Company shall
at the Company's expense (except for the amount,
if any, of any required employee contribution
which would have been necessary for Executive to
contribute as an active employee under the plan or
program as in effect on the date of the Change in
Control continue to cover Executive (and his or
her dependents) under, or provide Executive (and
his or her dependents) with insurance coverage no
less favorable than, the Company's life,
disability, health, dental and any other employee
welfare benefit plans or programs, as in effect on
the date of the Change in Control (such benefits,
the "Welfare Benefits").
(c) DEATH OF EXECUTIVE. In the event of
Executive's death prior to Termination, but while
employed by the Company or any Subsidiary, as the
case may he, his or her spouse, if any, or
otherwise the personal representative of his or
her estate shall be entitled to receive (i)
Executive's salary at the rate then in effect
through the date of death, as provided under the
Company's pay policy, and (ii) any Accrued
Benefits for the periods of service prior to the
date of death.
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<PAGE>
(d) DISABILITY OF EXECUTIVE. In the
event of Executive's Disability prior to
Termination, but while employed by the Company or
any Subsidiary, as the case may be, Executive
shall be entitled to receive (i) his or her salary
at the rate then iii effect through the date of
the determination of Disability, as provided under
the Company's pay policy, (ii) any Accrued
Benefits for the periods of service prior to the
date of the determination of Disability, (iii)
payments under the Company 's short and long term
disability plans following the determination of
Disability, and (iv) Welfare Benefits for a period
of one year following the determination of
Disability.
(e) CAUSE; UPON EXPIRATION OF THIS
AGREEMENT; OTHER THAN FOR GOOD REASON. If
Executive's employment shall be terminated by the
Company for cause or upon expiration of this
Agreement or by Executive other than for Good
Reason, Executive shall be entitled to receive
only (i) his or her salary at the rate then in
effect through the date of such termination, as
provided under the Company's pay policy, and (ii)
any Accrued Benefits for the periods of service
prior to the date of such termination.
(f) WITHHOLDING. All payments under this
Section 4 arc; subject to applicable federal and
state payroll withholding or other applicable
taxes.
4. PAYMENTS AND BENEFITS UPON TERMINATION
Executive shall be entitled to the following
payments and benefits following Termination:
(a) TERMINATION PAYMENT. Subject to
Section 4(b), in recognition of past services to
the Company by Executive, the Company shall make a
lump sum payment in cash to Executive as severance
pay within ten (10) business days following the
date of Termination equal to three times the sum
of: (i) Executive's annual base salary in effect
pursuant of Section 3(a) or such date of
Termination, whichever salary is higher; plus (ii)
Executive's target bonus for the current fiscal
year as determined by the Compensation Committee;
provided, however, that if Termination occurs
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<PAGE>
prior to the determination of such target bonus
for a fiscal year, such bonus shall be the target
bonus for the prior fiscal year.
(b) TERMINATION BENEFITS; Certain
Additional Payments by the Company.
(i) Then the payments to Executive
under Section 4(a) shall be increased (such
increase, a "Gross-Up Payment"), but only to the
extent necessary to ensure that, after payment by
the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes),
including, without limitation, any income taxes
and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up
Payment equal to such Excise Tax. The foregoing
calculations shall be made by the Company and
Executive. If no agreement on the calculations is
reached within ten (10) business days after the
date of Termination, then the accounting firm
which regularly audits the financial statements of
the Company (the "Auditors") shall review the
calculations, and report their determination of
the amount due to both Executive and the Company
within thirty (30) days of the termination. The
determination of such firm shall be conclusive and
binding on all parties and the expense for such
accountants shall be paid by the Company. Pending
such determination, the Company shall continue to
make all other required payments to Executive at
the time and in the manner provided herein.
(ii) As a result of the uncertainty
in the application of Section 280G and Section
4999 of the Code, it is possible that the Company
will make a payment (including a Gross-Up Payment)
under this Agreement that should not have been
made (an "Overpayment") or that the Company will
fail to make a payment (including a Gross-Up
Payment) under this Agreement that should have
been made (an "Underpayment"). If the Company and
Executive, or, if no agreement is reached by the
Company and Executive, the Auditors, determine
that Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan to the
Executive which he shall repay to the Company,
together with interest at the applicable federal
rate provided for in section 7872(f)(2)(A) of the
Code. If the Company and Executive, or, if no
4
<PAGE>
agreement is reached by the Company and Executive,
the Auditors, determine that an Underpayment has
occurred, such Underpayment shall promptly be paid
by the Company to Executive, together with
interest at the applicable federal rate provided
for in section 7872(f)(2)(A) of the Code. The
Company and Executive agree to give each other
prompt written notice of any information or taxing
authority inquiry that could reasonably result in
the determination that an Overpayment or
Underpayment has been made.
(c) ACCRUED BENEFITS. Within ten (10)
business days following the date of Termination,
the Company shall make a lump sum payment in cash
to Executive in the amount of any Accrued Benefits
for the periods of service prior to the date of
Termination.
(d) WELFARE BENEFITS. The Company shall,
at its sole option and expense (except for the
amount, if any, of any required employee
contribution that would have been necessary for
Executive to contribute as an active employee
under the plan or program as in effect on the date
of Termination) either (i) continue to cover
Executive (and his or her dependents) under, or
provide Executive (and his or her dependents) with
Welfare Benefits (as in effect on the date of the
Change in Control or, at the option of Executive,
on the date of Termination) for a period of three
years following the date of Termination, or (ii)
pay Executive a lump sum cash payment within ten
(10) business days following the date of
Termination equal to the then-present value of the
cost to the Company of such Welfare Benefits;
provided, however, that if Executive is provided
by another employer during such three-year period
with benefits substantially comparable to the
Welfare Benefits, the benefits provided by the
Company shall, unless a lump sum payment has been
made by the Company (in which case Executive shall
not, for any reason, be required to return any
part of such payment), be reduced by the benefits
provided by such other employer, but only to the
extent of, and with respect to, the Welfare
Benefits otherwise payable by the Company to
Executive.
5
<PAGE>
(e) DEATH OF EXECUTIVE. In the event of
Executive's death subsequent to termination and
prior to receiving all benefits and payments
provided for by this Section 4, such benefits and
payments shall be paid to his or her spouse, if
any, or otherwise to the personal representative
of his or her estate, unless Executive has
otherwise directed the Company in writing prior to
his or her death.
(f) EXCLUSIVE SOURCE OF SEVERANCE PAY.
Benefits provided hereunder shall replace the
amount of any severance payments to which
Executive would otherwise be entitled under any
severance plan or policy generally available to
employees of the Company.
(g) NONSEGREGATION. No assets of the
Company need be segregated c1I- earmarked to
represent the liability for benefits payable
hereunder. The rights of any person to receive
benefits hereunder shall be only those of a
general unsecured creditor.
(h) WITHHOLDING. All payments under this
Section 4 are subject to applicable federal and
state payroll withholding or other applicable
taxes.
5. NONCOMPETITION
(a) NONCOMPETITION. In the event that,
after a change in Control, Executive's employment
is terminated by the Company or by Executive for
any reason, and provided that any payments due
Executive upon such termination are paid when due,
then for a period of one year after such
termination, Executive shall not engage in any
activities (including, without limitation,
activities for any subsequent employer of
Executive) directly competitive with the business
of the Company.
(b) COMPANY REMEDY. In the event of any
breach by Executive of the obligations set forth
in Section 5(a), the Company shall be entitled to
recover an amount equal to the total of all
amounts paid to Executive pursuant to Sections
4(a) and 4(b) of this Agreement in addition to any
6
<PAGE>
other remedies available to the Company at law or
in equity.
6. ARBITRATION
Any dispute or controversy arising under or
in connection with this Agreement shall be settled
exclusively by arbitration in Seattle, Washington,
in accordance with the Arbitration Rules of the
Judicial Arbitration & Mediation Services then in
effect. Judgment may be entered on the
arbitrator's award in any jurisdiction.
7. CONFLICT IN BENEFITS
This Agreement is not intended to and shall
not adversely affect, limit or terminate any other
agreement or arrangement between Executive and the
Company presently in effect or hereafter entered
into, including any employee benefit plan under
which Executive is entitled to benefits.
8. TERM, TERMINATION AND AMENDMENT
(a) The initial term of this Agreement shall
be from the date hereof until the anniversary date
of this Agreement. On each such annual anniversary
date, this Agreement shall automatically be
renewed for a period of one year, unless 60 days
prior to such anniversary date the Company shall
give notice to Executive that the Agreement is
terminated or amended, provided that no Change in
Control has occurred prior to such anniversary.
Notwithstanding such termination, the Company
shall remain liable for any rights or payments
arising prior to such termination to which
Executive is entitled under this Agreement. During
each such one year term, this Agreement may not be
amended or terminated except by written agreement
between Executive and the Company.
(b) In the event of a Change in Control,
unless earlier terminated as provided herein, this
Agreement shall continue in effect until for a
period of three years from the date of the Change
in Control at which time this Agreement shall
expire. For a three-year period following a Change
in Control, (i) this Agreement may not be
terminated, and (ii) no amendment or other action
of the Board which adversely affects the rights of
7
<PAGE>
Executive hereunder is valid and enforceable
without the prior written consent of Executive.
After the three-year period from the date of the
Change in Control, the Board may terminate or
amend this Agreement without the prior written
consent of Executive.
9. MISCELLANEOUS
(a) AMENDMENT. This Agreement may not be
amended except by written agreement between
Executive and the Company.
(b) NO MITIGATION. All payments and
benefits to which Executive is entitled under this
Agreement shall be made and provided without
offset, deduction or mitigation on account of
income Executive could or may receive from other
employment or otherwise, except as provided in
Section 4(d) and Section 5(b) hereof.
(c) EMPLOYMENT NOT GUARANTEED. Nothing
contained in this Agreement, and no decision as to
the eligibility for benefits or the determination
of the amount of any benefits hereunder, shall
give Executive any right to be retained in the
employ of the Company or rehired, and the right
and power of the Company to dismiss or discharge
any employee for any reason is specifically
reserved. Except as expressly provided herein, no
employee or any person claiming under or through
him or her shall have any right or interest
herein, or in any benefit hereunder.
(d) LEGAL EXPENSES. In connection with
any litigation, arbitration or similar proceeding,
whether or not instituted by the Company or
Executive, with respect to the interpretation or
enforcement of any provision of this Agreement,
the prevailing party shall be entitled to recover
from the other party all costs and expenses,
including reasonable attorneys' fees and
disbursements, in connection with such litigation,
arbitration or similar proceeding. The Company
shall pay prejudgment interest on any money
judgment obtained by Executive as a result of such
proceedings, calculated at the published
commercial interest rate of Seattle-First National
Bank for its best customers, as in effect from
8
<PAGE>
time to time from the date that payment should
have been made to Executive under this Agreement.
(e) NOTICES. Any notices required under
the terms of this Agreement shall be effective
when mailed, postage prepaid, by certified mail
and addressed to, in the case of the Company:
EMERITUS Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: Chief Financial Officer
and to, in the case of Executive
Kelly J. Price
2914 222nd Place SE
Issaquah, WA 98029
Either party may designate a different address by
giving written notice of change of address in the
manner provided above.
(f) WAIVER; CURE. No waiver or
modification in whole or in part of this
Agreement, or any term or condition hereof, shall
be effective against any party unless in writing
and duly signed by the party sought to be bound.
Any waiver of any breach of any provision hereof
or any right or power by any party on one occasion
shall not be construed as a waiver of, or a bar
to, the exercise of such right or power on any
other occasion or as a waiver of any subsequent
breach. Other than a breach of the provisions of
Section 5, any breach of this Agreement may be
cured by the breaching party within ten days of
the date that such breaching party shall have
received written notice of such breach from the
party asserting such breach.
(g) BINDING EFFECT; SUCCESSORS. Subject
to the provisions hereof, nothing in this
Agreement shall prevent the consolidation of the
Company with, or its merger into, any other
corporation, or the sale by the Company of all or
substantially all of its properties and assets, or
the assignment of this Agreement by the Company in
connection with any of the foregoing actions. This
Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Company and
9
<PAGE>
Executive and their respective heirs, legal
representatives, successors and assigns. If the
Company shall be merged into or consolidated with
another entity, the provisions of this Agreement
shall be binding upon and inure to the benefit of
the entity surviving such merger or resulting from
such consolidation. The Company shall require any
successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets
of the Company, including the successor to all or
substantially all of the business or assets of any
Subsidiary, division or profit center of the
Company, to expressly assume and agree to perform
this Agreement in the same manner and to the same
extent that the Company would be required to
perform it if no such succession had taken place.
The provisions of this Section 9(g) shall continue
to apply to each subsequent employer of Executive
hereunder in the event of any subsequent merger,
consolidation or transfer of assets of such
subsequent employer.
(h) SEPARABILITY. Any provision of this
Agreement which is held to be unenforceable or
invalid in any respect in any jurisdiction shall
be ineffective in such jurisdiction to the extent
that it is unenforceable or invalid without
affecting the remaining provisions hereof, which
shall continue in full force and effect. The
unenforceability or invalidity of a provision of
this Agreement in one jurisdiction shall not
invalidate or render unenforceable such provision
in any other jurisdiction.
(i) CONTROLLING LAW. This Agreement
shall be governed by and construed in accordance
with the laws of the state of Washington
applicable to contracts made and to be performed
therein.
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<PAGE>
IN WITNESS WHEREOF, the Company and
Executive have executed this Agreement as of the
day and year first above written.
EMERITUS CORPORATION
By: /s/ Raymond R. Brandstrom
----------------------
By: Raymond R. Brandstrom
Title: President
EXECUTIVE:
By: /s/ Kelly J. Price
--------------------------
Kelly J. Price
11
<PAGE>
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the
context requires a different meaning, the
following terms have the meanings indicated:
"ACCRUED BENEFITS" means the aggregate of any
compensation previously deferred by Executive
(together with any accrued interest or earnings
thereon), any accrued vacation pay and, if the
date of Termination occurs after the end of a
Fiscal Year for which a bonus is payable to
Executive, such bonus, in each case to the extent
previously earned and not paid.
"BASE AMOUNT" shall mean the "base amount" of
Executive as defined in Section 280G of the Code.
"CAUSE" means (a) willful misconduct on the
part of Executive that has a materially adverse
effect on the Company and its Subsidiaries, taken
as a whole, (b) Executive's engaging in conduct
which could reasonably result in his or her
conviction of a felony or a crime against the
Company or involving substance abuse, fraud or
moral turpitude, or which would materially
compromise the Company's reputation, as determined
in good faith by a written resolution duly adopted
by the affirmative vote of not less than two-
thirds of all of the directors who are not
employees or of officers of the Company, or (c)
unreasonable refusal by Executive to perform the
duties and responsibilities of his or her position
in any material respect. No action, or failure to
act shall be considered "willful" if it is done by
Executive in good faith and with reasonable belief
that his or her action or omission was in the best
interests of the Company.
"CHANGE IN CONTROL" means, and shall be
deemed to occur upon the happening of. any one of
the following:
(a) The occupying of a majority of the seats
(other than vacant seats) on the Board by
individuals who were neither nominated or
appointed by a majority of the Incumbent
Directors;
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<PAGE>
(b) The acquisition, directly or indirectly,
by any Person (other than Daniel R. Baty and his
affiliates) of beneficial ownership of 30% or more
of the combined voting power of the then
outstanding voting securities of the Company
entitled to vote generally in the election of
directors, which acquisition is not approved in
advance by a majority of the Incumbent Directors;
(c) The approval by the stockholders of the
Company of a reorganization, merger or
consolidation or sale of substantially all of the
assets of the Company (an "Acquisition
Transaction") unless, following such Acquisition
Transaction, all or substantially all of the
individuals and entities who were the beneficial
owners of the outstanding voting securities of the
Company immediately prior to such Acquisition
Transaction beneficially own, directly or
indirectly, more than 50"% of the then outstanding
voting securities of the corporation resulting
from such Acquisition Transaction (including,
without limitation, a corporation which as a
result of such transaction owns the Company or all
or substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately prior
to such Acquisition Transaction of the outstanding
voting securities of the Company; or
(d) Approval by the stockholders of the
Company of a liquidation or dissolution of the
Company.
(e) For purposes of this definition, (i) the
terms "beneficial owner" and "beneficial
ownership" shall have the meanings set forth in
Rules 13d-3 and 13d-5 of the General Rules and
Regulations promulgated under the Exchange Act,
(ii) the term "voting securities" shall mean the
voting securities of a corporation entitled to
vote generally in the election of directors and
the term "affiliate" shall have the meaning set
forth in Rule 12b-2 of the General Rules and
Regulations promulgated under the 1~.xchange Act.
"CODE" means the Internal Revenue Code of
1986, as amended.
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<PAGE>
"DISABILITY" means that (a) a person has been
incapacitated by bodily injury or physical or
mental disease so as to be prevented thereby from
performance of his or her duties with the Company
for 120 days in any 12-month period, and (b) such
person is disabled for purposes of any and all of
the plans or programs of the Company or any
Subsidiary that employs Executive under which
benefits, compensation or awards are contingent
upon a finding of disability. The determination
with respect to whether Executive is suffering
from such a Disability will be determined by a
mutually acceptable physician or, if there is no
physician mutually acceptable to the Company and
Executive, by a physician selected by the then
Dean of the University of Washington Medical
School.
"EXCHANGE ACT" means the Securities Exchange
Act of 1934, as amended.
"EXCISE TAX" means the excise tax, including
any interest or penalties thereon, imposed on
Executive by Section 4999 of the Code.
"FISCAL YEAR" means the 12-month period
ending on December 3 I in each year I or such
other fiscal year period established by the
Board).
"GOOD REASON" means, without Executive's
express written consent:
(a) (i) the assignment to Executive of
duties, or limitation of Executive's ,
responsibilities inconsistent with
Executive s title, position, duties,
responsibilities and status with the
Company Executive as such duties and
responsibilities existed immediately
prior to the date of the Change in
Control, or (ii) removal of Executive
from, or failure to re-elect Executive
to, Executive's positions with the
Company or any Subsidiary that employs
Executive immediately prior to the
Change in Control, except in connection
with the involuntary termination of
Executive's employment by the Company
14
<PAGE>
for Cause or as a result of Executive's
death or Disability;
(b) failure by the Company to pay, or
reduction by the Company of, Executive's
annual base salary, as reflected in the
Company's payroll records for
Executive's last pay period immediately
prior to the Change in Control;
(c) failure by the Company to pay, or
reduction by the Company of, Executive's
bonus;
( d) the relocation of the principal place of
Executive's employment to a location
that is more than 25 miles further from
Executive's principal residence than
such principal place of employment
immediately prior to the Change in
Control; or
(e) the breach of any material provision of
this Agreement by the Company,
including, without limitation, failure
by the Company to bind any successor to
the Company to the terms and provisions
of this Agreement in accordance with
Section 9(g).
"GROSS-UP PAYMENT" shall have the meaning set
forth in Section 4(b).
"INCUMBENT DIRECTOR" means a member of the
Board who has been either (a) nominated by a
majority of the directors of the Company then in
of ice or (b) appointed by directors so nominated,
but excluding, for this purpose, any such
individual whose initial assumption of office
occurs as a result of either an actual or
threatened election contest (as such terms are
used in Rule 14a-l1 of Regulation 14A promulgated
under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board.
"PARACHUTE PAYMENT" means any payment deemed
to constitute a "parachute payment" as defined in
Section 280G of the Code.
15
<PAGE>
"PERSON" means any individual, entity or
group (as such term is used in Section 13(d)(3 )
or 14(d)(2) of the Exchange Act).
"SUBSIDIARY" means an Person controlled by
the Company directly, or indirectly through one or
more intermediaries.
"TERMINATION" means, following the occurrence
of any Change in Control by the Company, (a) the
involuntary termination of the employment of
Executive for any reason other than death,
Disability or for Cause or (b) the termination of
employment by Executive for Good Reason.
"WELFARE BENEFITS" shall have the meaning set
forth in Section 3(b).
16
<PAGE>
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT, dated
the l4th day of May 1997, between EMERITUS
CORPORATION, a Washington corporation (the
"Company"), and Gary D. Witte ("Executive").
RECITALS
A. Executive is currently employed by the
Company or one of its Subsidiaries.
B. The Board of Directors of the Company (the
"Board") has determined that it is appropriate to
reinforce the continued attention and dedication
of certain members of the Company's management,
including Executive, to their assigned duties
without distraction in potentially disturbing
circumstances arising from the possibility of a
Change in Control of the Company, as defined in
Schedule A attached hereto.
AGREEMENTS
NOW, THEREFORE, in consideration of the
covenants and agreements hereinafter set forth,
the Company and Executive agree as follows:
1. DEFINITIONS
Terms capitalized in this Agreement which are
not otherwise defined shall have the meanings
assigned to such terms in Schedule A attached
hereto.
2. EMPLOYMENT FOLLOWING A CHANGE IN CONTROL.
Once a (Change in Control has occurred, no
termination of Executive's employment with the
Company, other than on account of death, shall be
effective unless the party causing such
termination of employment provides the other party
30 days' prior written notice of such termination,
which shall indicate those specific provisions in
this Agreement relied upon and which sets forth in
reasonable detail the conflicts and circumstances
claimed to provide a basis for the termination of
Executive's employment constituting a Termination,
if any, under the provision so indicated.
<PAGE>
3. BENEFITS UPON CHANGE IN CONTROL
Executive shall be entitled to the following
payments and benefits following a Change in
Control, whether or not a Termination occurs:
(a) SALARY AND BENEFITS. Executive shall
(i) receive an annual base salary no less than
$175,000 current market salary and an annual bonus
equal to at least the average of the two annual
bonuses paid to Executive in the two years prior
to the Change in Control, and (ii) be entitled to
participate in all employee expense reimbursement,
incentive, savings and retirement plans,
practices, policies and programs (including any
Company plan qualified under Section 401 (a) of
the Code) available to other peer executives of
the Company and its Subsidiaries, but in no event
shall the benefits provided to Executive under
this item (ii) be less favorable, in the
aggregate, than the most favorable of those plans,
practices, policies or programs in effect
immediately prior to the date that the Change in
Control occurs.
(b) WELFARE BENEFITS. The Company shall
at the Company's expense (except for the amount,
if any, of any required employee contribution
which would have been necessary for Executive to
contribute as an active employee under the plan or
program as in effect on the date of the Change in
Control continue to cover Executive (and his or
her dependents) under, or provide Executive (and
his or her dependents) with insurance coverage no
less favorable than, the Company's life,
disability, health, dental and any other employee
welfare benefit plans or programs, as in effect on
the date of the Change in Control (such benefits,
the "Welfare Benefits").
(c) DEATH OF EXECUTIVE. In the event of
Executive's death prior to Termination, but while
employed by the Company or any Subsidiary, as the
case may he, his or her spouse, if any, or
otherwise the personal representative of his or
her estate shall be entitled to receive (i)
Executive's salary at the rate then in effect
through the date of death, as provided under the
Company's pay policy, and (ii) any Accrued
Benefits for the periods of service prior to the
date of death.
2
<PAGE>
(d) DISABILITY OF EXECUTIVE. In the
event of Executive's Disability prior to
Termination, but while employed by the Company or
any Subsidiary, as the case may be, Executive
shall be entitled to receive (i) his or her salary
at the rate then iii effect through the date of
the determination of Disability, as provided under
the Company's pay policy, (ii) any Accrued
Benefits for the periods of service prior to the
date of the determination of Disability, (iii)
payments under the Company 's short and long term
disability plans following the determination of
Disability, and (iv) Welfare Benefits for a period
of one year following the determination of
Disability.
(e) CAUSE; UPON EXPIRATION OF THIS
AGREEMENT; OTHER THAN FOR GOOD REASON. If
Executive's employment shall be terminated by the
Company for cause or upon expiration of this
Agreement or by Executive other than for Good
Reason, Executive shall be entitled to receive
only (i) his or her salary at the rate then in
effect through the date of such termination, as
provided under the Company's pay policy, and (ii)
any Accrued Benefits for the periods of service
prior to the date of such termination.
(f) WITHHOLDING. All payments under this
Section 4 arc; subject to applicable federal and
state payroll withholding or other applicable
taxes.
4. PAYMENTS AND BENEFITS UPON TERMINATION
Executive shall be entitled to the following
payments and benefits following Termination:
(a) TERMINATION PAYMENT. Subject to
Section 4(b), in recognition of past services to
the Company by Executive, the Company shall make a
lump sum payment in cash to Executive as severance
pay within ten (10) business days following the
date of Termination equal to three times the sum
of: (i) Executive's annual base salary in effect
pursuant of Section 3(a) or such date of
Termination, whichever salary is higher; plus (ii)
Executive's target bonus for the current fiscal
year as determined by the Compensation Committee;
provided, however, that if Termination occurs
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<PAGE>
prior to the determination of such target bonus
for a fiscal year, such bonus shall be the target
bonus for the prior fiscal year.
(b) TERMINATION BENEFITS; Certain
Additional Payments by the Company.
(i) Then the payments to Executive
under Section 4(a) shall be increased (such
increase, a "Gross-Up Payment"), but only to the
extent necessary to ensure that, after payment by
the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes),
including, without limitation, any income taxes
and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up
Payment equal to such Excise Tax. The foregoing
calculations shall be made by the Company and
Executive. If no agreement on the calculations is
reached within ten (10) business days after the
date of Termination, then the accounting firm
which regularly audits the financial statements of
the Company (the "Auditors") shall review the
calculations, and report their determination of
the amount due to both Executive and the Company
within thirty (30) days of the termination. The
determination of such firm shall be conclusive and
binding on all parties and the expense for such
accountants shall be paid by the Company. Pending
such determination, the Company shall continue to
make all other required payments to Executive at
the time and in the manner provided herein.
(ii) As a result of the uncertainty
in the application of Section 280G and Section
4999 of the Code, it is possible that the Company
will make a payment (including a Gross-Up Payment)
under this Agreement that should not have been
made (an "Overpayment") or that the Company will
fail to make a payment (including a Gross-Up
Payment) under this Agreement that should have
been made (an "Underpayment"). If the Company and
Executive, or, if no agreement is reached by the
Company and Executive, the Auditors, determine
that Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan to the
Executive which he shall repay to the Company,
together with interest at the applicable federal
rate provided for in section 7872(f)(2)(A) of the
Code. If the Company and Executive, or, if no
4
<PAGE>
agreement is reached by the Company and Executive,
the Auditors, determine that an Underpayment has
occurred, such Underpayment shall promptly be paid
by the Company to Executive, together with
interest at the applicable federal rate provided
for in section 7872(f)(2)(A) of the Code. The
Company and Executive agree to give each other
prompt written notice of any information or taxing
authority inquiry that could reasonably result in
the determination that an Overpayment or
Underpayment has been made.
(c) ACCRUED BENEFITS. Within ten (10)
business days following the date of Termination,
the Company shall make a lump sum payment in cash
to Executive in the amount of any Accrued Benefits
for the periods of service prior to the date of
Termination.
(d) WELFARE BENEFITS. The Company shall,
at its sole option and expense (except for the
amount, if any, of any required employee
contribution that would have been necessary for
Executive to contribute as an active employee
under the plan or program as in effect on the date
of Termination) either (i) continue to cover
Executive (and his or her dependents) under, or
provide Executive (and his or her dependents) with
Welfare Benefits (as in effect on the date of the
Change in Control or, at the option of Executive,
on the date of Termination) for a period of three
years following the date of Termination, or (ii)
pay Executive a lump sum cash payment within ten
(10) business days following the date of
Termination equal to the then-present value of the
cost to the Company of such Welfare Benefits;
provided, however, that if Executive is provided
by another employer during such three-year period
with benefits substantially comparable to the
Welfare Benefits, the benefits provided by the
Company shall, unless a lump sum payment has been
made by the Company (in which case Executive shall
not, for any reason, be required to return any
part of such payment), be reduced by the benefits
provided by such other employer, but only to the
extent of, and with respect to, the Welfare
Benefits otherwise payable by the Company to
Executive.
5
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(e) DEATH OF EXECUTIVE. In the event of
Executive's death subsequent to termination and
prior to receiving all benefits and payments
provided for by this Section 4, such benefits and
payments shall be paid to his or her spouse, if
any, or otherwise to the personal representative
of his or her estate, unless Executive has
otherwise directed the Company in writing prior to
his or her death.
(f) EXCLUSIVE SOURCE OF SEVERANCE PAY.
Benefits provided hereunder shall replace the
amount of any severance payments to which
Executive would otherwise be entitled under any
severance plan or policy generally available to
employees of the Company.
(g) NONSEGREGATION. No assets of the
Company need be segregated c1I- earmarked to
represent the liability for benefits payable
hereunder. The rights of any person to receive
benefits hereunder shall be only those of a
general unsecured creditor.
(h) WITHHOLDING. All payments under this
Section 4 are subject to applicable federal and
state payroll withholding or other applicable
taxes.
5. NONCOMPETITION
(a) NONCOMPETITION. In the event that,
after a change in Control, Executive's employment
is terminated by the Company or by Executive for
any reason, and provided that any payments due
Executive upon such termination are paid when due,
then for a period of one year after such
termination, Executive shall not engage in any
activities (including, without limitation,
activities for any subsequent employer of
Executive) directly competitive with the business
of the Company.
(b) COMPANY REMEDY. In the event of any
breach by Executive of the obligations set forth
in Section 5(a), the Company shall be entitled to
recover an amount equal to the total of all
amounts paid to Executive pursuant to Sections
4(a) and 4(b) of this Agreement in addition to any
6
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other remedies available to the Company at law or
in equity.
6. ARBITRATION
Any dispute or controversy arising under or
in connection with this Agreement shall be settled
exclusively by arbitration in Seattle, Washington,
in accordance with the Arbitration Rules of the
Judicial Arbitration & Mediation Services then in
effect. Judgment may be entered on the
arbitrator's award in any jurisdiction.
7. CONFLICT IN BENEFITS
This Agreement is not intended to and shall
not adversely affect, limit or terminate any other
agreement or arrangement between Executive and the
Company presently in effect or hereafter entered
into, including any employee benefit plan under
which Executive is entitled to benefits.
8. TERM, TERMINATION AND AMENDMENT
(a) The initial term of this Agreement shall
be from the date hereof until the anniversary date
of this Agreement. On each such annual anniversary
date, this Agreement shall automatically be
renewed for a period of one year, unless 60 days
prior to such anniversary date the Company shall
give notice to Executive that the Agreement is
terminated or amended, provided that no Change in
Control has occurred prior to such anniversary.
Notwithstanding such termination, the Company
shall remain liable for any rights or payments
arising prior to such termination to which
Executive is entitled under this Agreement. During
each such one year term, this Agreement may not be
amended or terminated except by written agreement
between Executive and the Company.
(b) In the event of a Change in Control,
unless earlier terminated as provided herein, this
Agreement shall continue in effect until for a
period of three years from the date of the Change
in Control at which time this Agreement shall
expire. For a three-year period following a Change
in Control, (i) this Agreement may not be
terminated, and (ii) no amendment or other action
of the Board which adversely affects the rights of
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Executive hereunder is valid and enforceable
without the prior written consent of Executive.
After the three-year period from the date of the
Change in Control, the Board may terminate or
amend this Agreement without the prior written
consent of Executive.
9. MISCELLANEOUS
(a) AMENDMENT. This Agreement may not be
amended except by written agreement between
Executive and the Company.
(b) NO MITIGATION. All payments and
benefits to which Executive is entitled under this
Agreement shall be made and provided without
offset, deduction or mitigation on account of
income Executive could or may receive from other
employment or otherwise, except as provided in
Section 4(d) and Section 5(b) hereof.
(c) EMPLOYMENT NOT GUARANTEED. Nothing
contained in this Agreement, and no decision as to
the eligibility for benefits or the determination
of the amount of any benefits hereunder, shall
give Executive any right to be retained in the
employ of the Company or rehired, and the right
and power of the Company to dismiss or discharge
any employee for any reason is specifically
reserved. Except as expressly provided herein, no
employee or any person claiming under or through
him or her shall have any right or interest
herein, or in any benefit hereunder.
(d) LEGAL EXPENSES. In connection with
any litigation, arbitration or similar proceeding,
whether or not instituted by the Company or
Executive, with respect to the interpretation or
enforcement of any provision of this Agreement,
the prevailing party shall be entitled to recover
from the other party all costs and expenses,
including reasonable attorneys' fees and
disbursements, in connection with such litigation,
arbitration or similar proceeding. The Company
shall pay prejudgment interest on any money
judgment obtained by Executive as a result of such
proceedings, calculated at the published
commercial interest rate of Seattle-First National
Bank for its best customers, as in effect from
8
<PAGE>
time to time from the date that payment should
have been made to Executive under this Agreement.
(e) NOTICES. Any notices required under
the terms of this Agreement shall be effective
when mailed, postage prepaid, by certified mail
and addressed to, in the case of the Company:
EMERITUS Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: Chief Financial Officer
and to, in the case of Executive
Gary D. Witte
1711 30th Avenue West
Seattle, WA 98199
Either party may designate a different address by
giving written notice of change of address in the
manner provided above.
(f) WAIVER; CURE. No waiver or
modification in whole or in part of this
Agreement, or any term or condition hereof, shall
be effective against any party unless in writing
and duly signed by the party sought to be bound.
Any waiver of any breach of any provision hereof
or any right or power by any party on one occasion
shall not be construed as a waiver of, or a bar
to, the exercise of such right or power on any
other occasion or as a waiver of any subsequent
breach. Other than a breach of the provisions of
Section 5, any breach of this Agreement may be
cured by the breaching party within ten days of
the date that such breaching party shall have
received written notice of such breach from the
party asserting such breach.
(g) BINDING EFFECT; SUCCESSORS. Subject
to the provisions hereof, nothing in this
Agreement shall prevent the consolidation of the
Company with, or its merger into, any other
corporation, or the sale by the Company of all or
substantially all of its properties and assets, or
the assignment of this Agreement by the Company in
connection with any of the foregoing actions. This
Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Company and
9
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Executive and their respective heirs, legal
representatives, successors and assigns. If the
Company shall be merged into or consolidated with
another entity, the provisions of this Agreement
shall be binding upon and inure to the benefit of
the entity surviving such merger or resulting from
such consolidation. The Company shall require any
successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets
of the Company, including the successor to all or
substantially all of the business or assets of any
Subsidiary, division or profit center of the
Company, to expressly assume and agree to perform
this Agreement in the same manner and to the same
extent that the Company would be required to
perform it if no such succession had taken place.
The provisions of this Section 9(g) shall continue
to apply to each subsequent employer of Executive
hereunder in the event of any subsequent merger,
consolidation or transfer of assets of such
subsequent employer.
(h) SEPARABILITY. Any provision of this
Agreement which is held to be unenforceable or
invalid in any respect in any jurisdiction shall
be ineffective in such jurisdiction to the extent
that it is unenforceable or invalid without
affecting the remaining provisions hereof, which
shall continue in full force and effect. The
unenforceability or invalidity of a provision of
this Agreement in one jurisdiction shall not
invalidate or render unenforceable such provision
in any other jurisdiction.
(i) CONTROLLING LAW. This Agreement
shall be governed by and construed in accordance
with the laws of the state of Washington
applicable to contracts made and to be performed
therein.
10
<PAGE>
IN WITNESS WHEREOF, the Company and
Executive have executed this Agreement as of the
day and year first above written.
EMERITUS CORPORATION
By: /s/ Raymond R. Brandstrom
----------------------
By: Raymond R. Brandstrom
Title: President
EXECUTIVE:
By: /s/ Gary D. Witte
--------------------------
Gary D. Witte
11
<PAGE>
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the
context requires a different meaning, the
following terms have the meanings indicated:
"ACCRUED BENEFITS" means the aggregate of any
compensation previously deferred by Executive
(together with any accrued interest or earnings
thereon), any accrued vacation pay and, if the
date of Termination occurs after the end of a
Fiscal Year for which a bonus is payable to
Executive, such bonus, in each case to the extent
previously earned and not paid.
"BASE AMOUNT" shall mean the "base amount" of
Executive as defined in Section 280G of the Code.
"CAUSE" means (a) willful misconduct on the
part of Executive that has a materially adverse
effect on the Company and its Subsidiaries, taken
as a whole, (b) Executive's engaging in conduct
which could reasonably result in his or her
conviction of a felony or a crime against the
Company or involving substance abuse, fraud or
moral turpitude, or which would materially
compromise the Company's reputation, as determined
in good faith by a written resolution duly adopted
by the affirmative vote of not less than two-
thirds of all of the directors who are not
employees or of officers of the Company, or (c)
unreasonable refusal by Executive to perform the
duties and responsibilities of his or her position
in any material respect. No action, or failure to
act shall be considered "willful" if it is done by
Executive in good faith and with reasonable belief
that his or her action or omission was in the best
interests of the Company.
"CHANGE IN CONTROL" means, and shall be
deemed to occur upon the happening of. any one of
the following:
(a) The occupying of a majority of the seats
(other than vacant seats) on the Board by
individuals who were neither nominated or
appointed by a majority of the Incumbent
Directors;
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<PAGE>
(b) The acquisition, directly or indirectly,
by any Person (other than Daniel R. Baty and his
affiliates) of beneficial ownership of 30% or more
of the combined voting power of the then
outstanding voting securities of the Company
entitled to vote generally in the election of
directors, which acquisition is not approved in
advance by a majority of the Incumbent Directors;
(c) The approval by the stockholders of the
Company of a reorganization, merger or
consolidation or sale of substantially all of the
assets of the Company (an "Acquisition
Transaction") unless, following such Acquisition
Transaction, all or substantially all of the
individuals and entities who were the beneficial
owners of the outstanding voting securities of the
Company immediately prior to such Acquisition
Transaction beneficially own, directly or
indirectly, more than 50"% of the then outstanding
voting securities of the corporation resulting
from such Acquisition Transaction (including,
without limitation, a corporation which as a
result of such transaction owns the Company or all
or substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately prior
to such Acquisition Transaction of the outstanding
voting securities of the Company; or
(d) Approval by the stockholders of the
Company of a liquidation or dissolution of the
Company.
(e) For purposes of this definition, (i) the
terms "beneficial owner" and "beneficial
ownership" shall have the meanings set forth in
Rules 13d-3 and 13d-5 of the General Rules and
Regulations promulgated under the Exchange Act,
(ii) the term "voting securities" shall mean the
voting securities of a corporation entitled to
vote generally in the election of directors and
the term "affiliate" shall have the meaning set
forth in Rule 12b-2 of the General Rules and
Regulations promulgated under the 1~.xchange Act.
"CODE" means the Internal Revenue Code of
1986, as amended.
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<PAGE>
"DISABILITY" means that (a) a person has been
incapacitated by bodily injury or physical or
mental disease so as to be prevented thereby from
performance of his or her duties with the Company
for 120 days in any 12-month period, and (b) such
person is disabled for purposes of any and all of
the plans or programs of the Company or any
Subsidiary that employs Executive under which
benefits, compensation or awards are contingent
upon a finding of disability. The determination
with respect to whether Executive is suffering
from such a Disability will be determined by a
mutually acceptable physician or, if there is no
physician mutually acceptable to the Company and
Executive, by a physician selected by the then
Dean of the University of Washington Medical
School.
"EXCHANGE ACT" means the Securities Exchange
Act of 1934, as amended.
"EXCISE TAX" means the excise tax, including
any interest or penalties thereon, imposed on
Executive by Section 4999 of the Code.
"FISCAL YEAR" means the 12-month period
ending on December 3 I in each year I or such
other fiscal year period established by the
Board).
"GOOD REASON" means, without Executive's
express written consent:
(a) (i) the assignment to Executive of
duties, or limitation of Executive's ,
responsibilities inconsistent with
Executive s title, position, duties,
responsibilities and status with the
Company Executive as such duties and
responsibilities existed immediately
prior to the date of the Change in
Control, or (ii) removal of Executive
from, or failure to re-elect Executive
to, Executive's positions with the
Company or any Subsidiary that employs
Executive immediately prior to the
Change in Control, except in connection
with the involuntary termination of
Executive's employment by the Company
14
<PAGE>
for Cause or as a result of Executive's
death or Disability;
(b) failure by the Company to pay, or
reduction by the Company of, Executive's
annual base salary, as reflected in the
Company's payroll records for
Executive's last pay period immediately
prior to the Change in Control;
(c) failure by the Company to pay, or
reduction by the Company of, Executive's
bonus;
( d) the relocation of the principal place of
Executive's employment to a location
that is more than 25 miles further from
Executive's principal residence than
such principal place of employment
immediately prior to the Change in
Control; or
(e) the breach of any material provision of
this Agreement by the Company,
including, without limitation, failure
by the Company to bind any successor to
the Company to the terms and provisions
of this Agreement in accordance with
Section 9(g).
"GROSS-UP PAYMENT" shall have the meaning set
forth in Section 4(b).
"INCUMBENT DIRECTOR" means a member of the
Board who has been either (a) nominated by a
majority of the directors of the Company then in
of ice or (b) appointed by directors so nominated,
but excluding, for this purpose, any such
individual whose initial assumption of office
occurs as a result of either an actual or
threatened election contest (as such terms are
used in Rule 14a-l1 of Regulation 14A promulgated
under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board.
"PARACHUTE PAYMENT" means any payment deemed
to constitute a "parachute payment" as defined in
Section 280G of the Code.
15
<PAGE>
"PERSON" means any individual, entity or
group (as such term is used in Section 13(d)(3 )
or 14(d)(2) of the Exchange Act).
"SUBSIDIARY" means an Person controlled by
the Company directly, or indirectly through one or
more intermediaries.
"TERMINATION" means, following the occurrence
of any Change in Control by the Company, (a) the
involuntary termination of the employment of
Executive for any reason other than death,
Disability or for Cause or (b) the termination of
employment by Executive for Good Reason.
"WELFARE BENEFITS" shall have the meaning set
forth in Section 3(b).
16
<PAGE>
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT, dated
the l4th day of May 1997, between EMERITUS
CORPORATION, a Washington corporation (the
"Company"), and Sarah J. Curtis ("Executive").
RECITALS
A. Executive is currently employed by the
Company or one of its Subsidiaries.
B. The Board of Directors of the Company (the
"Board") has determined that it is appropriate to
reinforce the continued attention and dedication
of certain members of the Company's management,
including Executive, to their assigned duties
without distraction in potentially disturbing
circumstances arising from the possibility of a
Change in Control of the Company, as defined in
Schedule A attached hereto.
AGREEMENTS
NOW, THEREFORE, in consideration of the
covenants and agreements hereinafter set forth,
the Company and Executive agree as follows:
1. DEFINITIONS
Terms capitalized in this Agreement which are
not otherwise defined shall have the meanings
assigned to such terms in Schedule A attached
hereto.
2. EMPLOYMENT FOLLOWING A CHANGE IN CONTROL.
Once a (Change in Control has occurred, no
termination of Executive's employment with the
Company, other than on account of death, shall be
effective unless the party causing such
termination of employment provides the other party
30 days' prior written notice of such termination,
which shall indicate those specific provisions in
this Agreement relied upon and which sets forth in
reasonable detail the conflicts and circumstances
claimed to provide a basis for the termination of
Executive's employment constituting a Termination,
if any, under the provision so indicated.
<PAGE>
3. BENEFITS UPON CHANGE IN CONTROL
Executive shall be entitled to the following
payments and benefits following a Change in
Control, whether or not a Termination occurs:
(a) SALARY AND BENEFITS. Executive shall
(i) receive an annual base salary no less than
$125,000 current market salary and an annual bonus
equal to at least the average of the two annual
bonuses paid to Executive in the two years prior
to the Change in Control, and (ii) be entitled to
participate in all employee expense reimbursement,
incentive, savings and retirement plans,
practices, policies and programs (including any
Company plan qualified under Section 401 (a) of
the Code) available to other peer executives of
the Company and its Subsidiaries, but in no event
shall the benefits provided to Executive under
this item (ii) be less favorable, in the
aggregate, than the most favorable of those plans,
practices, policies or programs in effect
immediately prior to the date that the Change in
Control occurs.
(b) WELFARE BENEFITS. The Company shall
at the Company's expense (except for the amount,
if any, of any required employee contribution
which would have been necessary for Executive to
contribute as an active employee under the plan or
program as in effect on the date of the Change in
Control continue to cover Executive (and his or
her dependents) under, or provide Executive (and
his or her dependents) with insurance coverage no
less favorable than, the Company's life,
disability, health, dental and any other employee
welfare benefit plans or programs, as in effect on
the date of the Change in Control (such benefits,
the "Welfare Benefits").
(c) DEATH OF EXECUTIVE. In the event of
Executive's death prior to Termination, but while
employed by the Company or any Subsidiary, as the
case may he, his or her spouse, if any, or
otherwise the personal representative of his or
her estate shall be entitled to receive (i)
Executive's salary at the rate then in effect
through the date of death, as provided under the
Company's pay policy, and (ii) any Accrued
Benefits for the periods of service prior to the
date of death.
2
<PAGE>
(d) DISABILITY OF EXECUTIVE. In the
event of Executive's Disability prior to
Termination, but while employed by the Company or
any Subsidiary, as the case may be, Executive
shall be entitled to receive (i) his or her salary
at the rate then iii effect through the date of
the determination of Disability, as provided under
the Company's pay policy, (ii) any Accrued
Benefits for the periods of service prior to the
date of the determination of Disability, (iii)
payments under the Company 's short and long term
disability plans following the determination of
Disability, and (iv) Welfare Benefits for a period
of one year following the determination of
Disability.
(e) CAUSE; UPON EXPIRATION OF THIS
AGREEMENT; OTHER THAN FOR GOOD REASON. If
Executive's employment shall be terminated by the
Company for cause or upon expiration of this
Agreement or by Executive other than for Good
Reason, Executive shall be entitled to receive
only (i) his or her salary at the rate then in
effect through the date of such termination, as
provided under the Company's pay policy, and (ii)
any Accrued Benefits for the periods of service
prior to the date of such termination.
(f) WITHHOLDING. All payments under this
Section 4 arc; subject to applicable federal and
state payroll withholding or other applicable
taxes.
4. PAYMENTS AND BENEFITS UPON TERMINATION
Executive shall be entitled to the following
payments and benefits following Termination:
(a) TERMINATION PAYMENT. Subject to
Section 4(b), in recognition of past services to
the Company by Executive, the Company shall make a
lump sum payment in cash to Executive as severance
pay within ten (10) business days following the
date of Termination equal to three times the sum
of: (i) Executive's annual base salary in effect
pursuant of Section 3(a) or such date of
Termination, whichever salary is higher; plus (ii)
Executive's target bonus for the current fiscal
year as determined by the Compensation Committee;
provided, however, that if Termination occurs
3
<PAGE>
prior to the determination of such target bonus
for a fiscal year, such bonus shall be the target
bonus for the prior fiscal year.
(b) TERMINATION BENEFITS; Certain
Additional Payments by the Company.
(i) Then the payments to Executive
under Section 4(a) shall be increased (such
increase, a "Gross-Up Payment"), but only to the
extent necessary to ensure that, after payment by
the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes),
including, without limitation, any income taxes
and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up
Payment equal to such Excise Tax. The foregoing
calculations shall be made by the Company and
Executive. If no agreement on the calculations is
reached within ten (10) business days after the
date of Termination, then the accounting firm
which regularly audits the financial statements of
the Company (the "Auditors") shall review the
calculations, and report their determination of
the amount due to both Executive and the Company
within thirty (30) days of the termination. The
determination of such firm shall be conclusive and
binding on all parties and the expense for such
accountants shall be paid by the Company. Pending
such determination, the Company shall continue to
make all other required payments to Executive at
the time and in the manner provided herein.
(ii) As a result of the uncertainty
in the application of Section 280G and Section
4999 of the Code, it is possible that the Company
will make a payment (including a Gross-Up Payment)
under this Agreement that should not have been
made (an "Overpayment") or that the Company will
fail to make a payment (including a Gross-Up
Payment) under this Agreement that should have
been made (an "Underpayment"). If the Company and
Executive, or, if no agreement is reached by the
Company and Executive, the Auditors, determine
that Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan to the
Executive which he shall repay to the Company,
together with interest at the applicable federal
rate provided for in section 7872(f)(2)(A) of the
Code. If the Company and Executive, or, if no
4
<PAGE>
agreement is reached by the Company and Executive,
the Auditors, determine that an Underpayment has
occurred, such Underpayment shall promptly be paid
by the Company to Executive, together with
interest at the applicable federal rate provided
for in section 7872(f)(2)(A) of the Code. The
Company and Executive agree to give each other
prompt written notice of any information or taxing
authority inquiry that could reasonably result in
the determination that an Overpayment or
Underpayment has been made.
(c) ACCRUED BENEFITS. Within ten (10)
business days following the date of Termination,
the Company shall make a lump sum payment in cash
to Executive in the amount of any Accrued Benefits
for the periods of service prior to the date of
Termination.
(d) WELFARE BENEFITS. The Company shall,
at its sole option and expense (except for the
amount, if any, of any required employee
contribution that would have been necessary for
Executive to contribute as an active employee
under the plan or program as in effect on the date
of Termination) either (i) continue to cover
Executive (and his or her dependents) under, or
provide Executive (and his or her dependents) with
Welfare Benefits (as in effect on the date of the
Change in Control or, at the option of Executive,
on the date of Termination) for a period of three
years following the date of Termination, or (ii)
pay Executive a lump sum cash payment within ten
(10) business days following the date of
Termination equal to the then-present value of the
cost to the Company of such Welfare Benefits;
provided, however, that if Executive is provided
by another employer during such three-year period
with benefits substantially comparable to the
Welfare Benefits, the benefits provided by the
Company shall, unless a lump sum payment has been
made by the Company (in which case Executive shall
not, for any reason, be required to return any
part of such payment), be reduced by the benefits
provided by such other employer, but only to the
extent of, and with respect to, the Welfare
Benefits otherwise payable by the Company to
Executive.
5
<PAGE>
(e) DEATH OF EXECUTIVE. In the event of
Executive's death subsequent to termination and
prior to receiving all benefits and payments
provided for by this Section 4, such benefits and
payments shall be paid to his or her spouse, if
any, or otherwise to the personal representative
of his or her estate, unless Executive has
otherwise directed the Company in writing prior to
his or her death.
(f) EXCLUSIVE SOURCE OF SEVERANCE PAY.
Benefits provided hereunder shall replace the
amount of any severance payments to which
Executive would otherwise be entitled under any
severance plan or policy generally available to
employees of the Company.
(g) NONSEGREGATION. No assets of the
Company need be segregated c1I- earmarked to
represent the liability for benefits payable
hereunder. The rights of any person to receive
benefits hereunder shall be only those of a
general unsecured creditor.
(h) WITHHOLDING. All payments under this
Section 4 are subject to applicable federal and
state payroll withholding or other applicable
taxes.
5. NONCOMPETITION
(a) NONCOMPETITION. In the event that,
after a change in Control, Executive's employment
is terminated by the Company or by Executive for
any reason, and provided that any payments due
Executive upon such termination are paid when due,
then for a period of one year after such
termination, Executive shall not engage in any
activities (including, without limitation,
activities for any subsequent employer of
Executive) directly competitive with the business
of the Company.
(b) COMPANY REMEDY. In the event of any
breach by Executive of the obligations set forth
in Section 5(a), the Company shall be entitled to
recover an amount equal to the total of all
amounts paid to Executive pursuant to Sections
4(a) and 4(b) of this Agreement in addition to any
6
<PAGE>
other remedies available to the Company at law or
in equity.
6. ARBITRATION
Any dispute or controversy arising under or
in connection with this Agreement shall be settled
exclusively by arbitration in Seattle, Washington,
in accordance with the Arbitration Rules of the
Judicial Arbitration & Mediation Services then in
effect. Judgment may be entered on the
arbitrator's award in any jurisdiction.
7. CONFLICT IN BENEFITS
This Agreement is not intended to and shall
not adversely affect, limit or terminate any other
agreement or arrangement between Executive and the
Company presently in effect or hereafter entered
into, including any employee benefit plan under
which Executive is entitled to benefits.
8. TERM, TERMINATION AND AMENDMENT
(a) The initial term of this Agreement shall
be from the date hereof until the anniversary date
of this Agreement. On each such annual anniversary
date, this Agreement shall automatically be
renewed for a period of one year, unless 60 days
prior to such anniversary date the Company shall
give notice to Executive that the Agreement is
terminated or amended, provided that no Change in
Control has occurred prior to such anniversary.
Notwithstanding such termination, the Company
shall remain liable for any rights or payments
arising prior to such termination to which
Executive is entitled under this Agreement. During
each such one year term, this Agreement may not be
amended or terminated except by written agreement
between Executive and the Company.
(b) In the event of a Change in Control,
unless earlier terminated as provided herein, this
Agreement shall continue in effect until for a
period of three years from the date of the Change
in Control at which time this Agreement shall
expire. For a three-year period following a Change
in Control, (i) this Agreement may not be
terminated, and (ii) no amendment or other action
of the Board which adversely affects the rights of
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Executive hereunder is valid and enforceable
without the prior written consent of Executive.
After the three-year period from the date of the
Change in Control, the Board may terminate or
amend this Agreement without the prior written
consent of Executive.
9. MISCELLANEOUS
(a) AMENDMENT. This Agreement may not be
amended except by written agreement between
Executive and the Company.
(b) NO MITIGATION. All payments and
benefits to which Executive is entitled under this
Agreement shall be made and provided without
offset, deduction or mitigation on account of
income Executive could or may receive from other
employment or otherwise, except as provided in
Section 4(d) and Section 5(b) hereof.
(c) EMPLOYMENT NOT GUARANTEED. Nothing
contained in this Agreement, and no decision as to
the eligibility for benefits or the determination
of the amount of any benefits hereunder, shall
give Executive any right to be retained in the
employ of the Company or rehired, and the right
and power of the Company to dismiss or discharge
any employee for any reason is specifically
reserved. Except as expressly provided herein, no
employee or any person claiming under or through
him or her shall have any right or interest
herein, or in any benefit hereunder.
(d) LEGAL EXPENSES. In connection with
any litigation, arbitration or similar proceeding,
whether or not instituted by the Company or
Executive, with respect to the interpretation or
enforcement of any provision of this Agreement,
the prevailing party shall be entitled to recover
from the other party all costs and expenses,
including reasonable attorneys' fees and
disbursements, in connection with such litigation,
arbitration or similar proceeding. The Company
shall pay prejudgment interest on any money
judgment obtained by Executive as a result of such
proceedings, calculated at the published
commercial interest rate of Seattle-First National
Bank for its best customers, as in effect from
8
<PAGE>
time to time from the date that payment should
have been made to Executive under this Agreement.
(e) NOTICES. Any notices required under
the terms of this Agreement shall be effective
when mailed, postage prepaid, by certified mail
and addressed to, in the case of the Company:
EMERITUS Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: Chief Financial Officer
and to, in the case of Executive
Sarah J. Curtis
2226 Elliott Avenue, #201
Seattle, WA 98112
Either party may designate a different address by
giving written notice of change of address in the
manner provided above.
(f) WAIVER; CURE. No waiver or
modification in whole or in part of this
Agreement, or any term or condition hereof, shall
be effective against any party unless in writing
and duly signed by the party sought to be bound.
Any waiver of any breach of any provision hereof
or any right or power by any party on one occasion
shall not be construed as a waiver of, or a bar
to, the exercise of such right or power on any
other occasion or as a waiver of any subsequent
breach. Other than a breach of the provisions of
Section 5, any breach of this Agreement may be
cured by the breaching party within ten days of
the date that such breaching party shall have
received written notice of such breach from the
party asserting such breach.
(g) BINDING EFFECT; SUCCESSORS. Subject
to the provisions hereof, nothing in this
Agreement shall prevent the consolidation of the
Company with, or its merger into, any other
corporation, or the sale by the Company of all or
substantially all of its properties and assets, or
the assignment of this Agreement by the Company in
connection with any of the foregoing actions. This
Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Company and
9
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Executive and their respective heirs, legal
representatives, successors and assigns. If the
Company shall be merged into or consolidated with
another entity, the provisions of this Agreement
shall be binding upon and inure to the benefit of
the entity surviving such merger or resulting from
such consolidation. The Company shall require any
successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets
of the Company, including the successor to all or
substantially all of the business or assets of any
Subsidiary, division or profit center of the
Company, to expressly assume and agree to perform
this Agreement in the same manner and to the same
extent that the Company would be required to
perform it if no such succession had taken place.
The provisions of this Section 9(g) shall continue
to apply to each subsequent employer of Executive
hereunder in the event of any subsequent merger,
consolidation or transfer of assets of such
subsequent employer.
(h) SEPARABILITY. Any provision of this
Agreement which is held to be unenforceable or
invalid in any respect in any jurisdiction shall
be ineffective in such jurisdiction to the extent
that it is unenforceable or invalid without
affecting the remaining provisions hereof, which
shall continue in full force and effect. The
unenforceability or invalidity of a provision of
this Agreement in one jurisdiction shall not
invalidate or render unenforceable such provision
in any other jurisdiction.
(i) CONTROLLING LAW. This Agreement
shall be governed by and construed in accordance
with the laws of the state of Washington
applicable to contracts made and to be performed
therein.
10
<PAGE>
IN WITNESS WHEREOF, the Company and
Executive have executed this Agreement as of the
day and year first above written.
EMERITUS CORPORATION
By: /s/ Raymond R. Brandstrom
----------------------
By: Raymond R. Brandstrom
Title: President
EXECUTIVE:
By: /s/ Sarah J. Curtis
--------------------------
Sarah J. Curtis
11
<PAGE>
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the
context requires a different meaning, the
following terms have the meanings indicated:
"ACCRUED BENEFITS" means the aggregate of any
compensation previously deferred by Executive
(together with any accrued interest or earnings
thereon), any accrued vacation pay and, if the
date of Termination occurs after the end of a
Fiscal Year for which a bonus is payable to
Executive, such bonus, in each case to the extent
previously earned and not paid.
"BASE AMOUNT" shall mean the "base amount" of
Executive as defined in Section 280G of the Code.
"CAUSE" means (a) willful misconduct on the
part of Executive that has a materially adverse
effect on the Company and its Subsidiaries, taken
as a whole, (b) Executive's engaging in conduct
which could reasonably result in his or her
conviction of a felony or a crime against the
Company or involving substance abuse, fraud or
moral turpitude, or which would materially
compromise the Company's reputation, as determined
in good faith by a written resolution duly adopted
by the affirmative vote of not less than two-
thirds of all of the directors who are not
employees or of officers of the Company, or (c)
unreasonable refusal by Executive to perform the
duties and responsibilities of his or her position
in any material respect. No action, or failure to
act shall be considered "willful" if it is done by
Executive in good faith and with reasonable belief
that his or her action or omission was in the best
interests of the Company.
"CHANGE IN CONTROL" means, and shall be
deemed to occur upon the happening of. any one of
the following:
(a) The occupying of a majority of the seats
(other than vacant seats) on the Board by
individuals who were neither nominated or
appointed by a majority of the Incumbent
Directors;
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<PAGE>
(b) The acquisition, directly or indirectly,
by any Person (other than Daniel R. Baty and his
affiliates) of beneficial ownership of 30% or more
of the combined voting power of the then
outstanding voting securities of the Company
entitled to vote generally in the election of
directors, which acquisition is not approved in
advance by a majority of the Incumbent Directors;
(c) The approval by the stockholders of the
Company of a reorganization, merger or
consolidation or sale of substantially all of the
assets of the Company (an "Acquisition
Transaction") unless, following such Acquisition
Transaction, all or substantially all of the
individuals and entities who were the beneficial
owners of the outstanding voting securities of the
Company immediately prior to such Acquisition
Transaction beneficially own, directly or
indirectly, more than 50"% of the then outstanding
voting securities of the corporation resulting
from such Acquisition Transaction (including,
without limitation, a corporation which as a
result of such transaction owns the Company or all
or substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately prior
to such Acquisition Transaction of the outstanding
voting securities of the Company; or
(d) Approval by the stockholders of the
Company of a liquidation or dissolution of the
Company.
(e) For purposes of this definition, (i) the
terms "beneficial owner" and "beneficial
ownership" shall have the meanings set forth in
Rules 13d-3 and 13d-5 of the General Rules and
Regulations promulgated under the Exchange Act,
(ii) the term "voting securities" shall mean the
voting securities of a corporation entitled to
vote generally in the election of directors and
the term "affiliate" shall have the meaning set
forth in Rule 12b-2 of the General Rules and
Regulations promulgated under the 1~.xchange Act.
"CODE" means the Internal Revenue Code of
1986, as amended.
13
<PAGE>
"DISABILITY" means that (a) a person has been
incapacitated by bodily injury or physical or
mental disease so as to be prevented thereby from
performance of his or her duties with the Company
for 120 days in any 12-month period, and (b) such
person is disabled for purposes of any and all of
the plans or programs of the Company or any
Subsidiary that employs Executive under which
benefits, compensation or awards are contingent
upon a finding of disability. The determination
with respect to whether Executive is suffering
from such a Disability will be determined by a
mutually acceptable physician or, if there is no
physician mutually acceptable to the Company and
Executive, by a physician selected by the then
Dean of the University of Washington Medical
School.
"EXCHANGE ACT" means the Securities Exchange
Act of 1934, as amended.
"EXCISE TAX" means the excise tax, including
any interest or penalties thereon, imposed on
Executive by Section 4999 of the Code.
"FISCAL YEAR" means the 12-month period
ending on December 3 I in each year I or such
other fiscal year period established by the
Board).
"GOOD REASON" means, without Executive's
express written consent:
(a) (i) the assignment to Executive of
duties, or limitation of Executive's ,
responsibilities inconsistent with
Executive s title, position, duties,
responsibilities and status with the
Company Executive as such duties and
responsibilities existed immediately
prior to the date of the Change in
Control, or (ii) removal of Executive
from, or failure to re-elect Executive
to, Executive's positions with the
Company or any Subsidiary that employs
Executive immediately prior to the
Change in Control, except in connection
with the involuntary termination of
Executive's employment by the Company
14
<PAGE>
for Cause or as a result of Executive's
death or Disability;
(b) failure by the Company to pay, or
reduction by the Company of, Executive's
annual base salary, as reflected in the
Company's payroll records for
Executive's last pay period immediately
prior to the Change in Control;
(c) failure by the Company to pay, or
reduction by the Company of, Executive's
bonus;
( d) the relocation of the principal place of
Executive's employment to a location
that is more than 25 miles further from
Executive's principal residence than
such principal place of employment
immediately prior to the Change in
Control; or
(e) the breach of any material provision of
this Agreement by the Company,
including, without limitation, failure
by the Company to bind any successor to
the Company to the terms and provisions
of this Agreement in accordance with
Section 9(g).
"GROSS-UP PAYMENT" shall have the meaning set
forth in Section 4(b).
"INCUMBENT DIRECTOR" means a member of the
Board who has been either (a) nominated by a
majority of the directors of the Company then in
of ice or (b) appointed by directors so nominated,
but excluding, for this purpose, any such
individual whose initial assumption of office
occurs as a result of either an actual or
threatened election contest (as such terms are
used in Rule 14a-l1 of Regulation 14A promulgated
under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board.
"PARACHUTE PAYMENT" means any payment deemed
to constitute a "parachute payment" as defined in
Section 280G of the Code.
15
<PAGE>
"PERSON" means any individual, entity or
group (as such term is used in Section 13(d)(3 )
or 14(d)(2) of the Exchange Act).
"SUBSIDIARY" means an Person controlled by
the Company directly, or indirectly through one or
more intermediaries.
"TERMINATION" means, following the occurrence
of any Change in Control by the Company, (a) the
involuntary termination of the employment of
Executive for any reason other than death,
Disability or for Cause or (b) the termination of
employment by Executive for Good Reason.
"WELFARE BENEFITS" shall have the meaning set
forth in Section 3(b).
16
<PAGE>
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT, dated
the l4th day of May 1997, between EMERITUS
CORPORATION, a Washington corporation (the
"Company"), and Raymond R. Brandstrom
("Executive").
RECITALS
A. Executive is currently employed by the
Company or one of its Subsidiaries.
B. The Board of Directors of the Company (the
"Board") has determined that it is appropriate to
reinforce the continued attention and dedication
of certain members of the Company's management,
including Executive, to their assigned duties
without distraction in potentially disturbing
circumstances arising from the possibility of a
Change in Control of the Company, as defined in
Schedule A attached hereto.
AGREEMENTS
NOW, THEREFORE, in consideration of the
covenants and agreements hereinafter set forth,
the Company and Executive agree as follows:
1. DEFINITIONS
Terms capitalized in this Agreement which are
not otherwise defined shall have the meanings
assigned to such terms in Schedule A attached
hereto.
2. EMPLOYMENT FOLLOWING A CHANGE IN CONTROL.
Once a (Change in Control has occurred, no
termination of Executive's employment with the
Company, other than on account of death, shall be
effective unless the party causing such
termination of employment provides the other party
30 days' prior written notice of such termination,
which shall indicate those specific provisions in
this Agreement relied upon and which sets forth in
reasonable detail the conflicts and circumstances
claimed to provide a basis for the termination of
Executive's employment constituting a Termination,
if any, under the provision so indicated.
<PAGE>
3. BENEFITS UPON CHANGE IN CONTROL
Executive shall be entitled to the following
payments and benefits following a Change in
Control, whether or not a Termination occurs:
(a) SALARY AND BENEFITS. Executive shall
(i) receive an annual base salary no less than
$250,000 current market salary and an annual bonus
equal to at least the average of the two annual
bonuses paid to Executive in the two years prior
to the Change in Control, and (ii) be entitled to
participate in all employee expense reimbursement,
incentive, savings and retirement plans,
practices, policies and programs (including any
Company plan qualified under Section 401 (a) of
the Code) available to other peer executives of
the Company and its Subsidiaries, but in no event
shall the benefits provided to Executive under
this item (ii) be less favorable, in the
aggregate, than the most favorable of those plans,
practices, policies or programs in effect
immediately prior to the date that the Change in
Control occurs.
(b) WELFARE BENEFITS. The Company shall
at the Company's expense (except for the amount,
if any, of any required employee contribution
which would have been necessary for Executive to
contribute as an active employee under the plan or
program as in effect on the date of the Change in
Control continue to cover Executive (and his or
her dependents) under, or provide Executive (and
his or her dependents) with insurance coverage no
less favorable than, the Company's life,
disability, health, dental and any other employee
welfare benefit plans or programs, as in effect on
the date of the Change in Control (such benefits,
the "Welfare Benefits").
(c) DEATH OF EXECUTIVE. In the event of
Executive's death prior to Termination, but while
employed by the Company or any Subsidiary, as the
case may he, his or her spouse, if any, or
otherwise the personal representative of his or
her estate shall be entitled to receive (i)
Executive's salary at the rate then in effect
through the date of death, as provided under the
Company's pay policy, and (ii) any Accrued
Benefits for the periods of service prior to the
date of death.
2
<PAGE>
(d) DISABILITY OF EXECUTIVE. In the
event of Executive's Disability prior to
Termination, but while employed by the Company or
any Subsidiary, as the case may be, Executive
shall be entitled to receive (i) his or her salary
at the rate then iii effect through the date of
the determination of Disability, as provided under
the Company's pay policy, (ii) any Accrued
Benefits for the periods of service prior to the
date of the determination of Disability, (iii)
payments under the Company 's short and long term
disability plans following the determination of
Disability, and (iv) Welfare Benefits for a period
of one year following the determination of
Disability.
(e) CAUSE; UPON EXPIRATION OF THIS
AGREEMENT; OTHER THAN FOR GOOD REASON. If
Executive's employment shall be terminated by the
Company for cause or upon expiration of this
Agreement or by Executive other than for Good
Reason, Executive shall be entitled to receive
only (i) his or her salary at the rate then in
effect through the date of such termination, as
provided under the Company's pay policy, and (ii)
any Accrued Benefits for the periods of service
prior to the date of such termination.
(f) WITHHOLDING. All payments under this
Section 4 arc; subject to applicable federal and
state payroll withholding or other applicable
taxes.
4. PAYMENTS AND BENEFITS UPON TERMINATION
Executive shall be entitled to the following
payments and benefits following Termination:
(a) TERMINATION PAYMENT. Subject to
Section 4(b), in recognition of past services to
the Company by Executive, the Company shall make a
lump sum payment in cash to Executive as severance
pay within ten (10) business days following the
date of Termination equal to three times the sum
of: (i) Executive's annual base salary in effect
pursuant of Section 3(a) or such date of
Termination, whichever salary is higher; plus (ii)
Executive's target bonus for the current fiscal
year as determined by the Compensation Committee;
provided, however, that if Termination occurs
3
<PAGE>
prior to the determination of such target bonus
for a fiscal year, such bonus shall be the target
bonus for the prior fiscal year.
(b) TERMINATION BENEFITS; Certain
Additional Payments by the Company.
(i) Then the payments to Executive
under Section 4(a) shall be increased (such
increase, a "Gross-Up Payment"), but only to the
extent necessary to ensure that, after payment by
the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes),
including, without limitation, any income taxes
and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up
Payment equal to such Excise Tax. The foregoing
calculations shall be made by the Company and
Executive. If no agreement on the calculations is
reached within ten (10) business days after the
date of Termination, then the accounting firm
which regularly audits the financial statements of
the Company (the "Auditors") shall review the
calculations, and report their determination of
the amount due to both Executive and the Company
within thirty (30) days of the termination. The
determination of such firm shall be conclusive and
binding on all parties and the expense for such
accountants shall be paid by the Company. Pending
such determination, the Company shall continue to
make all other required payments to Executive at
the time and in the manner provided herein.
(ii) As a result of the uncertainty
in the application of Section 280G and Section
4999 of the Code, it is possible that the Company
will make a payment (including a Gross-Up Payment)
under this Agreement that should not have been
made (an "Overpayment") or that the Company will
fail to make a payment (including a Gross-Up
Payment) under this Agreement that should have
been made (an "Underpayment"). If the Company and
Executive, or, if no agreement is reached by the
Company and Executive, the Auditors, determine
that Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan to the
Executive which he shall repay to the Company,
together with interest at the applicable federal
rate provided for in section 7872(f)(2)(A) of the
Code. If the Company and Executive, or, if no
4
<PAGE>
agreement is reached by the Company and Executive,
the Auditors, determine that an Underpayment has
occurred, such Underpayment shall promptly be paid
by the Company to Executive, together with
interest at the applicable federal rate provided
for in section 7872(f)(2)(A) of the Code. The
Company and Executive agree to give each other
prompt written notice of any information or taxing
authority inquiry that could reasonably result in
the determination that an Overpayment or
Underpayment has been made.
(c) ACCRUED BENEFITS. Within ten (10)
business days following the date of Termination,
the Company shall make a lump sum payment in cash
to Executive in the amount of any Accrued Benefits
for the periods of service prior to the date of
Termination.
(d) WELFARE BENEFITS. The Company shall,
at its sole option and expense (except for the
amount, if any, of any required employee
contribution that would have been necessary for
Executive to contribute as an active employee
under the plan or program as in effect on the date
of Termination) either (i) continue to cover
Executive (and his or her dependents) under, or
provide Executive (and his or her dependents) with
Welfare Benefits (as in effect on the date of the
Change in Control or, at the option of Executive,
on the date of Termination) for a period of three
years following the date of Termination, or (ii)
pay Executive a lump sum cash payment within ten
(10) business days following the date of
Termination equal to the then-present value of the
cost to the Company of such Welfare Benefits;
provided, however, that if Executive is provided
by another employer during such three-year period
with benefits substantially comparable to the
Welfare Benefits, the benefits provided by the
Company shall, unless a lump sum payment has been
made by the Company (in which case Executive shall
not, for any reason, be required to return any
part of such payment), be reduced by the benefits
provided by such other employer, but only to the
extent of, and with respect to, the Welfare
Benefits otherwise payable by the Company to
Executive.
5
<PAGE>
(e) DEATH OF EXECUTIVE. In the event of
Executive's death subsequent to termination and
prior to receiving all benefits and payments
provided for by this Section 4, such benefits and
payments shall be paid to his or her spouse, if
any, or otherwise to the personal representative
of his or her estate, unless Executive has
otherwise directed the Company in writing prior to
his or her death.
(f) EXCLUSIVE SOURCE OF SEVERANCE PAY.
Benefits provided hereunder shall replace the
amount of any severance payments to which
Executive would otherwise be entitled under any
severance plan or policy generally available to
employees of the Company.
(g) NONSEGREGATION. No assets of the
Company need be segregated c1I- earmarked to
represent the liability for benefits payable
hereunder. The rights of any person to receive
benefits hereunder shall be only those of a
general unsecured creditor.
(h) WITHHOLDING. All payments under this
Section 4 are subject to applicable federal and
state payroll withholding or other applicable
taxes.
5. NONCOMPETITION
(a) NONCOMPETITION. In the event that,
after a change in Control, Executive's employment
is terminated by the Company or by Executive for
any reason, and provided that any payments due
Executive upon such termination are paid when due,
then for a period of one year after such
termination, Executive shall not engage in any
activities (including, without limitation,
activities for any subsequent employer of
Executive) directly competitive with the business
of the Company.
(b) COMPANY REMEDY. In the event of any
breach by Executive of the obligations set forth
in Section 5(a), the Company shall be entitled to
recover an amount equal to the total of all
amounts paid to Executive pursuant to Sections
4(a) and 4(b) of this Agreement in addition to any
6
<PAGE>
other remedies available to the Company at law or
in equity.
6. ARBITRATION
Any dispute or controversy arising under or
in connection with this Agreement shall be settled
exclusively by arbitration in Seattle, Washington,
in accordance with the Arbitration Rules of the
Judicial Arbitration & Mediation Services then in
effect. Judgment may be entered on the
arbitrator's award in any jurisdiction.
7. CONFLICT IN BENEFITS
This Agreement is not intended to and shall
not adversely affect, limit or terminate any other
agreement or arrangement between Executive and the
Company presently in effect or hereafter entered
into, including any employee benefit plan under
which Executive is entitled to benefits.
8. TERM, TERMINATION AND AMENDMENT
(a) The initial term of this Agreement shall
be from the date hereof until the anniversary date
of this Agreement. On each such annual anniversary
date, this Agreement shall automatically be
renewed for a period of one year, unless 60 days
prior to such anniversary date the Company shall
give notice to Executive that the Agreement is
terminated or amended, provided that no Change in
Control has occurred prior to such anniversary.
Notwithstanding such termination, the Company
shall remain liable for any rights or payments
arising prior to such termination to which
Executive is entitled under this Agreement. During
each such one year term, this Agreement may not be
amended or terminated except by written agreement
between Executive and the Company.
(b) In the event of a Change in Control,
unless earlier terminated as provided herein, this
Agreement shall continue in effect until for a
period of three years from the date of the Change
in Control at which time this Agreement shall
expire. For a three-year period following a Change
in Control, (i) this Agreement may not be
terminated, and (ii) no amendment or other action
of the Board which adversely affects the rights of
7
<PAGE>
Executive hereunder is valid and enforceable
without the prior written consent of Executive.
After the three-year period from the date of the
Change in Control, the Board may terminate or
amend this Agreement without the prior written
consent of Executive.
9. MISCELLANEOUS
(a) AMENDMENT. This Agreement may not be
amended except by written agreement between
Executive and the Company.
(b) NO MITIGATION. All payments and
benefits to which Executive is entitled under this
Agreement shall be made and provided without
offset, deduction or mitigation on account of
income Executive could or may receive from other
employment or otherwise, except as provided in
Section 4(d) and Section 5(b) hereof.
(c) EMPLOYMENT NOT GUARANTEED. Nothing
contained in this Agreement, and no decision as to
the eligibility for benefits or the determination
of the amount of any benefits hereunder, shall
give Executive any right to be retained in the
employ of the Company or rehired, and the right
and power of the Company to dismiss or discharge
any employee for any reason is specifically
reserved. Except as expressly provided herein, no
employee or any person claiming under or through
him or her shall have any right or interest
herein, or in any benefit hereunder.
(d) LEGAL EXPENSES. In connection with
any litigation, arbitration or similar proceeding,
whether or not instituted by the Company or
Executive, with respect to the interpretation or
enforcement of any provision of this Agreement,
the prevailing party shall be entitled to recover
from the other party all costs and expenses,
including reasonable attorneys' fees and
disbursements, in connection with such litigation,
arbitration or similar proceeding. The Company
shall pay prejudgment interest on any money
judgment obtained by Executive as a result of such
proceedings, calculated at the published
commercial interest rate of Seattle-First National
Bank for its best customers, as in effect from
8
<PAGE>
time to time from the date that payment should
have been made to Executive under this Agreement.
(e) NOTICES. Any notices required under
the terms of this Agreement shall be effective
when mailed, postage prepaid, by certified mail
and addressed to, in the case of the Company:
EMERITUS Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: Chief Financial Officer
and to, in the case of Executive
Raymond R. Brandstrom
1001 McGilvra Boulevard East
Seattle, WA 98112
Either party may designate a different address by
giving written notice of change of address in the
manner provided above.
(f) WAIVER; CURE. No waiver or
modification in whole or in part of this
Agreement, or any term or condition hereof, shall
be effective against any party unless in writing
and duly signed by the party sought to be bound.
Any waiver of any breach of any provision hereof
or any right or power by any party on one occasion
shall not be construed as a waiver of, or a bar
to, the exercise of such right or power on any
other occasion or as a waiver of any subsequent
breach. Other than a breach of the provisions of
Section 5, any breach of this Agreement may be
cured by the breaching party within ten days of
the date that such breaching party shall have
received written notice of such breach from the
party asserting such breach.
(g) BINDING EFFECT; SUCCESSORS. Subject
to the provisions hereof, nothing in this
Agreement shall prevent the consolidation of the
Company with, or its merger into, any other
corporation, or the sale by the Company of all or
substantially all of its properties and assets, or
the assignment of this Agreement by the Company in
connection with any of the foregoing actions. This
Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Company and
9
<PAGE>
Executive and their respective heirs, legal
representatives, successors and assigns. If the
Company shall be merged into or consolidated with
another entity, the provisions of this Agreement
shall be binding upon and inure to the benefit of
the entity surviving such merger or resulting from
such consolidation. The Company shall require any
successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets
of the Company, including the successor to all or
substantially all of the business or assets of any
Subsidiary, division or profit center of the
Company, to expressly assume and agree to perform
this Agreement in the same manner and to the same
extent that the Company would be required to
perform it if no such succession had taken place.
The provisions of this Section 9(g) shall continue
to apply to each subsequent employer of Executive
hereunder in the event of any subsequent merger,
consolidation or transfer of assets of such
subsequent employer.
(h) SEPARABILITY. Any provision of this
Agreement which is held to be unenforceable or
invalid in any respect in any jurisdiction shall
be ineffective in such jurisdiction to the extent
that it is unenforceable or invalid without
affecting the remaining provisions hereof, which
shall continue in full force and effect. The
unenforceability or invalidity of a provision of
this Agreement in one jurisdiction shall not
invalidate or render unenforceable such provision
in any other jurisdiction.
(i) CONTROLLING LAW. This Agreement
shall be governed by and construed in accordance
with the laws of the state of Washington
applicable to contracts made and to be performed
therein.
10
<PAGE>
IN WITNESS WHEREOF, the Company and
Executive have executed this Agreement as of the
day and year first above written.
EMERITUS CORPORATION
By: /s/ Daniel R. Baty
----------------------
Its: Chairman & CEO
EXECUTIVE:
By: /s/ Raymond R. Brandstrom
--------------------------
Raymond R. Brandstrom
11
<PAGE>
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the
context requires a different meaning, the
following terms have the meanings indicated:
"ACCRUED BENEFITS" means the aggregate of any
compensation previously deferred by Executive
(together with any accrued interest or earnings
thereon), any accrued vacation pay and, if the
date of Termination occurs after the end of a
Fiscal Year for which a bonus is payable to
Executive, such bonus, in each case to the extent
previously earned and not paid.
"BASE AMOUNT" shall mean the "base amount" of
Executive as defined in Section 280G of the Code.
"CAUSE" means (a) willful misconduct on the
part of Executive that has a materially adverse
effect on the Company and its Subsidiaries, taken
as a whole, (b) Executive's engaging in conduct
which could reasonably result in his or her
conviction of a felony or a crime against the
Company or involving substance abuse, fraud or
moral turpitude, or which would materially
compromise the Company's reputation, as determined
in good faith by a written resolution duly adopted
by the affirmative vote of not less than two-
thirds of all of the directors who are not
employees or of officers of the Company, or (c)
unreasonable refusal by Executive to perform the
duties and responsibilities of his or her position
in any material respect. No action, or failure to
act shall be considered "willful" if it is done by
Executive in good faith and with reasonable belief
that his or her action or omission was in the best
interests of the Company.
"CHANGE IN CONTROL" means, and shall be
deemed to occur upon the happening of. any one of
the following:
(a) The occupying of a majority of the seats
(other than vacant seats) on the Board by
individuals who were neither nominated or
appointed by a majority of the Incumbent
Directors;
12
<PAGE>
(b) The acquisition, directly or indirectly,
by any Person (other than Daniel R. Baty and his
affiliates) of beneficial ownership of 30% or more
of the combined voting power of the then
outstanding voting securities of the Company
entitled to vote generally in the election of
directors, which acquisition is not approved in
advance by a majority of the Incumbent Directors;
(c) The approval by the stockholders of the
Company of a reorganization, merger or
consolidation or sale of substantially all of the
assets of the Company (an "Acquisition
Transaction") unless, following such Acquisition
Transaction, all or substantially all of the
individuals and entities who were the beneficial
owners of the outstanding voting securities of the
Company immediately prior to such Acquisition
Transaction beneficially own, directly or
indirectly, more than 50"% of the then outstanding
voting securities of the corporation resulting
from such Acquisition Transaction (including,
without limitation, a corporation which as a
result of such transaction owns the Company or all
or substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately prior
to such Acquisition Transaction of the outstanding
voting securities of the Company; or
(d) Approval by the stockholders of the
Company of a liquidation or dissolution of the
Company.
(e) For purposes of this definition, (i) the
terms "beneficial owner" and "beneficial
ownership" shall have the meanings set forth in
Rules 13d-3 and 13d-5 of the General Rules and
Regulations promulgated under the Exchange Act,
(ii) the term "voting securities" shall mean the
voting securities of a corporation entitled to
vote generally in the election of directors and
the term "affiliate" shall have the meaning set
forth in Rule 12b-2 of the General Rules and
Regulations promulgated under the 1~.xchange Act.
"CODE" means the Internal Revenue Code of
1986, as amended.
13
<PAGE>
"DISABILITY" means that (a) a person has been
incapacitated by bodily injury or physical or
mental disease so as to be prevented thereby from
performance of his or her duties with the Company
for 120 days in any 12-month period, and (b) such
person is disabled for purposes of any and all of
the plans or programs of the Company or any
Subsidiary that employs Executive under which
benefits, compensation or awards are contingent
upon a finding of disability. The determination
with respect to whether Executive is suffering
from such a Disability will be determined by a
mutually acceptable physician or, if there is no
physician mutually acceptable to the Company and
Executive, by a physician selected by the then
Dean of the University of Washington Medical
School.
"EXCHANGE ACT" means the Securities Exchange
Act of 1934, as amended.
"EXCISE TAX" means the excise tax, including
any interest or penalties thereon, imposed on
Executive by Section 4999 of the Code.
"FISCAL YEAR" means the 12-month period
ending on December 3 I in each year I or such
other fiscal year period established by the
Board).
"GOOD REASON" means, without Executive's
express written consent:
(a) (i) the assignment to Executive of
duties, or limitation of Executive's ,
responsibilities inconsistent with
Executive s title, position, duties,
responsibilities and status with the
Company Executive as such duties and
responsibilities existed immediately
prior to the date of the Change in
Control, or (ii) removal of Executive
from, or failure to re-elect Executive
to, Executive's positions with the
Company or any Subsidiary that employs
Executive immediately prior to the
Change in Control, except in connection
with the involuntary termination of
Executive's employment by the Company
14
<PAGE>
for Cause or as a result of Executive's
death or Disability;
(b) failure by the Company to pay, or
reduction by the Company of, Executive's
annual base salary, as reflected in the
Company's payroll records for
Executive's last pay period immediately
prior to the Change in Control;
(c) failure by the Company to pay, or
reduction by the Company of, Executive's
bonus;
( d) the relocation of the principal place of
Executive's employment to a location
that is more than 25 miles further from
Executive's principal residence than
such principal place of employment
immediately prior to the Change in
Control; or
(e) the breach of any material provision of
this Agreement by the Company,
including, without limitation, failure
by the Company to bind any successor to
the Company to the terms and provisions
of this Agreement in accordance with
Section 9(g).
"GROSS-UP PAYMENT" shall have the meaning set
forth in Section 4(b).
"INCUMBENT DIRECTOR" means a member of the
Board who has been either (a) nominated by a
majority of the directors of the Company then in
of ice or (b) appointed by directors so nominated,
but excluding, for this purpose, any such
individual whose initial assumption of office
occurs as a result of either an actual or
threatened election contest (as such terms are
used in Rule 14a-l1 of Regulation 14A promulgated
under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board.
"PARACHUTE PAYMENT" means any payment deemed
to constitute a "parachute payment" as defined in
Section 280G of the Code.
15
<PAGE>
"PERSON" means any individual, entity or
group (as such term is used in Section 13(d)(3 )
or 14(d)(2) of the Exchange Act).
"SUBSIDIARY" means an Person controlled by
the Company directly, or indirectly through one or
more intermediaries.
"TERMINATION" means, following the occurrence
of any Change in Control by the Company, (a) the
involuntary termination of the employment of
Executive for any reason other than death,
Disability or for Cause or (b) the termination of
employment by Executive for Good Reason.
"WELFARE BENEFITS" shall have the meaning set
forth in Section 3(b).
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF
OPERTIONS FOUND ON PAGES 1 AND 2 OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO
DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 13,084
<SECURITIES> 2,668
<RECEIVABLES> 1,996
<ALLOWANCES> (175)
<INVENTORY> 350
<CURRENT-ASSETS> 33,828
<PP&E> 132,020
<DEPRECIATION> (5,518)
<TOTAL-ASSETS> 198,886
<CURRENT-LIABILITIES> 22,686
<BONDS> 142,269
0
0
<COMMON> 1
<OTHER-SE> 19,644
<TOTAL-LIABILITY-AND-EQUITY> 198,886
<SALES> 0
<TOTAL-REVENUES> 53,443
<CGS> 0
<TOTAL-COSTS> 58,650
<OTHER-EXPENSES> 330
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,047
<INCOME-PRETAX> (7,420)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,420)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,420)
<EPS-PRIMARY> (0.67)
<EPS-DILUTED> (0.67)
</TABLE>
